Minnesota-based Ecolab has been ordered to sell off one of its most recent acquisitions after intervention from the UK’s most senior competition body.
The UK’s Competition and Markets Authority has ordered Ecolab to divest Holchem to prevent potential price rises or a lower quality of service as a result of their merger.
The decision follows an in-depth Phase 2 investigation which concluded that the merged organization is likely to face limited competition from other suppliers.
Ecolab and Holchem, who completed their merger in November 2018, are two of the largest suppliers of cleaning chemicals to the foodservice sector.
The merger will create a new organization which is much larger than any of its remaining competitors and would leave only three players of any significant size competing in the UK market.
Food and drink manufacturers place a high value on their cleaning chemical supplier’s reputation and experience in keeping food and drink safe and free from contamination. This merger reduces the choice available to these customers, the CMA said.
It is concerned that this could mean food and drink manufacturers face higher prices or a lower quality of service for cleaning chemicals.
While the group of independent CMA panel members considered alternative ways of addressing its concerns about the merger, it has concluded that the only effective way of addressing the significant loss of competition is to effectively block the merger.
Now, Ecolab must sell off Holchem to a new owner, which must be approved by the CMA.
Kirstin Baker, the inquiry chair said: “We have carried out a thorough investigation analysing a large amount of data from the companies as well as evidence collected from both customers and competitors.
“We concluded that these two companies compete closely and this deal could have very serious effects – prices could go up or quality standards in crucial support services could get worse.
Having carefully considered how these issues could be resolved, we decided that only blocking the merger and requiring Ecolab to sell Holchem would address our concerns.
Ecolab issued a statement saying that it “strongly disagrees” with the CMA’s decision and continues to believe that a merger of the two companies would result in the increased availability of innovation, better customer service and stronger expertise across the food and beverage industry, leading to better outcomes for consumers.
Douglas Baker, Jr., chairman and CEO OF Ecolab, said: “We strongly believe that the UK market would remain highly competitive following the merger and are disappointed with the CMA’s findings.
“We are reviewing the full report provided by the CMA in detail and will carefully consider our options and next steps.
“We will continue to do what is right for our customers and associates, and to expand our ability to bring the latest technologies and the highest food safety standards to the food and beverage industry.”
Ecolab announced the acquisition of Holchem Group Limited, a UK-based supplier of hygiene and cleaning products and services for the food and beverage, foodservice and hospitality industries on December 5, 2018.
Holchem operates in the UK and Ireland, with sales that were approximately £43 million ($56 million) at the time of the announcement.