Anticipated acquisition by A.S. Watson (P&C U. K.) Limited of Merchant Retail Group plc

Affected market: Retail sale of health and beauty products

No. ME/1738/05

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, third party views, assessment and decision.

The OFT's decision on reference under section 33 given on 5 July 2005. Full text of decision published 14 July 2005.

PARTIES

A.S Watson (P&C) UK Limited (ASW) is part of the A.S Watson Group, the retailing and manufacturing arm of Hutchison Whampoa Ltd. In the UK, the A.S Watson Group operates over 1000 health and beauty stores under the trade names Savers and Superdrug. The Savers and Superdrug retail outlets offer a range of products including cosmetics, perfumes, toiletries and health products (such as vitamins and pharmaceuticals).
 
Merchant Retail Group PLC (Merchant) operates as a specialist perfumery retailer in the UK under the name, The Perfume Shop (TPS). The UK turnover of Merchant in the year ending 26 March 2004 was £102.8million.

TRANSACTION

ASW proposes to acquire the entire issued and to be issued share capital of Merchant for a consideration of approximately £221.9 million. The transaction was notified to the OFT by means of a merger notice and the statutory deadline for consideration of this notice expires on 7 July 2005.

JURISDICTION

As a result of this transaction ASW and Merchant will cease to be distinct. The UK turnover of Merchant exceeds £70 million, so the turnover test in section 23(1) (b) of the Enterprise Act 2002 (the Act) is satisfied. Arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

As it is not possible to consult directly with customers in sectors such as this, third party enquiries were focused on competitors. While many suggest that the merger would not adversely affect competition, some were concerned that the merged entity would possess buyer power vis-à-vis the grey market, giving them access to a wider range of grey market stock, and also vis-à-vis authorized suppliers. Some competitors also expressed concern that an increase in the merged parties' buyer power vis-à-vis authorized suppliers would have the effect of lowering standards of the retail supply of fine fragrances. The issue of the parties' increased buyer power is addressed in the above assessment.

ASSESSMENT

The parties overlap in the retail supply of perfumes in the UK. At both a national and local level the merged entity will face a number of competitors in the form of Boots, department stores, specialist perfume retailers, health and beauty discounters and supermarkets amongst others. Even in the event that the merged entity was subject to limited competition in a particular area barriers to entry and expansion in the sector are low. The OFT therefore considers that sufficient competitive constraints will exist on the merged entity post-merger.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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