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OFT refers acquisition by Tesco of a former Co-op store in Slough to the Competition Commission

65/07    19 April 2007

The OFT has today referred the completed acquisition by Tesco plc (Tesco) of a former Co-operative Group (Co-op) one-stop grocery store on Uxbridge Road, Slough, to the Competition Commission (CC). This comes over three years after the original reference decision of February 2004. During that time, the OFT's duty to refer the transaction had been suspended while the OFT sought to agree a clear-cut remedy with Tesco, which has not proved possible.

From the outset, Tesco had proposed an undertaking to transfer the Co-op site to a suitable one-stop rival, which would have restored grocery competition and consumer choice in Slough to their pre-merger levels. A series of planning issues outside Tesco's control delayed matters until in March 2006, when consent for redevelopment of the Co-op site was granted. At that stage, the key outstanding issue was the identification of a suitable purchaser.

Tesco thereafter reassured the OFT at various times that it was actively marketing the site and confident of finding a purchaser. By January 2007, however, the OFT had serious concerns and called a meeting with Tesco. At that meeting, Tesco could not name a credible candidate purchaser. The OFT therefore set a final deadline for Tesco to propose suitable up-front purchasers as part of a final effort to deliver a solution without a full CC inquiry [see note 1].

This deadline has now passed. As Tesco has been unable to propose a remedy for the site that is 'clear-cut and capable of ready implementation' - the standard applied by the OFT to suspend its duty to refer - the OFT's duty to refer is re-engaged and the CC will explore the issues raised by this matter afresh.

John Fingleton, OFT Chief Executive, said:

'We are committed to working with parties to develop an effective first-phase remedies process in suitable cases to avoid the need for a CC reference. This appeared to be a suitable case. But we must also take a firm but reasonable line where necessary. Further delay here risked critically undermining the credibility of the first-phase remedies process and with it the integrity of the UK merger regime. In this case, we allowed the planning process to take its course and gave time for Tesco to come up with suitable upfront purchasers. They have not been able to do so and we must therefore bring the first-phase process to an end.'

Simon Pritchard, Director of Mergers at the OFT, added:

'This case, a product of the 'Safeway rules' on supermarket consolidation, was the OFT's first divestment remedy case under the new Act. Subsequent cases have shown the value of first-phase divestment remedies to business. However, completed mergers can compromise delivery of clear-cut and timely remedies, especially those with land planning issues and a shortage of eligible buyers. The CC now has the opportunity to review the issues in-depth, alongside its ongoing inquiry into the grocery sector, and it has remedies options that have not been available to the OFT. A detailed inquiry by the CC will therefore be in the best interests of consumers.'

The CC is expected to report by 3 October 2007.

NOTES

1. The solution was based around the operation of a one-stop grocery store as the 'anchor tenant' in a larger redeveloped retail complex. Demolition of the former Co-op store meant that the option for a suitable buyer to trade from that store was removed.

2. 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 a relevant merger situation has been created; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

3. 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.

4. 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.

5. The CC may extend the 24 week period within which it is required to publish its report by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.

6. The text of this decision will be published in the mergers section as soon as is reasonably practicable.

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