7th Aug 2008 15:02
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94/08 |
7 August 2008 |
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OFT ACCEPTS UNDERTAKINGS IN HOMEBASE'S ACQUISITION OF DIY STORES FROM FOCUS |
The OFT has today accepted the undertakings offered by Home Retail Group plc (HRG), owner of the Homebase DIY chain, to address the competition concerns arising from the completed acquisition of 27 stores from Focus (DIY) Ltd (Focus).
These undertakings are designed to restore pre-merger competition to the benefit of DIY store shoppers in the Woking area, and as a result, this transaction will not be referred to the Competition Commission.
The OFT took the initiative to investigate the acquisition because it featured twelve local DIY store overlaps that might raise competition concerns. The OFT's ultimate decision found that the merger gave rise to a realistic prospect of a substantial lessening of DIY store competition in the Woking area.
HRG proposed to sell either its own or the acquired store in Woking to an up-front buyer in order to avoid a reference to the Competition Commission, and the OFT suspended its duty to refer on this basis. HRG subsequently proposed to sell the former Focus store - which is currently closed - back to Focus, which proposes to operate a DIY store approximately two thirds the size of the original store, while the remaining floorspace would be used for HRG's Argos brand.
The OFT carefully assessed and consulted publicly on this solution and in particular on whether the implementation of Focus' plans would restore DIY competition in Woking.
In applying this principle, the OFT does not consider it appropriate to insist on precisely the same position as pre-merger in every last detail. Rather, what is important to the OFT is that, going forward, the purchaser can compete with HRG as effectively as if the merger had never taken place.
Based on the evidence received, the OFT was satisfied that this would be the case.
Simon Pritchard, OFT Senior Director of Mergers, said:
'This case demonstrates that while companies in the UK are perfectly entitled to take the risks of completing mergers that could raise competition issues, the OFT will proactively intervene to protect consumers in local retail markets where appropriate. In this case, Woking consumers will benefit from the unwinding of the completed deal to restore DIY store competition in that area.'
NOTES
In St. Albans, the merger gave rise to the potential for a substantial lessening of competition. However, in this case the OFT received compelling evidence that, absent the merger, the acquired Focus store would have closed given the lack of any other realistic potential purchaser. As a result, the OFT accepted the so-called 'failing firm' defence and concluded that the merger did not give rise to a realistic prospect of a substantial lessening of competition in this location.
2. The Reference Test - the OFT has a duty to make a reference to the Competition Commission if
the OFT believes that it is or may be the case that a relevant merger situation has been created; and
the creation of that situation has resulted, or may be expected to result, in a substantial lessening of
competition within any market or markets in the United Kingdom for goods or services.
3. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises
have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the
enterprise being taken over exceeds £70 million, or as a result of the transaction, in relation to the
supply of goods or services of any description, a 25 per cent share of supply in the UK (or a
substantial part thereof) is created or enhanced.
4. Under section 73 of the Enterprise Act 2002 the OFT may, instead of making a reference, and for
the purpose of remedying, mitigating or preventing the substantial lessening of competition
concerned, or any adverse effect which has or may have resulted from it or may be expected to
result from it, accept from such of the parties concerned as it considers appropriate undertakings to
take such action as it considers appropriate. In doing so, the OFT will have regard to the need to
achieve as comprehensive a solution as is reasonable and practicable to the substantial lessening of
competition and any adverse effects resulting from it.
5. HRG offered to divest stores other than the Woking store to avoid a reference. The OFT did not
consider these offers, because the OFT did not have competition concerns in relation to the other
local areas.
6. Upfront buyer- as stated in paragraph 135 of the OFT decision of 15 April 2008, the OFT
considered that, in the circumstances of this case - in particular given the prima facie limited number
of suitable potential purchasers, a necessary requirement to suspend the duty to refer and consider
undertakings in lieu is that divestiture of one of the above stores should be to a suitable purchaser, in
principle, approved by the OFT before the OFT consulted on the undertakings prior to acceptance.
This meant that the OFT consulted publicly on the suitability of Focus as the proposed purchaser,
as well as on the text of the draft undertakings, during the public consultation period. See further PN
50/08 dated 15 April 2008 which relates to the OFT's decision to consider undertakings.
7. Before accepting any such undertakings the OFT shall give notice of the proposed undertakings
under Schedule 10 of the Enterprise Act 2002, and consider any representations made in
accordance with that notice.
8. The full text of this decision will appear in the mergers section at a later date.
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