Competition Bureau statement regarding Darling International Inc.’s acquisition of the Rothsay Rendering and Biodiesel Business

OTTAWA, October 25, 2013 — This statement summarizes the approach taken by the Competition Bureau in its review of the proposed acquisition by Darling International Inc. of the Rothsay Rendering and Biodiesel Business from Maple Leaf Foods Inc., which Darling and Maple Leaf announced on August 23, 2013.

On October 3, 2013, the Bureau issued a No Action Letter (NAL) to Darling and Maple Leaf indicating that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act in respect of the proposed transaction.Footnote 1

In conducting its review of the proposed transaction, the Bureau obtained information from Darling and Maple Leaf, as well as a large number of market participants, including competitors and customers.

Darling and the Rothsay business of Maple Leaf both collect inedible animal by-products from slaughterhouses, meat processors, butchers, and other sources and process them into animal meals and fats. Darling and Rothsay also collect and process grease — mostly used cooking oil from restaurants. Animal meals and fats are typically used to add protein and other nutrients in animal feed. Pet food is a specialized use for these products that typically requires the use of chicken meal and fats because it is of higher quality and is preferred by consumers for their pets. Tallow (rendered beef fat) and grease are primarily used in biodiesel production, especially in North America, and are also used by oleochemical companies to make soaps, lubricants, and cosmetics.

Darling is the largest non-integrated renderer in the United States. It has 65 processing facilities throughout the U.S., but none in Canada. Rothsay is the largest renderer in Canada. Rothsay has six facilities across Canada: three in Ontario, one in Manitoba, one in Nova Scotia, and a biodiesel and grease facility in Montreal.

The Bureau considered two relevant product markets on the input side of the business: the collection of animal by-products; and the collection of grease. On the output side, three relevant markets were considered: animal meals and fats used in animal feed; animal meals and fats used in pet food; and tallow and grease.

Regarding the geographic scope of the business for the input market, the Bureau considered the geographic market to be southern Ontario and, more specifically, approximately 320-400 kilometres around Rothsay’s rendering plants. The geographic markets for the output products were regional. Given their respective locations, Rothsay’s Ontario facilities and Darling’s Michigan facilities are the parties’ only facilities that could potentially compete with each other. As such, the Bureau focussed its review on Ontario and concluded that Darling was not an effective competitor in any of the relevant markets.

The Bureau also determined that the barriers to entry for a new rendering facility are moderately high because of required regulatory and environmental approvals and declining volumes of animal raising and processing in Ontario.

Background:

In 1991, the precursor to the Commissioner of Competition, the Director of Investigation and Research, filed an application with the Competition Tribunal alleging that a merger involving Rothsay and another rendering facility then owned by Canada Packers, Orenco, was likely to lead to a substantial lessening or prevention of competition. In 1992, following a hearing, the Tribunal determined that the merger was not likely to lead to a substantial lessening or prevention of competition.

The Tribunal found that market shares were high and that barriers to entry were moderately high, but concluded that remaining firms and firms on the border of the geographic market had excess capacity and would likely constrain any exercise of market power in Ontario by a combined Rothsay and Orenco. Darling’s rendering operation in Detroit was considered to be a potential competitor on the border of the market.

The merger occurred over 20 years ago and since that time significant changes have taken place in the market. Specifically, the remaining competitors in Ontario have closed, been acquired by Rothsay, or converted their facilities to a non-competing use. Darling has also closed its Detroit rendering operations.

For the current merger, the Bureau concluded that Darling, at its current location which is distant from customers in Ontario, is not an effective competitor in the collection of animal by-products or grease. Additionally, for the collection of grease, there is at least one effective remaining competitor. The Bureau also concluded that Darling is not a significant competitor to Rothsay for customers in the output markets, however there are other effective remaining competitors.

As a result, the Bureau was able to conclude that the proposed transaction was unlikely to lead to a substantial lessening or prevention of competition in any market.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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