15th Apr 2008 15:00
Office of Fair Trading15 April 2008 50/08 15 April 2008 OFT SEEKS DIVESTMENT IN HOMEBASE'S ACQUISITION OF DIY STORES FROM FOCUS The OFT is considering undertakings in the acquisition by Home Retail Group plc(HRG), owner of the Homebase DIY chain, of 27 stores from Focus (DIY) Ltd(Focus), instead of referring this completed deal to the Competition Commission(CC). However, if satisfactory undertakings are not given, the merger will bereferred to the CC. Aside from its specific findings in relation to the merger and competition inthe DIY sector, this case is of broader relevance for a number of reasons.First, it is already the second undertakings case this year for a completedmerger that was not notified and the OFT investigated on its own initiative.This is consistent with the OFT's objective of keeping non-notified mergeractivity under review and targeting those cases likely to pose harm tocompetition and consumers. Second, in order to provide maximum transparency on the OFT's approach in retailsector mergers, this decision sets out in detail the OFT's general thinking onthese issues, particularly where one national retail chain acquires a smallnumber of stores from another, without causing any competition concerns atnational level. In this case, the OFT had no national concerns but did haveconcerns that local DIY competition could be lost by the merger, even thoughHomebase argued that it sets prices and other aspects of its retail offernationally across the chain. The OFT's principal concern was that the mergerremoved the competitive constraint that Homebase imposed on Focus and this wassufficient for the OFT's duty to refer to the CC. Finally, this is only thesecond case under the Enterprise Act in which the OFT has accepted a 'failingfirm' defence applied at the level of an individual retail store - the firstbeing Tesco's 2007 acquisition of certain Kwik Save stores. Of the 27 acquired stores by Homebase, 12 of them gave rise to competitiveoverlaps. However, the scope of the OFT's concerns and the appropriate remedywere ultimately reduced to one of these overlap areas following thoroughevaluation of evidence supplied by market participants. HRG has offered todivest either the former Focus store or the existing Homebase store to removethe overlap giving rise to these competition concerns. The OFT will require HRGto secure an up-front purchaser before consulting publicly on the terms of theundertakings. This is now the OFT's usual procedure in cases where there arerelatively few potentially suitable purchasers. Simon Pritchard, OFT Senior Director of Mergers said:'We proactively investigated this merger as it created multiple local storeoverlaps between two of the only four national players in a concentrated DIYretail sector. We were ultimately able to narrow our concerns and are satisfiedthat the proposed divestment remedy would, in principle, resolve them. Beyondthat, this case raises important wider issues, including our approach to retailsector mergers, and we invite the UK competition and business community toconsider it when planning deals.' NOTES 1. Own-initiative merger inquiries - while the majority of mergers reviewed by the OFT arise from voluntary notification by the parties, the OFT's own-initiative inquiry programme has led to remedial action by the OFT or CC intwelve cases under the Enterprise Act 2002 regime. In some of these cases, itis always possible that the parties would have voluntarily notified the OFTof their merger at a later date; in other cases, it was clear to the OFT thatthis would not have been the case. As of March 2008, the OFT has a dedicatedMergers Intelligence Officer responsible for monitoring non-notified mergeractivity and liaising with other competition authorities. That person can becontacted confidentially at [email protected] if anyinterested party wishes to make the OFT aware of a merger that it considersmight potentially be anti-competitive. 2. Undertakings in lieu - under section 73 of the Enterprise Act 2002 the OFTmay, instead of making a reference, and for the purpose of remedying, mitigatingor preventing the substantial lessening of competition concerned, or any adverseeffect which has or may have resulted from it or may be expected to result fromit, accept from such of the parties concerned as it considers appropriateundertakings to take such action as it considers appropriate. In doing so, theOFT will have regard to the need to achieve as comprehensive a solution as isreasonable and practicable to the substantial lessening of competition and anyadverse effects resulting from it. OFT guidance specifies that undertakingsshould be clear-cut, which means they must be effective and proportionate, andcapable of ready implementation. Before accepting any such undertakings, underSchedule 10 of the Enterprise Act 2002 the OFT shall give notice of the proposedundertakings and will consider any representations made in accordance with thatnotice. 3. Undertakings in lieu cases - the OFT's undertakings in lieu cases includeamong others, divestitures of supermarkets (Co-operative Group Ltd/UnitedCo-op), pharmacies (Boots/Alliance Unichem, Lloyds/IPCC), cinemas (Terra Firma/Odeon/UCI, Blackstone/UGC), betting shops (William Hill/Stanley, Ladbrokes/JackBrown), car dealerships (Pendragon/Reg Vardy, Inchcape/EMH) and funeral homes(Co-operative Group Ltd/Fairways). 4. The reference test - the OFT has a duty to make a reference to the CC if theOFT believes that it is or may be the case that a relevant merger situation hasbeen created; and the creation of that situation has resulted, or may beexpected to result, in a substantial lessening of competition within any marketor markets in the United Kingdom for goods or services. 5. Merger jurisdiction - under the Enterprise Act 2002, a relevant mergersituation is created if two or more enterprises have ceased to be distinctenterprises; and the value of the turnover in the United Kingdom of theenterprise being taken over exceeds £70 million; or as a result of thetransaction, in relation to the supply of goods or services of any description,a 25% share of supply in the UK (or a substantial part thereof) is created orenhanced. 6. The first failing firm case in relation to individual stores was the OFT'sdecision of 11 December 2007 on the anticipated acquisition by Tesco StoresLimited of five Kwik Save stores (Handforth, Coventry, Liverpool,Barrow-in-Furness and Nelson). 7. For details on the previous 2008 undertakings case in relation to anon-notified merger, see PN 15/08 -OFT press release of 4 February 2008 on thecompleted acquisition by Dunfermline Press Limited of the Berkshire regionalnewspapers from Trinity Mirror plc. 8. Publication - The text of these decisions will be placed on the Office ofFair Trading's web site at www.oft.gov.uk as soon as is reasonably practicable. MEDIA enquiries: 020 7211+ Corinne Gladstone 8899 Alex Hunter 8900Jonathan Marciano 8898 Nnenna Oleforo 8898Out of hours: mobile: 07774 134814 fax messages: 020 7211 8961Copies of press notices: Ext. 8993http://www.oft.gov.uk PUBLIC enquiries: 0845 7224499 [email protected] reports and consumer information leaflets are available free from:OFT, PO Box 366, Hayes UB3 1XB 0870 6060321 [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Home Reit