On 1 April 2015, the Federal Cartel Office (FCO) prohibited a large takeover in the food retail sector, where the German supermarket chain EDEKA had planned to acquire its direct competitor Kaiser’s Tengelmann. According to the FCO, the takeover would significantly worsen the competitive conditions on a number of already highly-concentrated regional and local markets. This would lead in particular to reduced alternatives for consumers and also cause competitive problems on the relevant procurement markets.
EDEKA and Kaiser’s Tengelmann had notified the FCO about the intended acquisition of 450 of Kaiser’s Tengelmann’s outlets in October 2014. The FCO then conducted an extensive investigation of a number of food retailers and suppliers. The focus of the analysis and evaluation rested on the competitive closeness of the involved parties, the local market structure in several regions in Germany, as well as the effects of the takeover on the different procurement markets. In February 2015, the FCO informed the parties about its preliminary view that the merger would strengthen the already highly-concentrated market structures in the food retail sector, in particular in Berlin, Munich and several large cities in the state of North Rhine-Westphalia.
Subsequently, EDEKA and Kaiser’s Tengelmann offered to exclude about 100 outlets from the merger, so that EDEKA would have acquired only 350 outlets. However, the FCO did not accept this commitment as it held that the commitment merely concerned markets which were unproblematic from a competitive perspective in any event.
As a consequence, the FCO prohibited the transaction and stated that it would have led to a significant lessening of competitive pressure in various market areas. In some cases, EDEKA’s already leading market position would have been further strengthened. But even in areas where another competitor (such as REWE) was the market leader, the merger would lead to a substantial impediment of competition. Also on the procurement side, the merger would cause competitive problems as food suppliers would lose a further independent purchaser.
Andreas Mundt, the president of the FCO, is quoted: "In the running proceedings we have indicated at an early stage possible solutions to the parties for the obvious competitive problems. The clearance of the project would have been possible if the predominant part of Kaiser’s Tengelmann’s three regional distribution networks - in any case in the critical regional sales markets - had been transferred to one or two independent competitors which could have assumed Kaiser’s Tengelmann’s competitive position. This would have also solved the problems on the procurement markets. However, EDEKA and Kaiser's Tengelmann were not prepared to accept the requirements for clearance articulated by the FCO, so that the project had to be prohibited altogether."
EDEKA and Kaiser’s Tengelmann, however, are not willing to accept the decision of the FCO and in late April 2015 applied for a ministerial approval of the transaction. Such an approval can be granted by the German Minister for Economic Affairs. It constitutes an exceptional instrument which overrules a prohibition decision of the FCO in cases where the restrictions of competition are outweighed by the macroeconomic advantages of the transaction or a paramount public interest. In this context, the parties argue in particular that Kaiser’s Tengelmann’s 16,000 jobs can only be safeguarded by way of the intended transaction. EDEKA’s competitor REWE, which, according to press articles, was also interested to the takeover of Kaiser’s Tengelmann, has announced that it will continue to oppose the merger and the ministerial approval proceedings. Sigmar Gabriel, the German Minister for Economic Affairs, will decide on the request within four months of receipt.
Reproduced from Practical Law with the permission of the publishers (www.practicallaw.com).