23/06    7 February 2006

The OFT has decided today not to refer the anticipated acquisition by Boots plc of Alliance UniChem plc to the Competition Commission provided that satisfactory undertakings to address the competition concerns arising from the supply of retail pharmacy services in certain localities in the UK are given. If the parties do not give such undertakings, then the transaction will be referred.  

John Fingleton, OFT Chief Executive said: 

'This is a market in which government regulations restrict competition by imposing barriers to new market entrants. As a result, cost savings arising from this merger may not be fully passed on to consumers in the form of enhanced services. There remains a strong case for the government to reconsider the costs to consumers of maintaining these disproportionate restrictions on competition in the retail pharmacy sector.'

Vincent Smith, OFT Competition Enforcement Director added:

'The loss of rivalry between a Boots and UniChem pharmacy in a local area could give rise to competition concerns where consumers have limited alternative choices and given the regulatory barriers to new entry. This merger raises the realistic prospect of a substantial lessening of competition in around 100 local areas where competition would either be eliminated altogether or reduced. Customers in these areas would have a significantly reduced choice of local pharmacy. However, Boots has offered divestment undertakings for all of these areas and the OFT is satisfied that these will address its concerns.'

NOTES

1. The Reference Test - the OFT has a duty to make a reference to the CC if the OFT believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

2. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.

3. Under section 73 of the Enterprise Act 2002 the OFT may, instead of making 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 as it considers appropriate undertakings to take such action as it considers appropriate. In doing so, the OFT will have regard to the need to achieve as comprehensive a solution as is reasonable and practicable to the substantial lessening of competition and any adverse effects resulting from it.

4. Before accepting any such undertakings under Schedule 10 of the Enterprise Act 2002, the OFT shall give notice of the proposed undertakings and will consider any representations made in accordance with that notice.

5. The text of these decisions can be seen in the mergers section and will also appear in the Office's Weekly Gazette as soon as is reasonably practicable.

6. The OFT's market study The control of entry regulations and retail pharmacy services in the UK was published in January 2003 (revised version March 2003). The study found that the regulations by which local health authorities (now Primary Care Trusts) controlled the provision of community pharmacy services blocked entry by new pharmacy business into local markets, restricted consumer choice and convenience and restricted price competition on over-the-counter medicines (see press release 4/03 and statements of 17 July 2003 and 18 August 2004).