Completed acquisition by Co-operative Group Limited of Somerfield Limited

Affected market: Grocery retailing

No. ME/3777/08

The OFT's decision on reference under section 33(1) was given on 20 October 2008 (the Decision). The full text of the Decision was published on 17 November 2008.


THE PARTIES

1. Co-operative Group Limited (CGL) is the UK's largest co-operative with a diverse range of activities including the operation of banks, funeral services, farming, pharmacies and food retailing. This case involves CGL's food retailing business.

2. At the time of making its submission to the OFT, CGL had 2,228 food retail stores comprising 1,717 convenience stores, 452 mid size stores and 59 one-stop stores.

3. Somerfield Limited (Somerfield) is a food retailer with (at the time of making its submission to the OFT) 877 outlets comprising 221 convenience stores, 616 mid size stores and 40 one-stop stores.

TRANSACTION

4. In July 2008 the parties entered into a sale and purchase agreement under which CGL would acquire the entire share capital of Somerfield's holding company, Violet Holdings Limited (the Transaction). Completion of the Transaction was conditional on the OFT not referring the Transaction to the Competition Commission (CC).

JURISDICTION

5. As a result of this transaction CGL and Somerfield ceased to be distinct. The UK turnover of Somerfield exceeded £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) was satisfied.

6. The OFT concluded in its Decision that arrangements were in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

BACKGROUND

7. The Decision concluded that, on the evidence available, 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. Specifically, the OFT found that there was a realistic prospect of a substantial lessening of competition as a result of the proposed merger in the retailing of groceries in 133 local areas.

8. To remedy the loss of competition in these areas the OFT accepted undertakings in lieu from CGL on 15 January 2009, which subsequently came into force when CGL completed its acquisition of Somerfield on 27 February 2009 (the CGL/Somerfield UILs). Under these undertakings, CGL was required to divest a store (or stores) in each of the 133 local areas (as listed in the annexes to the UILs).

9. In March 2009 the OFT decided to suspend its duty to refer while it considered accepting undertakings in lieu of a reference with respect to CGL's merger with Lothian Borders & Angus Co-operative Society Limited (LBA). [see note 1]Today, the OFT has accepted these undertakings.

10. The OFT considers it appropriate to supersede the CGL/Somerfield UILs (pursuant to section 92(2)(b)(ii) of the Act) with new UILs to take account of the fact that LBA is now part of CGL.

11. In five of the local areas around a Somerfield store where CGL is required to make a divestment(s) pursuant to the CGL/Somerfield UILs, an LBA store overlapped with the Somerfield store. CGL requested that in these areas it should be allowed the option of divesting either a Somerfield store or the former LBA store. The OFT agreed.

CONSULTATION

12. On 8 April 2009 the OFT published the proposed new UILs inviting interested parties to give their views on them by 23 April 2009 pursuant to paragraph 2(1) Schedule 10 of the Act.

13. The OFT did not receive any responses to its consultation.

DECISION

14. In light of CGL's merger with LBA, the OFT considers that the new UILs superseding the existing UILs are clear-cut and appropriate to remedy, mitigate or prevent the substantial lessening of competition and any adverse effects resulting from it identified by the OFT in its Decision. The OFT has therefore decided to accept the superseded UILs offered by CGL and they come into effect from today.

NOTES

1.Completed merger between Co-operative Group Limited and Lothian Borders & Angus Co-operative Society Limited, OFT decision of 6 March 2009, Case ME/3933/08.

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