ICN Merger Workshop, 10-11 March, 2009

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4
5
Index of Materials in Supplement
No.
1
Hypo Case Documents
Fantasy Remedy Proposal
2 Fantasy Remedy Presentation
Memo Summarizing Pangea Meeting with Staff
Memo Summarizing Star Beverages Meeting with Staff
Memo Summarizing Super C Meeting with Staff
Page
1
4
8
10
12
ICN Merger Workshop, 10-11 March, 2009

Fantasy Remedy Proposal 1
Mr Eduardo Elgar
General Counsel
E.Elgar@Fantasy.com
15 th March 2009
Highly Confidential
National Competition Authority
Veritas Boulevard
Prudence
Dear Simon,
Re: Just Energy
As discussed at our meeting of 12 th March, Fantasy Beverage Group considers that the agency’s analysis is fundamentally flawed in its proposed adverse finding regarding Just Energy’s merger with Fantasy. We have responded in detail to the concerns you expressed. We have provided abundant factual evidence to demonstrate that energy drinks compete in a broad market of functional beverages and that the threat of entry into the energy segment will create a substantial competitive constraint on the merged entity.
Without prejudice to the above views however, we have developed a proposal, in the interests of rapidly concluding the transaction, which remedies the agency’s concerns effectively and comprehensively.
We propose to divest substantially all of our Emerge business to an independent purchaser. The divestiture will include licensing of key intellectual property rights to the purchaser including the current Emerge recipe. More detail regarding the proposed divestiture is shown on the attached appendix.
The proposed divestiture will self evidently restore the pre-merger market structure. Although the divestiture will involve some sacrifice of merger economies, we believe that the merger of Fantasy and Just Energy will still realise three-quarters of the economies we previously anticipated.
ICN Merger Workshop, 10-11 March, 2009

Fantasy Remedy Proposal
2
Highly Confidential
We have had fruitful exploratory discussions with StarBev as the prospective purchaser of the divestiture package. As you are aware, StarBev is highly regarded in the industry for the quality of its products. StarBev is confident that it will have access to sufficient financial resources to facilitate purchase and development of the business. A divestiture to StarBev should not give rise to any adverse concentration issues. We, of course, wish to secure an acceptable level of proceeds from the sale and this we believe we will achieve whilst allowing a competitor to develop so that the concerns of the agency are fully allayed.
We have put forward this proposal in the interests of being able to proceed expeditiously with the proposed merger. We consider that in view of the degree of interest in entering the energy drink segment, it would be both unnecessary and disproportionate to delay completion of the merger until the divestiture is agreed.
We are eager to present this proposal to the agency in person and discuss the implications in detail.
Yours sincerely,
Mr Eduardo Elgar
General Counsel
ICN Merger Workshop, 10-11 March, 2009

Fantasy Remedy Proposal
3
Highly Confidential
Fantasy Divestiture Proposal
Divestiture
Package
Interim Capacity
Agreement
Interim Transport
Agreement
Basis of
Consideration
All assets solely or predominantly employed in the
Emerge business including production plants, raw materials, final products and dedicated distribution vehicles.
Assignment of Emerge retail and wholesale contracts.
Licensing of patents, trademarks and production formulae for sales related annual fee.
Continuing access to production plants used jointly for production of Emerge and other beverages for a period of 18 months at current programme levels.
Renewable on mutually agreeable terms.
Distribution of Emerge products to current retail and wholesale clients at agreed marginal rates for a period of 18 months.
Renewable on mutually agreeable terms.
Up front payment of X million.
Sales related fee of 5% of sales achieved in the first 24 months.
ICN Merger Workshop, 10-11 March, 2009

Fantasy Remedy Presentation 4
th
1
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2
Fantasy Dairy Group
ICN Merger Workshop, 10-11 March, 2009

Fantasy Remedy Presentation
5
 Market should include all milk alternatives on any reasonable market definition.
 Ease of entry
 Competitors can easily expand
 Strong countervailing buyer power
 Significant efficiencies
3
Fantasy Dairy Group
3
:-
 All significant assets used in FantaSoy supply including relevant trademarks and other IP rights
 Assignment of retail and wholesale contracts
 All necessary interim support for transport and production
 Considerable interest from a very suitable purchaser
 We are prepared to contemplate sales based consideration to facilitate divestiture.
4
Fantasy Dairy Group
ICN Merger Workshop, 10-11 March, 2009

Fantasy Remedy Presentation
6
 Restores pre merger structure – in fact a stronger number 2
Structure of national energy drink ‘market’
Thrive in Fantasy 66% (no change)
Emerge/Star
Pure’s Bom Dia
19% (up from 15%)
8% (no change)
Meta
Tilt/Ever
Others
2% (no change)
1%
4%
 Enables StarBev to overcome production constraints
 Preserves majority of merger efficiencies
5
Fantasy Group
 Strong reputation for the quality of its products and Soy product expertise.
 Sound financials –deal structure will not stretch StarSoy’s financial capacity.
 Lack of production capacity has been main constraint on
StarSoy – proposal pro competitive –StarSoy can now take its place as a main competitor
 Intense discussions have established feasibility – StarSoy eager to proceed
6
Fantasy Dairy Group
ICN Merger Workshop, 10-11 March, 2009

Fantasy Remedy Presentation
 Already in substantive agreement with StarBev regarding substance of divestiture – negotiation of detail now progressing.
 We have also received strong expressions of interest from other operators
 We have made the proposal to progress the merger without delay.
 Agency approval sought to proposal – disproportionate to require up front buyer given low risks.
7
Fantasy Group
7
ICN Merger Workshop, 10-11 March, 2009

Memo summarizing staff meeting with Pangea 8
The Competition Authority
INTERNAL MEMO
To:
From:
Fantasy /Just Energy Merger File – Remedies
Evidence
Merger Branch, Retail and Wholesale Unit
Subject: note of meeting with Pangea Co
Date: 27 Mar 09
Introduction: Staff met in person with Fred Delius (FD), VP for Pangea’s beverage category development, and Albert Omnia (AO), Pangea’s general counsel. Pangea had requested this meeting to discuss Fantasy’s remedy proposal. Pangea is a very large supplier of food, beverage and health products and has a network of operations spread over four continents. Pangea’s supplies many leading brands to convenience and grocery chains.
Views on entry
FD noted that Pangea continually seeks to develop its product offering to anticipate changes in consumer requirements. Following recent trends favouring products with perceived health or lifestyle benefits, Pangea has been actively exploring entry into energy drinks for the past 18 months.
Pangea had initially felt that entry into the energy drink market would be relatively straightforward, however, it appeared that successful entry faced a number of obstacles including:
1.
Difficulty of access to production technology.
2.
Developing a recipe with an attractive taste and strong brand image.
3.
Constraints on shelf space within retail chain stores.
Pangea had considered several means of entry including a bid for Just Energy but
Pangea could not financially justify a bid at the level offered by Fantasy.
Views on remedy proposal
FD considered that the combination of Just Energy’s brand strength with Fantasy’s strong supply chain and market position in beverages would be very powerful. Other competitors would need to differentiate their products to survive and prosper. For example, new flavours, ingredients and distinctive packaging.
Fantasy’s offer to divest Emerge was viewed with some scepticism by FD as Emerge was not a compelling brand, was overpriced and could not command a premium
ICN Merger Workshop, 10-11 March, 2009

Memo summarizing staff meeting with Pangea
9 position to Just Energy. There must be some likelihood that Emerge would decline as a brand unless it was supported and developed by a strong acquirer.
AO noted that rumour was rife in the industry that Fantasy was seeking to sell Emerge to Star 1 . In AO’s opinion this would be a disastrous combination as Star Bev did not have the retail beverage industry links, distribution strength or financial capability to support the Emerge brand.
FD revealed that Pangea had approached Star with a view to acquiring Star or at least entering into a strategic production agreement. This had a strong strategic logic as
Star’s product was first rate but it had capacity constraints and limited relationships with the retail sector - weaknesses which would be addressed by Pangea.
Unfortunately, Star wished to remain independent although it had received approaches from Pangea with greater warmth in recent months.
1 Note that the prospective purchaser and the extent of the divestiture package were redacted from the published proposal
ICN Merger Workshop, 10-11 March, 2009

Memo summarizing staff meeting with Star Bev 10
The Competition Authority
INTERNAL MEMO
To:
From:
Fantasy /Just Energy Merger File – Remedies
Evidence
Merger Branch, Retail and Wholesale Unit
Date: 11 Mar 09
Subject: Interview with Star Beverages regarding potential divesture
Introduction: Agency staff met with Star Beverages to understand the status of discussions with Fantasy and Star’s view of how the Emerge divestiture would work.
Staff again interviewed Mark Wu (MU) President of Star and Thomas Basso (TB) VP of sales.
Discussions with Fantasy
MU noted that Fantasy had put forward a proposal to Star. MU emphasised that discussions were at a preliminary stage and the composition of the divestiture package still had to be resolved.
MU considered that the strategic rationale to acquire Emerge is compelling since Star had not overcome production constraints and Star’s distribution infrastructure was not well configured for supplying the retail sector.
Acquiring Emerge could help resolve these issues and also enable Star to achieve critical mass in a sector that was likely to become increasingly dominated by large players.
Agency staff inquired whether Star would have adequate funding to acquire Emerge and develop the brand. MU replied that Fantasy was willing for the majority of the purchase price to be deferred and calculated on the basis of sales achieved in the next two years. The exact parameters of the purchase price had yet to be determined but
Star felt Fantasy was likely to be reasonable in its demands. MU felt that availability of finance for both the purchase and future development was unlikely to be problematic.
TB acknowledged that Star did not have much experience of mergers but considered that most of the divestiture package was not problematic. However, some issues were yet to be finalised:
certain assets were used jointly for different beverages (e.g. production buildings, packaging plants and loading docks.) and Star’s rights of access and usage needed to be agreed in detail;
ICN Merger Workshop, 10-11 March, 2009

Memo summarizing staff meeting with Star Bev 11
intellectual property needed for ongoing production of Emerge was not fully specified, but MU was not particularly concerned as they planned to replace the
Emerge formulation with Star’s own formulation over a transitional period.
Star’s relationship with Pangea
MU reported that Pangea had indicated that it would like to acquire Star Beverages but this had been instantly rejected as Star wished to remain independent. Pangea is a large global conglomerate that moves slowly and rigorously whereas Star is a small informal enterprise that has a great passion for its products. Star did not discount linking with Pangea to overcome production constraints.
ICN Merger Workshop, 10-11 March, 2009

Memo summarizing staff meeting with SuperC 12
To:
The Competition Authority
INTERNAL MEMO
Fantasy /Just Energy Merger File Date:11 Mar 09
From: Merger Branch, Retail and Wholesale Unit
Subject: Interview with SuperConvenience regarding potential divestiture
Introduction: Agency staff had requested a meeting with Super Convenience to obtain relevant views concerning Fantasy’s proposed divestiture of Emerge. “SuperC” is a large, national convenience store chain. Staff interviewed Melissa Hooper (MH),
SuperC’s Category Development Manager for Corporate Brands.
Recap on SuperC’s arrangements with the relevant parties
MH noted that SuperC typically stocks four brands of energy drinks. It was generally difficult to justify including more brands given constraints on refrigerated case capacity.
Thrive and Emerge are national brands and are used throughout SuperC’s network.
Emerge benefits from its association with other Fantasy beverage brands, (e.g., delivery flexibility, promotional deals that apply across Fantasy’s product range).
Star’s Astro brand is treated as a regional brand and is stocked in some stores. Star’s product quality is high but its costs are not competitive with main line products and it can only handle weekly deliveries at present. Longer term, Astro’s place is under threat from private labels, such as Bom Dia, more orientated to the mass retail sector.
SuperC’s views of the divestiture proposal
SuperC was surprised by Fantasy’s proposal to divest Emerge. In particular, SuperC was puzzled to learn Star was the proposed purchaser. Emerge’s major strength in
SuperC’s opinion was its linkage to Fantasy’s bottled water offerings and logistics. If this was true, divestiture of this linkage would be broken and it was hard to see how
Emerge would prosper. If Star continued to use Emerge’s logistics and joint production facilities it was equally hard to see that Star would then be a truly independent competitor. MH felt that Star management were basically energy drink enthusiasts and lacked the management expertise to be serious mainstream suppliers to the mass retail sector. There were similarities with MetaBev, which SuperC had phased out. MH also considered that a purchase of Emerge would leave Star seriously stretched financially and this would impact the competitiveness of the Emerge brand.
ICN Merger Workshop, 10-11 March, 2009