Some local difficulties – managing merger control in retail transactions

1. Alison Berridge 19 March 2009 Some local difficulties – managing merger control in retail transactions

2. Overview • Merger control reminder • Local analysis: why? • Local analysis: how? • Selling outlets

3. Block Clear 30 / 40 working days 6 months Merger control reminder: the process In-depth review Refer to CC Clear with store sales Notify OFT Initial review Clear with store sales Clear

4. Merger control reminder: the thought process Define the product and geographic markets affected DIY “shed” retailers within 20 minutes drivetime Does the merger substantially lessen competition on any of them? In Woking the merger reducesthe number of competitorsfrom 3 to 2 Have the parties offered remedies which resolve the issues? Parties offer to sell one shed in Woking

5. Merger control reminderWhy are retail mergers different? • Likely to be analysed on a local basis • Requires analysis of multiple markets • Process can be slow, expensive and unpredictable • Needs good management

6. Overview • Merger control reminder • Local analysis: why? • Local analysis: how? • Selling outlets • Sharing risk

7. Local analysis: why?Starting point • Strong presumption that there is a local element to consumer goods and services markets “The OFT’s strong starting assumption for consumer goods and services markets has therefore been – and will continue to be – that there will be material local competition across the relevant area to attract and retain customers, even if not on every parameter of PQRS.” OFT, Homebase / Focus (DIY) (2008)

8. Local analysis: why?Scope to challenge • Possibly, in the right case… • Economic evidence • Margin concentration analysis • Internal documents / practice • Consider previous decisions • Easier if there are few or ambivalent precedents • In some cases EC or other countries may have defined market as national only

9. Overview • Merger control reminder • Local analysis: why? • Local analysis: how? • Selling outlets • Sharing risk

10. Local analysis: how?Establish general rules to filter out problem areas

11. Local analysis: how?Filtering: four key questions • How far are consumers prepared to travel (and how)? • Who are the competitors? • How many is enough? • Whose perspective should we take?

12. Local analysis: how?Filtering example: groceries

13. Local analysis: how?Filtering example: retail banks

14. Local analysis: how?Filtering - choosing the rules • No consistency in approach or depth of analysis • Means there is scope to manipulate all those details to save stores • But some losses may be the price of a phase one clearance - OFT will want cautious approach

15. Local analysis: how?Filtering: managing data • In mergers between large chains, processing the data also a challenge • Use a good mapping company • Run analysis in advance if possible • Reserve resources for later reruns (OFT sometimes changes its mind)

16. Local analysis: how?After the filters • Individual review of local areas • Imminent new entry / exit • Closeness of competition – surveys

17. Local analysis: how?Surveys

18. Local analysis: how?After filtering and surveys

19. Overview • Merger control reminder • Local analysis: why? • Local analysis: how? • Selling outlets

20. Selling outlets: restricted purchaser group

21. Selling outlets: strategy • The inescapable logic of the “upfront buyer” • Strategic games • Fighting back: • Resist up-front buyer • Expand purchaser set • Keep store and UFB lists confidential

22. Summary • Plan your campaign • Pick your battles • Make friends with a mapping company • And a survey company • Don’t forget the endgame (selling outlets)

23. Discussion and questions These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP's affiliated undertakings.