COMPETITION COMMISSION'S CONCLUSIONS IN SAFEWAY MERGERS

26 Sep 2003 11:45 AM

Trade and Industry Secretary Patricia Hewitt announced today that she has accepted the conclusions of the Competition Commission (CC) contained in a report being published today, that the proposed acquisitions of Safeway by Asda, Sainsbury's and Tesco may all be expected to operate against the public interest, and should be prohibited. Mrs Hewitt has also accepted the CC's conclusion that the proposed acquisition of Safeway by Morrisons may be expected to operate against the public interest, but that this acquisition should be allowed to proceed provided limited store divestments recommended by the CC are agreed with Morrisons.

The CC has recommended that Morrisons should be allowed to acquire Safeway subject to the divestment of 53 stores in areas where local competition concerns would arise as a result of the acquisition. Forty-eight of these stores are one-stop shopping stores (stores greater than 1400 square metres in size), and five are smaller stores. For Asda, Sainsbury's and Tesco the CC concluded that each of the parties should be prohibited from acquiring the whole or any part of Safeway, other than Safeway stores that are divested to remedy the adverse effects specified in the case of the merger in contemplation between Morrisons and Safeway and subject to the conditions specified in relation to the divestment following a Morrisons acquisition of Safeway.

Mrs Hewitt has asked the Office of Fair Trading (OFT) to negotiate undertakings with Morrisons in relation to the limited store divestments recommended by the CC as a suitable remedy. She has also asked the OFT to negotiate undertakings with Asda, Sainsbury's and Tesco in relation to the prohibition of these proposed mergers, as recommended by the CC.

Mrs Hewitt said:

"I have considered carefully the CC's report and agree with their conclusions that an acquisition of Safeway by Asda, Sainsbury's or Tesco may be expected to operate against the public interest at both a local and national level. A number of adverse effects were identified by the CC including an increase in prices over time, stemming from a reduction in the number of national supermarket operators from four to three. I have accepted their advice that no reasonable package of divestments would remedy the national competition concerns raised in these cases.

"I also agree with the CC's conclusions that the proposed acquisition of Safeway by Morrisons may be expected to operate against the public interest, but that store divestments where local competition concerns arise are sufficient to remedy the adverse effects identified."

In reaching her conclusion on the cases, Patricia Hewitt noted that the CC had undertaken a detailed analysis of local markets in order to identify those areas where local competition issues arose and divestment would be necessary. The criterion used for this was a reduction to three or fewer fascias in any one locality. The parties were given an opportunity to present arguments as to why certain 'problem' stores should not be considered as such before the CC reached a final view. The CC concluded that where there were 'problem' stores divestment of either the Morrisons or Safeway store would be sufficient to remedy these adverse effects.

Referring to implementation of the divestment framework for the proposed Morrisons acquisition, Patricia Hewitt said:

"I have asked the OFT to supervise the one-stop shop divestment required by Morrisons along the lines of the framework developed by the CC. The OFT have made a number of recommendations about implementation of this framework, which I have accepted. I have also asked the OFT to approve purchasers and timescales in relation to the divestment of the five smaller stores."

NOTES FOR EDITORS

1. The proposed acquisition of Safeway by each of Asda Group Limited, Wm Morrison Supermarkets PLC, J Sainsbury plc, and Tesco plc was referred to the Competition Commission on 19 March 2003 under the Fair Trading Act 1973 (DTI Press Notice P/2003/173). The CC submitted its report on 18 August 2003.

2. The Fair Trading Act empowered the Secretary of State to refer to the CC for investigation and report actual or proposed mergers which created or increased a market share of over 25 per cent of the supply in the UK (or a substantial part of the UK) of particular goods and services or which involved the takeover of assets exceeding £70 million. Subject to transitional provisions (which apply in this case), the merger provisions have been superseded by the Enterprise Act 2002.

3. Copies of the report "Safeway plc and Asda Group Limited (owned by Wal-Mart Stores Inc); Wm Morrison Supermarkets PLC; J Sainsbury plc; and Tesco plc - A report on the mergers in contemplation" (Cm 5950) are available from The Stationery Office, price £46.70. The report will also be available on the CC website: http://www.competition- commission.org.uk/inquiries/completed/2003/index.htm

4. Chapter 1 of the CC report summarises its conclusions and recommendations.

5. A fascia is defined in the CC report as a multiple grocery retailer - thus "Asda" is a fascia.

6. The OFT's advice is available via the following website: http://www.oft.gov.uk/Business/Mergers+FTA/Advice
/Advice+on+merger+reports/safeway

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