Bundeskartellamt prohibits takeover of Kaiser’s Tengelmann by EDEKA

The Bundeskartellamt has prohibited the acquisition of around 450 Kaiser's Tengelmann outlets by EDEKA. In the authority's view the project would have considerably wors-ened competition conditions on a large number of highly concentrated regional markets and in mu-nicipal districts in greater Berlin, Munich, Upper Bavaria and North Rhine-Westphalia. The takeover of Kaiser's Tengelmann would have greatly limited choice for local consumers and the possibilities for them to switch to another retailer. The elimination of an important competitor would also have given the remaining competitors greater leaway for raising prices in future.

The project would have also caused competition problems in the procurement markets. If the merger had been implemented, manufacturers of branded products would have lost an important independent buyer. The strong bargaining power of the leading group of retailers consisting of EDEKA, REWE and the Schwarz group with Kaufland and Lidl in the procurement of branded products, in particular, would have further increased compared to that of their competitors.

The compromise proposals (so-called commitments) submitted by the parties following the Bundeskartellamt's statement of objections (see press release of 17.02.2015) were not adequate to solve the competition problems on the markets affected.

In evaluating the merger project the Bundeskartellamt has taken all the distribution channels in the food retail sector into consideration, from full-range retailers such as REWE and EDEKA to hard discounters such as Aldi. It has defined the markets as local or regional depending on consumers' buying behaviour. In the large cities the actual competition situation was also determined in the city districts and townships. The investigation revealed that with market shares of between 10 and nearly 30% Kaiser's Tengelmann is an important competitor in nearly all the regional market areas affected and, to the advantage of a potential acquirer, has a valuable network of outlets. The ex-tensive enquiries have shown that the planned takeover would significantly reduce competitive pressure in a large number of market areas. In some cases it would have further strengthened Edeka's leading market position. But also in local and regional market areas, in which not EDEKA but its close competitor REWE is the leading supplier, the merger was likely to significantly impede effective competition because of the very similar distribution concepts as seen from the consumer's perspective and the competitive closeness of the suppliers.

Andreas Mundt, President of the Bundeskartellamt: "In this case the local market situation is the deciding factor. The argument that Kaiser's Tengelmann has a relatively low share of the national market misses the point. No one travels across Germany to go shopping, not even across a large city. In many districts of the metropolises of Berlin, Munich and Düsseldorf as well as some market areas in Upper Bavaria and North Rhine-Westphalia Kaiser’s Tengelmann is EDEKA's and REWE's strongest competitor, meaning that its disappearance from the market would significantly reduce consumer choice in the local market. Such a market assessment naturally also includes discounters like Aldi or Lidl. However for consumers they are a limited alternative to the full-range retailers, simply because of the different range of products which they offer."

In its statement of objections the Bundeskartellamt had already made it clear to EDEKA and Tengelmann that around 100 of Kaiser's Tengelmann's 450 outlets would not be affected by a pro-hibition and could therefore have been acquired by EDEKA. Following comments given by EDEKA and Tengelmann in a hearing, the Bundeskartellamt has also included organic outlets in its market assessment, for the companies' benefit. This would have enabled EDEKA to take over approx. a further 70 outlets and consequently in total around a third of Kaiser's outlets.

All in all EDEKA and Tengelmann only offered to give up a total of around 100 outlets in Berlin and Bavaria, meaning that altogether EDEKA would have acquired around 350 outlets. In their choice of outlets the companies did not consider the criteria and conditions for offering commitments which are sustainable and in compliance with competition law. Above all, the parties offered to sell those outlets to third parties which would have hardly reduced EDEKA's critical market share incease or which EDEKA could have easily acquired anyway because the merger posed no danger whatsoever to competition in the local markets affected. Even some outlets which were closed or on the verge of closure were offered for sale to third parties as part of the commitments. The com-mitments were therefore not sufficient to eliminate the competition problems of the planned merger.

Andreas Mundt: "Early on in the proceedings we showed the companies possible solutions to the obvious competition problems. It would have been possible to clear the merger if the large part of Kaiser's Tengelmann's three regional networks - at least in the critical regional sales markets - had been transfered to one or two independent competitors which could have assumed Kaiser's Tengelmann's competition position. This would have also solved the problems on the procurement markets. We had a large number of concrete indications of alternative market participants inter-ested in taking over parts of the networks, which would have also been interested in taking over the staff. However, EDEKA and Tengelmann were not prepared to consider the conditions for clearance formulated by the Bundeskartellamt. So the project had to be prohibited per se."

The prohibition decision is not yet final. The companies involved have a month to appeal against the decision to the Düsseldorf Higher Regional Court..