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Canadian competition authority approves hog producer purchases

By Carina Perkins , 02-Jan-2013

Competition chiefs have approved the acquisition of Western Canada’s two largest hog producers by major pork processing companies.

The Competition Bureau announced last month it would not oppose the acquisitions of Big Sky Farms by Olymel and the Puratone Corporation by Maple Leaf Foods.

The Bureau said it conducted separate investigations into the two vertical mergers, considering whether they would enable the processors to reduce competition on the pork market by hindering rivals’ access to live hogs in upstream markets (input foreclosure) or limit or cease their purchases of live hogs from upstream rivals (customer foreclosure).

It concluded that while the vertical mergers would give Olymel and Maple Leaf the ability to foreclose rivals’ access to live hogs, there was unlikely to be a “substantial” lessening of competition, pointing out that Maple Leaf and Olymel would continue to provide competition with each other. It also determined the acquisitions would be unlikely to encourage the two processors to buy fewer hogs from usptream rivals, because the costs associated with this strategy would make it unprofitable.

“The Bureau therefore concluded that it was unlikely that either transaction would result in a substantial lessening or prevention of competition through customer foreclosure,” said a statement.

Olymel entered into an agreement to acquire Big Sky Farms – Western Canada’s largest pork producer – on 16 October 2012  for $62.25m, shortly after the producer went into receivership with almost $69m in debt. Maple Leaf Foods announced the acquisition of the Puratone Corporation – the second-largest pork producer in Western Canada – on 1 November 2012. Puratone was also in serious financial trouble, and had filed for protection under the Companies’ Creditors Arrangement Act.

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