The Competition Bureau (the "Bureau")
has released its Position Statement regarding why it obtained a
Consent Agreement (the "Agreement") in connection with
the acquisition of La Coop fédérée
("LCF") in Groupe BMR ("BMR").
As reported in our
previous post, the Agreement requires that (i) certain store
franchisees in four local markets in the Province of Québec
find new banners under which to operate; and (ii) that LCF and BMR
continue to supply the stores on competitive terms until either a
new franchisor is found or the end of 2014.
For additional background on the transaction, please
While the position statement did not disclose the percentage of
the minority interest acquired by LCF, it did note that the Bureau
analyzed the potential competitive effects of the acquisition as it
would a full merger between the parties. Below are some of the key
highlights from the Bureau's analysis.
Materially Influence Economic Behaviour.
The focus of the Bureau's analysis was whether LCF's
minority interest would allow it to be in a "position to
materially influence the economic behaviour" of BMR and LCF
franchisees. In this case, because the LCF and BMR retail networks
primarily consist of franchised stores, the Bureau considered
factors such as purchasing requirements, information exchanged
between the parties and their franchisees, retail pricing
practices, marketing obligations and practices, as well as the
parties' integration plans post-transaction. Ultimately, the
Bureau concluded that LCF would be in a position to materially
influence the economic behaviour of BMR and its franchisees, who
also competed with LCF franchisees.
Retail Markets are Local. Consistent with its
review of brick and mortar retail mergers (including the recent
Sobeys/Safeway merger) the Bureau found that the relevant
geographic market for the retail sale of hardware products and
building materials is local. Consumers choose retailers based on
factors such as price, convenience, and the proximity of the stores
Remaining Competition. While the Bureau
concluded that sufficient competition (from retailers including
Rona, Home Hardware, Ace, and Canac) would remain and that barriers
to entry or expansion into new lines of products for existing
retailers were relatively low, it identified four local markets
where (i) LCF and BMR are each other's closest competitors,
(ii) there is limited or no remaining competition, and (iii) new
entry is unlikely due to market saturation
Based on its analysis, the Bureau determined that the only
appropriate remedy to preserve competition in these four markets
was for LCF or BMR to terminate their franchise agreements so as to
enable the entry of new competition.
For a copy of the Bureau's position statement, please click here.
For a copy of the Consent Agreement registered with the
Competition Tribunal, please click here.
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