Wellcome Taiwan Company Ltd. reported a merger to the Fair Trade Commission according to the Fair Trade Law concerning its planned acquisition of the supermarket operation assets of Kayo Department Store Co. Ltd.

Chinese Taipei



Case:

Wellcome Taiwan Company Ltd. reported a merger to the Fair Trade Commission according to the Fair Trade Law concerning its planned acquisition of the supermarket operation assets of Kayo Department Store Co. Ltd.

Key Words:

file a merger, overall economic benefit, detriment to restricting competition

Reference:

Fair Trade Commission Decision of February 13, 2003 (the 587th Commissioners Meeting); Letter Kung-Yi Tzu No. 0920001318

Industry:

Supermarkets (4752)

Relevant Law:

Articles 6, 11 and 12 of the Fair Trade Law

Summary:

1. Wellcome Taiwan Co. Ltd.'s (Wellcome) planned acquisition of the supermarket operation assets of Kayo Department Store Co., Ltd. (Kayo) conforms to the type of combination set forth in Article 6(1)(iii) 3 of the Fair Trade Law. Furthermore, Wellcome's total sales for the previous accounting year reached roughly NT$10.3 billion, while Kayo's total sales reached NT$1.7 billion during the same period. Given that the sales figures were in excess of the threshold amount set forth in Article 11(1)(iii) of the Fair Trade Law, Wellcome and Kayo subsequently filed a merger with the Fair Trade Commission (FTC).

2. Reasons for granting the approval are as follows:
(1) The degree of restriction on market competition caused by this merger:
1. Overview of the relevant market of supermarket industry
According to monthly commercial statistics published by the Ministry of Economic Affairs, the domestic general retail sales industry is divided into five subgroups: department stores, supermarkets, chain convenience stores, bulk retailers and "others."
Of total general retail sales from January through October 2002, department stores accounted for 31.86%, bulk retailers 25.51%, chain convenience stores 21.04%, supermarkets 11.89% and "others" 9.70%. Compared with the previous year, convenience stores showed the highest sales growth rate of 1.23%, followed by department stores' 0.75%; while bulk retailers saw a 0.28% of sales shrink and supermarket sales slipped by 0.72%. Overall, general retail sales figures for January through October 2002 expanded by 5.99% over sales during the same period the preceding year, but sales in the supermarket sector contracted by 1.84% compared with the same period the preceding year. In summary, there is considerable substitutability between the supermarket sector and the other general retail sectors and supermarkets saw a decline in their annual sales revenues as a result of competition from other retail sectors.
2. The market position of the participating parties in the merger and the post-merger impact on the relevant market:
Wellcome is Taiwan's largest supermarket chain, accounting for 13.15% and 1.66% of total supermarket sector sales and total general retail sales, respectively, in 2001. Kayo accounted for 2.18% and 0.28% of total supermarket sector sales and total general retail sales, respectively. The relevant figures following Wellcome's acquisition of Kayo's supermarket operation assets will be 15.33% and 1.94%, respectively. The increase in Wellcome's market share following the acquisition will be minor and will result in no misgivings regarding undue restriction of competition in the relevant supermarket and general retailing markets and will therefore cause no negative impact on competition in the relevant markets.
(2) The impact of this combination on the overall economic benefit and public interest:
Increasingly heated competition in Taiwan's general retailing market in recent years has resulted in consecutive years of losses for Kayo, with 2001 sales revenues down 17% from the preceding year. This merger will not only alleviate Kayo's continued operating losses and their resultant store closures but also considerably boost the geographical accessibility of Wellcome's retail outlets while providing the consuming public with the dual benefits of better quality and lower prices made possible by Wellcome's economies of scale. Consequently, this merger will be of considerable benefit to the overall economy.
(3) In summary, the relevant market structure and competitive conditions of the supermarket industry will suffer no obvious restrictions as a result of this merger and the overall economic benefits of the merger will be greater than any detriment to restricting competition. Consequently and in accordance with the provisions of Article 12(1) of the Fair Trade Law, the FTC will not prohibit this merger.

Appendix:
Wellcome Taiwan Company Ltd.'s Uniform Invoice Number: 22662257

Summarized by Tai, Pei-Yi; Supervised by Chen, Yuhn-Shan