NEW YORK (The Deal) -- The Latvian and Danish coffee markets may be small, but they are important in the European Commission's conditional approval of a coffee joint venture between U.S. snacks giant Mondelez International (MDLZ - Get Report) and its Dutch partner, D.E. Master Blenders.
The European Union executive's Competition Directorate on Tuesday said its approval for the creation of Jacobs Douwe Egberts was subject to the disposal of Mondelez' Carte Noire coffee business and D.E. Master's Merrild business across the entire European Economic Area,, which includes the EU member states, plus Iceland, Liechtenstein and Norway The new venture would also have to license its Senseo brand in Austria.
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"The Commission had concerns that the transaction, as initially notified, would have led to price increases in roast and ground coffee products in France, Denmark and Latvia, as well as in filter pads in Austria and France," the Brussels-based European Commission said in a statement.
And it quoted Competition Commissioner Margrethe Vestager, a former Danish deputy prime minister, to add flavor to the ruling.
"Many of us drink coffee and appreciate having a choice," she said. "Today's decision will ensure that consumers can continue to enjoy a variety of coffee brands and types at competitive prices."
The ruling opens the way for rival branded coffee sellers, such as Italy's Luigi Lavazza SpA, to bid for one or other of the businesses. Reuters reported earlier this year that Lavazza had the right of first refusal on Carte Noire, if the proposed disposal was agreed by Brussels.
The commission said that, without the disposals, the joint venture would bring together consumer brands that compete closely, including L'Or and Carte Noire in France, Merrild and Gevalia in Denmark, Merrild and Jacobs in Latvia, and Senseo and Jacobs in Austria.
"The remaining companies on the market would not have been able to exert sufficient competitive pressure on the joint venture to avoid price rises for coffee," it concluded.
It argued that the purchasers of the Merrild and Carte Noire businesses, which would also have the opportunity to acquire Mondelez' Lavérune manufacturing plant in France, would be in a position to compete against the joint venture's remaining brands.
In a somewhat more complicated ruling on the Austrian market, the commission said that the joint venture should initially license the Senseo brand for five years, giving the licensee time to acquire the brand's market share and gradually rebrand it completely. During a second five-year period, neither the joint venture nor the licensee would be allowed to use the Senseo brand in Austria.
The Brussels executive admitted that it had changed its mind about competition in the separate market for single-serve coffee machines during the course of its investigations. When it first began the probe in December, the commission had originally worried that the joint venture might lead to higher prices and stifle innovation by bringing together D.E. Master Blenders' Senseo and Mondelez's Tassimo systems. It later concluded that the competition with their Swiss rival Nestle's (NSRGY) Dolce Gusto and Nespresso systems would be sufficiently fierce to keep prices down.
D.E. Master Blenders and Mondelez announced their joint-venture deal almost exactly a year ago, on May 7, 2014. Under the terms of the agreement, which was part of Deerfield, Ill.-based Mondelez' streamlining of its businesses following its 2012 separation from Kraft Food Group (KRFT), Mondelez would receive €4 billion ($4.5 billion) in cash and 49% of the equity of Jacobs Douwe Egberts. D.E. Master Blenders' owners, Acorn Holdings BV, would hold a majority share in the joint venture, although Mondelez wouldl have certain minority rights.
Acorn is owned by an investor group led by the JAB Holding Co. in partnership with Byron Trott's Chicago-based investment bank BDT Capital Partners, Quadrant Capital Advisors and Société Familiale d'Investissements.