Proposed acquisition by Asda Stores Limited of Safeway plc

No. ME/1025/03

A report under section 125(4) of the Fair Trading Act 1973 on the advice of the Deputy Director General of Fair Trading, given on 13 March 2003, to the Secretary of State for Trade and Industry under section 76 of the Act

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts from the advice regarding the jurisdiction, parties and the conclusion.

JURISDICTION

The merger satisfies the assets test of the Act since the gross assets to be acquired are valued at £4.9 billion. The European Community Merger Regulation does not apply since both parties achieve more than two-thirds of their aggregate Community-wide turnover in one and the same Member State (the United Kingdom). 

THE PARTIES

Asda Stores Limited (Asda) is the UK's third largest supermarket chain with 258 supermarkets located across Great Britain - with a stronger presence in the north of England and Scotland - selling a range of grocery and non-grocery items. All but two of Asda's stores have a sales area above 15,000 square feet (average 43,700 square feet) and 141 have a petrol filling station on site.  Asda was acquired by Wal-Mart Stores, Inc in 1999. In the period ended 31 December 2001, Asda reported pre-tax profit of £367 million on a turnover of £11.5 billion with gross assets, as at that date, of £3.6 billion.

Safeway plc (Safeway) is the UK's fourth largest supermarket chain with 479 stores (with an average store size of 21,000 square feet) - 121 of its stores are below 15,000 square feet in sales area - of which 184 stores have petrol stations on site. In addition, Safeway has a 50 per cent stake in a joint venture with BP, operating 55 food stores on BP's petrol forecourts. Safeway supplies its stores from 20 regional distribution centres and operates six of these itself. In the year ended 30 March 2002, it reported pre-tax profit of £355 million, on a turnover of £8.72 billion and gross assets of £4.9 billion.

CONCLUSION

The proposed acquisition by Asda of Safeway qualifies for investigation on the assets test of the Act. As mentioned above [refer to full text of advice], the interaction of local and national competition issues in one-stop grocery retailing is complex. At the local level, the loss of competition between Asda and Safeway in certain areas appears to be substantial. Moreover, at a national level the merger raises additional competition concerns, in particular, it would lead to a significant increase in concentration, with Asda and Tesco together supplying [60-65] per cent [see note] of all one-stop grocery shopping. On balance, we believe that there is a significant prospect that this merger may be expected to result in a substantial lessening of competition. The potential adverse effects we have identified do not appear to be outweighed by potential consumer benefits. Nor do we believe that undertakings in lieu of reference would be appropriate in this case because of the difficulties in identifying and addressing the local areas of concern.

I therefore conclude and recommend that you should refer this merger to the Competition Commission.

NOTE 
Actual figures replaced by a range, or other alternative, at the request of Asda.

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