Further submission following the report by the Competition Commission on the proposed acquisitions of Safeway plc

No. ME/1035/03

A report under section 125(4) of the Fair Trading Act 1973 of the Executive Director's advice dated 3 December 2003, to the Secretary of State for Trade and Industry under section 88(2) of the Act

In this submission the Office of Fair Trading (OFT) reports under section 88(2) of the Fair Trading Act 1973 (FTA) on the outcome of the negotiations with each of Tesco plc (Tesco), J Sainsbury plc (Sainsbury), Asda Stores Limited and Wal-Mart Inc. (together referred to as Asda) and Wm Morrison PLC (Morrison) (together referred to as the parties) on the terms of the undertakings that you requested the OFT seek following your announcement of 26 September and, in respect of the undertakings to be given by each of Tesco, Sainsbury and Asda (together referred to as the prohibition undertakings), your announcement of 11 November 2003.

BACKGROUND

The background details of the reference to the Competition Commission (CC) and its subsequent findings were contained in the OFT's advice of 8 September 2003. You announced on 26 September 2003 that you had accepted the conclusions of the CC, and the OFT's advice, that the proposed acquisitions of Safeway plc (Safeway) by Asda, Sainsbury and Tesco may all be expected to operate against the public interest and that each of those 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 Morrison and Safeway and subject to the conditions specified in relation to the divestment following a Morrison acquisition of Safeway. 

Your officials then wrote to the OFT, also on 26 September 2003, requesting on your behalf that the OFT seek undertakings from Asda, Sainsbury and Tesco to address the adverse effects identified in the CC report.  You later issued a statement to the Stock Exchange on 11 November 2003 clarifying the scope of the prohibition undertakings which you were minded to accept.

You also announced on 26 September 2003 that you accepted the CC's conclusion, and the OFT's advice, that the proposed acquisition of Safeway by Morrison may be expected to operate against the public interest, but that this acquisition should be allowed to proceed provided limited store divestments were agreed with Morrison in areas where local competition concerns would arise as a result of the acquisition.  Your officials then wrote to the OFT, also on 26 September 2003, requesting on your behalf that the OFT seek undertakings from Morrison to effect such divestments. 

THE UNDERTAKINGS

Each of the parties to the prohibition undertakings has agreed to give undertakings in the relevant form described above effectively on condition that they are each treated identically. This condition will be met if you decide to accept each of the prohibition undertakings. In addition, Morrison has agreed to give undertakings in the relevant form described above.

In determining which stores should be divested by Morrison in the event that it acquires Safeway, our starting point will be those stores listed in Appendix 5.6 Table 2 (in respect of one-stop stores) and Appendix 5.7 Table 2 (in respect of smaller stores) of the CC report. We will consider any new or additional representations (other than those already made to the CC) in relation to the CC's one-stop analysis by the prospective buyer, Morrison or other interested party. If we receive any such new or additional representations, we will consider those representations and whether, as a result, any store detailed in Appendix 5.6 Table 2 or Appendix 5.7 Table 2 does not require to be divested. If we conclude that a particular store does not require to be divested, we propose making a Stock Exchange announcement to that effect as soon as is practicable.

Under each of the prohibition undertakings, a prohibited party may make a request to the OFT for consent or an opinion in relation to the anticipated acquisition by that party of any Safeway Assets (as defined in the prohibition undertakings) other than Divestment Stores (as defined in the prohibition undertakings). We would expect our consideration of any such request to proceed by way of a public process.  Interested third parties should therefore have the opportunity to comment.  The starting point for our substantive analysis of any such request will be the analysis set out in the CC report.

The OFT believes that the undertakings attached will satisfactorily address the adverse effects identified in the CC report.  Each of the parties has indicated that it accepts the terms of its undertakings and has signed them in advance. Each of the parties to the prohibition undertakings has indicated its acceptance effectively on condition that they are each treated identically. This condition will be met if you decide to accept each of the prohibition undertakings. This does not in any way prejudice your decision as to whether or not the undertakings are satisfactory. 

CONCLUSION

The OFT therefore recommends that you accept each of the attached undertakings and that they be published in accordance with section 88(2A) of the FTA in due course.

Tesco undertakings
Wal-Mart undertakings
Sainsbury undertakings
Morrison undertakings

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