The CMA has accepted a remedy from Carpenter and Recticel following concerns that the former's merger with the latter could harm manufacturers and lead to a worse deal for shoppers on items like mattresses and kitchen sponges.
US-based Carpenter agreed to buy Belgian firm Recticel’s global engineered foams business in a €656m deal announced in 2021. The firms both supply engineered foam products used to make household goods such as mattresses, upholstery and kitchen sponges from plants located in the UK.
Following an initial Phase 1 investigation, the Competition and Markets Authority (CMA) identified competition concerns in three foam-related markets in the UK (the supply of comfort foam, unconverted technical foam, and converted comfort foam), and referred the deal for an in-depth Phase 2 investigation in July 2022.
At the outset of the Phase 2 investigation, Carpenter and Recticel conceded that the deal raised competition concerns, and asked the CMA to 'fast-track' the case to the assessment of a remedy that could address those concerns. The CMA accepted the businesses’ request and consulted, in September, on the merging business’ proposal to sell the majority of the UK arm of Recticel’s engineered foams business to address the competition concerns raised by the deal.
The CMA’s final report confirms that the deal could reduce competition. This means that, without remedies to restore this loss of competition, the deal could have damaged the competitiveness of UK-based manufacturers that rely on foams to make their products, as well as leading to less choice and a poorer outcome for consumers, states the association.
The CMA has also concluded that, with minor modifications, the remedy proposed by the merging businesses will fully replace the loss of competition arising from the merger. This means Carpenter will now be required to sell the majority of the UK arm of Recticel’s engineered foams business to an independent third party, approved in advance by the CMA, with the capabilities to ensure that the business remains as competitive as it is at present.
Kip Meek, independent CMA panel chair, says: "Having completed a thorough review of the evidence over two months ahead of the statutory deadline, we have confirmed our provisional conclusion that the merger could reduce competition in certain foam markets.
"Requiring Carpenter to sell most of the UK arm of Recticel’s engineered foams business to an independent, CMA-approved buyer will protect UK manufacturers from higher costs – and ultimately means that their customers won’t get a worse deal when buying beds, sofas or everyday items like kitchen sponges. On these terms, the transaction can go ahead."
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