Anticipated acquisition by Co-operative Group Limited (CGL) of Lothian Borders and Angus Co-operative Society Limited (LBA)

Affected market: Grocery retailing, pharmacy, funeral services and petrol forecourts

No. ME/3933/08

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, assessment, undertakings in lieu of a reference and decision.

The OFT's decision on reference under section 22(1) given on 6 March 2009. Full text of the decision published on 18 March 2009.

Please note that square brackets indicate figures or text which have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.

PARTIES

Co-operative Group Limited (CGL) is the UK's largest co-operative society with some 4.5 million members. It is active in a diverse range of activities including food retail, pharmacy, banking, travel agency, optical services, funeral services, and petrol forecourts. This case involves CGL's food retailing, pharmacy services, funeral services, petrol forecourt and home store businesses.

Lothian Borders & Angus Co-operative Society Limited (LBA) is a regional co-operative society, based in Scotland. LBA comprises 65,000 members and is active in diverse sectors including food retail, pharmacy services, funeral services and petrol forecourts. LBA also has one store selling carpets and furniture. LBA's UK turnover for the year ending 26 January 2008 was £122.7 million.

TRANSACTION

Both CGL and LBA are corporate bodies registered under the Industrial and Provident Societies Act 1965. In December 2008, LBA transferred its engagements to CGL under section 51(1) of the Industrial and Provident Societies Act 1965. The transaction was completed upon registration by the Financial Services Authority, which occurred on 14 December 2008.

Following the Monopolies and Mergers Commission (MMC) investigation into the Co-operative Wholesale Society's (CWS) acquisition  of the funeral undertaking business of House of Fraser, the Secretary of State for Trade and Industry accepted undertakings from CWS on 27 November 1987 to notify the Office of Fair Trading (OFT) of any future proposed acquisitions of funeral undertaking businesses in Scotland. CGL has complied with its obligations under the 1987 undertakings (which are still in place) in respect of this transaction.

The parties notified the transaction to the OFT on 11 December 2008 and the transaction completed on 14 December 2008. The extended administrative and statutory deadlines for the OFT to decide whether to refer the merger to the Competition Commission (CC) expire on 6 March and 9 May 2009 respectively.

JURISDICTION

As a result of this transaction CGL and LBA have ceased to be distinct. The UK turnover of LBA exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

ASSESSMENT

The parties overlap in the supply of grocery retailing, pharmacy services, funeral services and petrol forecourts in Scotland. The parties also overlap in the home store market. The OFT believes that no competition concerns arise in respect of home stores, funeral services and petrol forecourts.

In relation to grocery retailing, the OFT has not found any realistic prospect of a substantial lessening of competition at the national level. However, the OFT considers that as a result of the merger, there is a realistic prospect of a substantial lessening of competition arising in twelve local areas.

In relation to pharmacy services, the OFT identified one local area (Port Seton/Prestonpans) giving rise to realistic prospect of a substantial lessening of competition.

Consequently, the OFT believes that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

UNDERTAKINGS IN LIEU OF A REFERENCE

Where the duty to make a reference under section 22(1) of the Act applies, pursuant to section 73(2) of the Act the OFT may, instead of making such 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 undertakings as it considers appropriate.

The OFT has therefore considered whether there might be undertakings in lieu of reference which would address the competition concerns outlined above. The OFT's Mergers Substantive Assessment Guidance states that, 'undertakings in lieu of reference are appropriate only where the competition concerns raised by the merger and the remedies proposed to address them are clear cut, and those remedies are capable of ready implementation.'  

The parties indicated that in order to remedy any competition concerns identified by the OFT, and to avoid a reference to the CC, they would be prepared to offer undertakings in lieu. The parties therefore offered a divestment package covering each of the grocery and pharmacy sectors. The extent to which these packages are considered by the OFT to be capable of addressing the competition concerns identified above in a clear cut manner, in accordance with the scheme of the Act as well as the OFT's Guidance and decisional practice, is addressed in turn below.

DECISION

The OFT has therefore decided to refer the completed acquisition by CGL of LBA to the Competition Commission pursuant to section 22 of the Act. However the OFT's duty to refer is suspended because the OFT is considering whether to accept undertakings in lieu of reference from CGL pursuant to section 73 of the Act.

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