Anticipated acquisition by Tesco Holdings plc of Dobbies Garden Centres plc

Affected market: Garden centres

No. ME/3111/07

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 and decision.

The OFT's decision on reference under section 33(1) given on 3 August 2007. Full text of decision published 24 August 2007.

Please note that square brackets indicate figures or text which have been deleted or replaced with a range by the OFT or at the request of the parties for reasons of commercial confidentiality or public interest.

PARTIES

Tesco Holdings Limited is a wholly own subsidiary of Tesco plc (Tesco), a public company whose shares are listed on the London Stock Exchange. Tesco is the UK's largest grocery retailer. It also operates outside the UK. In addition to its grocery retailing business, Tesco has various other operations in the UK, which include non-food retailing.

Dobbies Garden Centres plc (Dobbies) is a public company whose shares are listed on the London Stock Exchange Alternative Investment Market. It operates a chain of 22 garden centres in the UK. [see note 1] Dobbies latest annual report and accounts for their financial year ended October 2006 showed a turnover in the UK of £69 million.

TRANSACTION

The boards of directors of Tesco and Dobbies announced on 8 June 2007 that they had reached agreement on the terms of a recommended cash offer, to be made by Tesco Holdings Limited, to acquire the whole of the issued and to be issued share capital of Dobbies not already held by Tesco Holdings Limited. The whole of the issued and not yet issued share capital is valued at in excess of £155 million. The acquisition is proceeding under the City Code on Takeovers and Mergers.

The parties notified the OFT by way of a Merger Notice of 21 June. The statutory deadline expires on 3 August 2007. 

JURISDICTION

As a result of this transaction Tesco and Dobbies will cease to be distinct. Tesco has a share of supply in grocery retailing in the UK of in excess of 25 per cent and as Dobbies makes sales of some grocery products in the UK, there would be a small increment to this share following the transaction. As a result, the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY COMMENTS

The views of large competitors such as the national DIY chains and supermarkets were mixed. One third party raised land use issues and these are addressed above.

A large number of local garden centre competitors also expressed concerns, mainly in relation to Tesco extending its market power into garden centre retailing and undercutting its rivals on price.

One third party raised concerns that Tesco might use any land associated with Dobbies stores to operate as a grocery retailer, which would increase Tesco's market share on a local and national basis. This speculative scenario, on which the OFT has no evidence before it, is not relevant to our merger analysis. The purpose of the OFT's assessment as set out in our Guidance at paragraph 3.8 is to 'compare the prospects for competition with and without the merger'. In this case, the prospects with the merger focus on the loss of any constraint currently imposed on Tesco's by Dobbies.

ASSESSMENT

The parties overlap in the retailing of some garden products. They also overlap in the retailing of some grocery products and in a small number of diverse and unrelated non-gardening non-food products. At a national level the increment from each of these affected sectors is low and does not raise any concerns. At the local level the OFT found that, in the retailing of garden products, there were sufficient remaining competitors present to constrain the parties behaviour post-merger. In convenience grocery retailing one local area was identified where the number of fascia would reduce from four to three, however, taking account of the local population centre and the fact that the OFT does not consider the parties to be close competitors in convenience retailing in any case, the OFT does not believe that the fascia reduction would lead to a substantial lessening of competition.

In non-gardening non-food retailing the parties share of supply is low (with increments of a fraction of one per cent), nor do the parties appear to be close competitors. Given this, and the fact that such products are sold in a wide variety of competing outlets, the OFT does not consider that competition concerns arise in relation to the supply of these products.

Although it is not necessary to conclude on barriers to entry, the evidence from the parties, third parties and from past cases suggests that barriers to entry are not high for each of these specific product categories.

A third party raised a number of concerns relating to Tesco's use of Dobbies sites for grocery retailing or to prevent entry by rival grocery retailers. Several third parties also raised concerns that the acquisition would harm competition by increasing Tesco's buyer power. It was not considered that either of these concerns was capable of leading to a substantial lessening of competition.

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.

NOTE

1. This includes the Dobbies store at Balborough, near Sheffield, which is due to open in September 2007.

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