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Mayanot Eden sold 50 percent of its bottled water business to Jafora-Tabory in a deal worth NIS 110 million. Mayanot Eden, which owns the Mei Eden mineral water brand, will receive NIS 90 million in cash plus Jafora-Tabory's 50 percent stake in the Ein Gedi mineral water company in exchange for 50 percent of Mayanot's subsidiary, the Mayanot Eden Marketing company.

The two bottled water firms will then merge their marketing and distribution systems for bottled water.

The other half of the Ein Gedi mineral water firm is owned by the kibbutz of the same name. Jafora-Tabory is 70 percent owned by Israel Cold Storage and Supply, with the other 30 percent held by Clal.

The Ein Gedi kibbutz also received an option to join the deal.

The motivation for the deal is the merger of the two distribution and marketing systems. The two mineral waters will remain separate brands, but both will make use of Jafora-Tabory's vast distribution mechanism, which has 12,000 points of sale. The firm also sells such well-known brands as Tapuzina, RC Cola, Schweppes and Crystal.

Mei Eden had suffered from its very limited distribution and lack of other affiliated brands: Mayanot Eden lost NIS 15 million on sales of NIS 110 million in 2003, with accumulated losses of NIS 50 million over the last three years.

The merger will leave the market with three major players: the new company; the Central Bottling Company (Coca Cola) and Tempo.

Antitrust dilemma

The planned deal between the Mei Eden group and Jafora-Tabory has created a dilemma for the Antitrust Commissioner, Dror Strum.

Mei Eden controls 29 to 30 percent of the bottled water market, while Jafora-Tabory's Ein Gedi brand has another 21 percent. Coca Cola's Neviot also controls 21 percent, while Tempo's San Benedetto brand has only 10 percent of sales.

The combination of the strongest firm in the market with the number two or three seller will create a leader with 50 percent of the total market. This will certainly reduce competition and increase the pressure to raise prices - which have been eroded by 30 percent over the last three years.

On the other hand, the bottled water market is very competitive, and the barriers to entry are low - meaning the investment required to join the market is not extensive.

Since two of the three largest players in the market are public companies, it is easy to see from their profit statements that it was not the best of sectors for making money. Mei Eden lost NIS 15 million in 2003, while Neviot made a NIS 5 million profit in 2003 after losing NIS 3 million the year before.

Strum said: "My position is that the approval of the merger cannot be taken for granted, because we are discussing companies with a significant market share - though I will not necessarily object, due to the high level of competition in the industry."