OFT seeks divestment in Homebase’s acquisition of DIY stores from Focus
The OFT is considering undertakings in the acquisition by Home Retail Group plc (HRG), owner of the Homebase DIY chain, of 27 stores from Focus (DIY) Ltd (Focus), instead of referring this completed deal to the Competition Commission.
However, if satisfactory undertakings are not given, the merger will be referred to the CC.
Aside from its specific findings in relation to the merger and competition in the DIY sector, the OFT said this case is of broader relevance for a number of reasons. First, it is already the second undertakings case this year for a completed merger that was not notified and the OFT investigated on its own initiative. This is consistent with the OFT’s objective of keeping non-notified merger activity under review and targeting those cases likely to pose harm to competition and consumers.
Second, in order to provide maximum transparency on the OFT’s approach in retail sector mergers, this decision sets out in detail the OFT’s general thinking on these issues, particularly where one national retail chain acquires a small number of stores from another, without causing any competition concerns at national level. In this case, the OFT had no national concerns but did have concerns that local DIY competition could be lost by the merger, even though Homebase argued that it sets prices and other aspects of its retail offer nationally across the chain. The OFT’s principal concern was that the merger removed the competitive constraint that Homebase imposed on Focus and this was sufficient for the OFT’s duty to refer to the CC. Finally, this is only the second case under the Enterprise Act in which the OFT has accepted a ‘failing firm’ defence applied at the level of an individual retail store – the first being Tesco’s 2007 acquisition of certain Kwik Save stores.
Of the 27 acquired stores by Homebase, 12 of them gave rise to competitive overlaps. However, the scope of the OFT’s concerns and the appropriate remedy were ultimately reduced to one of these overlap areas following thorough evaluation of evidence supplied by market participants. HRG has offered to divest either the former Focus store or the existing Homebase store to remove the overlap giving rise to these competition concerns. The OFT will require HRG to secure an up-front purchaser before consulting publicly on the terms of the undertakings. This is now the OFT’s usual procedure in cases where there are relatively few potentially suitable purchasers.
Simon Pritchard, OFT Senior Director of Mergers, said ‘We proactively investigated this merger as it created multiple local store overlaps between two of the only four national players in a concentrated DIY retail sector. We were ultimately able to narrow our concerns and are satisfied that the proposed divestment remedy would, in principle, resolve them. Beyond that, this case raises important wider issues, including our approach to retail sector mergers, and we invite the UK competition and business community to consider it when planning deals.’
