UK: Competition Commission Provisionally Clears Sports Direct Store Acquisitions

Last Updated: 26 February 2010
Article by SJ Berwin's EU & Competition Team

The Competition Commission (CC) has provisionally cleared the completed acquisition by sports retailer, Sports Direct International plc (Sports Direct), of 31 stores from JJB Sports plc (JJB).

The CC has reached the preliminary conclusion that the acquisitions are not expected to lead to a substantial lessening of competition. Chairman of the Inquiry Group, Diana Guy, commented that the CC had looked at whether consumers in the relevant local areas would be affected by the store acquisitions and provisionally concluded that consumers are unlikely to face higher prices or a reduction in quality or choice.

Sports Direct and JJB are considered to be each other's closest competitors nationally and this has not changed as a result of the transfer of the 31 stores. The CC found that the prices and range on offer in any individual Sports Direct store are not significantly affected by whether there is a nearby JJB store. Although prices may be affected by the degree of overall competition between the two retailers at a national level, JJB is still considered a strong national competitive force constraining Sports Direct. The CC's provisional findings overturn the OFT's initial study - which had found competition issues with store transfers in five local areas and required the divestments of those stores (see Community Week issue 435 (http://www.sjberwin.com/publicationDetails.aspx?mid=1&rid=1&ast=4&pgIdx=2&adv=1&cid=2523)).

The CC has extended the period for publication of its final report to 21 April 2010. Interested parties have until 4 March to comment on the provisional findings.

The provisional findings come after a procedural challenge was made by Sports Direct to the Competition Appeal Tribunal (CAT) against a CC decision in November last year. Sports Direct objected to the CC redacting certain information from working papers that had been sent to Sports Direct for it to comment on. Sports Direct claimed that the decision to redact the papers prevented it from making submissions on central issues in the merger analysis and adversely affected its rights of defence.

Ultimately, the CC withdrew its decision to redact the information before the CAT considered the merits of the application, so there is no judgment on the issue. The CAT did however rule that it was legitimate for Sports Direct to make the application when it did - i.e. during the course of the investigation. The CAT confirmed that it is possible to judicially review a decision that is not absolutely final - provided the decision is linked to a final decision that affects legal rights - opening the door to potential future procedural challenges at an interim stage of an investigation by parties aggrieved by the CC's conduct.

OFT reports on home buying and selling market

The OFT has recommended a shake-up in how homes are sold in the UK in order for house buyers and sellers to get a better deal, including updating legislation to allow new entrants into the market.

The OFT's study into home buying and selling has found that the housing market remains dominated by traditional estate agents. A key feature is weak price competition between estate agents (it was found that when property prices increased during housing booms, estate agents' fees also rose).

The OFT believes that innovation in this sector, in particular through online services, could have a dramatic impact on the cost of buying and selling a home. It found that 27% of those people who used a traditional estate agent have considered using an alternative selling method. Experience from the US suggests that alternative brokerage models have the potential to put competitive pressure on traditional ways of buying and selling a home.

However, current legislation, dating from 1979, may be hindering the development of new business models. The OFT recommends that the current legislation should be reformed so that new entrants, for example those that only introduce private sellers to each other, are not unduly burdened with regulation. The OFT recommends that the existing legislation should be updated as soon as possible.

According to OFT analysis, failing to shop around and negotiate on estate agents' fees could be costing house sellers up to £570 million a year, and the OFT is encouraging more consumers to negotiate hard on commissions paid to estate agents.

The only area where the OFT recommends additional rules, is in relation to fees received by estate agents for referring buyers to providers of ancillary services - such as mortgage advice, surveys, and conveyancing. The OFT has concerns that this arrangement could give rise to conflicts of interest that cause an estate agent to favour one buyer over another, to the seller's disadvantage.

The OFT market study was launched in February 2009

Damages claim lodged in the CAT against Degussa

On 15 February 2010, the Competition Appeal Tribunal (CAT) published a notice of a claim for damages brought by three claimants against Evonik Degussa GmbH and its UK subsidiary. The claimants, all poultry producers, are seeking damages for losses allegedly resulting from Degussa's participation in an illegal price-fixing cartel relating to methionine (an amino acid used in animal feed for poultry and pigs). The claim is based on an infringement decision of the European Commission (which was upheld by the European Courts).

The claimants in this case are Moy Park Limited, Faccenda Group Limited and GW Padley Poultry Limited. They state that they were indirect purchasers of the cartel products and that they paid higher prices than would otherwise have been the case as a result of the cartel. Unlike the direct purchasers, they claim that they were unable to pass their losses on any further (effectively having to absorb the overcharge).

The claim is based on the Commission's decision of 2 July 2002, finding that, between February 1986 and February 1999, Degussa, Aventis SA, Aventis Animal Nutrition SA and Nippon Soda Company Ltd had infringed Article 81(1) of the EC Treaty (now Article 101(1) TFEU) by participating in a price-fixing and information-sharing cartel in the methionine sector.

Degussa, at the time the world's largest producer of methionine, was fined €118 million by the Commission. On appeal to the CFI, the fine imposed on Degussa was reduced, but the overall judgment of the Commission was upheld. A further appeal to the ECJ was dismissed. The UK claim has been lodged against Degussa only.

The methionine cartel has already been the subject of a class action in the US and is understood to have paid out over $100 million.

The claimants, as purchasers of vitamins for the supply of animal feedstuffs, have also sought damages in respect of the vitamins cartel in follow on UK High Court actions (against Sanofi-Aventis, Hoffman-La Roche, BASF and others) based on the Commission's vitamins cartel infringement decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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