Completed acquisition by WM Morrison Supermarkets plc of 30 stores from Co-operative Group Limited

Affected market: Grocery retailing

No. ME/4132/09

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, jurisidction, third party views, assessment and decision.

The OFT's decision on reference under section 22(1) given on 10 July 2009. Full text of decision published on 17 July 2009.

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

PARTIES

WM Morrison Supermarkets plc (Morrisons) is a large national grocery retailer, operating primarily one-stop grocery stores.

The 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.

TRANSACTION

The transaction concerns the completed acquisition by Morrisons of 30 stores (the Acquired Stores) from CGL.

In order to avoid a reference of its acquisition of Somerfield Limited (Somerfield) to the Competition Commission (CC), CGL offered undertakings in lieu in which it was required to divest stores in 133 local areas (divestment stores). As part of this divestment process, CGL invited bids from Morrisons for a number of packages of stores which comprised both divestment stores and additional stores that CGL was willing to sell. Following negotiations, Morrisons agreed to purchase two packages consisting of 10 divestment stores and 28 non-divestment stores respectively. Morrisons agreed to acquire two further non-divestment stores at Mansfield and at Chester le Street. It is the 30 non-divestment stores that are the subject of this decision, as the 10 divestment stores that were acquired as part of the CGL/Somerfield divestment process necessarily raised no competition concerns given that Morrisons had been approved by the OFT as a suitable purchaser.

The parties notified the transaction to the OFT on 15 May 2009. The administrative deadline is 13 July 2009 and the statutory deadline is 20 September 2009.

JURISDICTION

As a result of this transaction Morrisons and the Acquired Stores have ceased to be distinct. The UK turnover of the Acquired Stores for the financial year ended January 2009 was [over £70 million]. As a consequence the turnover threshold set in section 23(1)(b) of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

The OFT has received no third party comments in relation to the competitive assessment of this transaction.

ASSESSMENT

The transaction concerns the completed acquisition by Morrisons of 30 stores from CGL.

Morrisons conducted surveys in the seven areas where primary competition concerns were identified on the basis of isochrone- and fascia-count-based filtering. The customer survey indicated significant diversion ratios (that is, over 14.3 per cent) in only two areas, namely Maghull and Wallsend (where the diversion ratio from the CGL target store to Morrisons was 14.9 per cent and 26.8 per cent respectively).

Even on the most cautious approach, the IPR for the store in Maghull is below five per cent. In respect of the Wallsend store, the IPR on the most cautious approach exceeds five per cent, although not by much. Therefore, the OFT examined the IPR under a plausible range of less cautious and, given the specific facts of this case, less restrictive assumptions about the actual margins, asymmetry and the curvature of demand, and reached the conclusion that the IPR, on this basis, would be less than five per cent. Accordingly, neither the Maghull or Wallsend store fails the diversion ratio/IPR test.

Consequently, the OFT does not believe 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.

DECISION

This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

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