OFT Gives Approval for Grocery Chain Takeover
The UK's Office of Fair Trading gave the Co-operative Group, one of the world's largest consumer-owned businesses, permission to acquire the Somerfield chain of 900 supermarkets and convenience stores.
In its analysis of the acquisition, the OFT undertook one of the largest consumer surveys in merger history. It surveyed 40,000 UK consumers about their grocery shopping preferences in areas where the Co-operative and Somerfield are present. After analyzing the extensive evidence, the OFT found that the merger would not give rise to competition concerns at a national level.
In its approval of the1.6 billion takeover, the OFT stipulated that the Co-operative will be expected to sell at least 126 stores in local areas in which the OFT found competition concerns to exist. In those areas, the Co-operative and Somerfield compete closely against each other. Under the proposed acquisition, the Co-operative would replace a Somerfield supermarket with a Co-operative store in an area in which one of the few other competing stores is a regional co-operative, which is linked to the Co-operative through membership in the same buying group.
The OFT is satisfied the Co-operative will be able to find buyers for most of the stores, but in the event there are no buyers for some stores, the parties agreed to find buyers up-front for the OFT to approve before agreeing to a final deal. The OFT will consult publicly on the suitability of proposed buyers for the stores, as well as on other aspects of the proposed divestment.
The sale of the 126 stores is expected to be the largest every in UK merger and competition history. However, the OFT is not concerned that the divestment of those stores will create any new competition concerns at the national level, since the divestment package represents only a small percentage of total grocery stores in the UK, and it will be divided among multiple buyers.
After the acquisition, the Co-operative will be the UK's fifth largest grocery retailer, behind Tesco, Asda, Sainsbury's, and Morrisons, with an eight percent share of the market and sales of around8 billion annually. The OFT noted that after the acquisition, the Co-operative will be stronger against the big four grocery chains, which will result in increased competition and would not result in coordination between the grocery retailers.
In a statement, the Co-operative said it "welcomes this afternoon's announcement by the Office of Fair Trading which, subject to us addressing a small number of local competition issues, clears the way for the creation of a stronger fifth player in the grocery market. This is good news for consumers and good for competition."
In its analysis of the acquisition, the OFT undertook one of the largest consumer surveys in merger history. It surveyed 40,000 UK consumers about their grocery shopping preferences in areas where the Co-operative and Somerfield are present. After analyzing the extensive evidence, the OFT found that the merger would not give rise to competition concerns at a national level.
In its approval of the1.6 billion takeover, the OFT stipulated that the Co-operative will be expected to sell at least 126 stores in local areas in which the OFT found competition concerns to exist. In those areas, the Co-operative and Somerfield compete closely against each other. Under the proposed acquisition, the Co-operative would replace a Somerfield supermarket with a Co-operative store in an area in which one of the few other competing stores is a regional co-operative, which is linked to the Co-operative through membership in the same buying group.
The OFT is satisfied the Co-operative will be able to find buyers for most of the stores, but in the event there are no buyers for some stores, the parties agreed to find buyers up-front for the OFT to approve before agreeing to a final deal. The OFT will consult publicly on the suitability of proposed buyers for the stores, as well as on other aspects of the proposed divestment.
The sale of the 126 stores is expected to be the largest every in UK merger and competition history. However, the OFT is not concerned that the divestment of those stores will create any new competition concerns at the national level, since the divestment package represents only a small percentage of total grocery stores in the UK, and it will be divided among multiple buyers.
After the acquisition, the Co-operative will be the UK's fifth largest grocery retailer, behind Tesco, Asda, Sainsbury's, and Morrisons, with an eight percent share of the market and sales of around8 billion annually. The OFT noted that after the acquisition, the Co-operative will be stronger against the big four grocery chains, which will result in increased competition and would not result in coordination between the grocery retailers.
In a statement, the Co-operative said it "welcomes this afternoon's announcement by the Office of Fair Trading which, subject to us addressing a small number of local competition issues, clears the way for the creation of a stronger fifth player in the grocery market. This is good news for consumers and good for competition."
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