Carrefour Co., Ltd. and Tesco Co., Ltd. are merging and filing a merger report with the Fair Trade Commission according to Article 11 of the Fair Trade Law

Chinese Taipei

Case:

Key Words:

Merger, distribution enterprise, hypermarket

Reference:

Fair Trade Commission Decision of November 17, 2005 (the 732nd Commissioners’ Meeting)

Industry:

Retail Outlet (4754)

Relevant Laws:

Article 6 、Article 11 and Article 12 of the Fair Trade Law

Summary:

1. Carrefour Co., Ltd. (also called Carrefour, hereinafter referred to as Carrefour) plans to hold or acquire all shares of Tesco Co., Ltd (that is Tesco, hereinafter referred to as Tesco); such act meets the situations defined in Article 6, Paragraph 1, Subparagraph 2 and Article 6, Paragraph 1, Subparagraph 5 of the Fair Trade Law. In addition, sales for the preceding fiscal year of Carrefour and Tesco were respectively more than NT$ 100 hundred million and NT$ 10 hundred million, meet the threshold amount for filing merger application stipulated in Article 11, Paragraph 1, Subparagraph 3 of the Fair Trade Law. Therefore, this merger shall be filed with the Fair Trade Commission in advance.
2. The substitutability of demand and supply for a particular good or service shall be considered in defining its relevant market boundary. The investigation found that both hypermarkets and supermarkets provide at least 6,000 items of low-priced daily necessities, foods, and others; become important channels for suppliers to sell their products and also enable consumers to purchase their daily necessities at one place. The market has high degree of substitutability from the suppliers and consumers perspective. If Carrefour raises the price of one of its products, the consumers immediately will change their trading counterpart and substitute the product of other hypermarket or supermarket for the aforementioned product. The said two companies or their potential competitors do not have regional constraint; and thus can provide substitute goods or services immediately throughout Chinese Taipei. Therefore, the relevant market in this case is defined as the hypermarkets and supermarkets within the boundary of Chinese Taipei (hereinafter referred to as hypermarket and supermarket industry).
3. The turnover of Carrefour and Tesco in 2004 was respectively 20.61% and 2.93% of the total turnover of hypermarket and supermarket industry. The HHI index for hypermarket and supermarket industry is approximately 1,190, the index will increase by 121 after the merger, and the industry has moderate market concentration. In addition, even though the market share for the four largest enterprises (that is CR4) is 56.77%, however, only the two largest enterprises, Carrefour and RT-Mart have market share of 20% each, following by PXMart, Geant and Wellcome whose market share is respectively less than 10%. The market share for the remaining thirty and more enterprises are all less than 5% each. Therefore, although the hypermarket and supermarket industry has moderate market concentration, there are still many competitors in the market and the competition in hypermarket and supermarket industry is sustainable.
4. The investigation also found that after the merger suppliers will have more trading opportunities, and the bargaining power of Carrefour with its upstream suppliers may be increased. However, some upstream suppliers can countervail this bargaining power because of their brand advantages, thus this merger has not yet imposed any harmful impact on the upstream trading counterparts. Furthermore, there is no legal, technology or capital barrier for entering the hypermarket and supermarket industry and the products sold by hypermarket and supermarket industry have high degree of substitution. Hence, Carrefour still cannot neglect conducts of the existing or potential competitors after the merger, and hence cannot arbitrarily raise the products’ prices or cut the product’s supply. Moreover, a consensus of competition restraints indeed cannot be obtained easily as there are large numbers of competitors in the market. Therefore, after the merger of Carrefour and Tesco, it is unlikely that the competition will be lessened.
5. This merger not only expands the trading opportunities for suppliers, the products’ prices can even be lowered as Carrefour can increase the volumes of its purchases. In addition to having more variety of products for selections, the consumers are also able to buy quality products at lower prices. As Tesco has not operated well, this merger not only expands the trading opportunities of Tesco’s suppliers and furthermore its consumers can continue to shop at the original stores, also the employees of Tesco will not loose their jobs. Moreover, this merger is conducive to Carrefour in acquiring professional management and knowledge, experienced personnel, more selling points, larger sales volume, lower operating cost, and combination synergy to increase operation efficiency. Therefore, this merger will exert positive impact and beneficial to both domestic consumers and economy as a whole.
6. The enterprises of this merger do not pose significant impact on the market structure and competition of the relevant market; the overall economic benefit of this merger outweighs the disadvantages resulted from competition restraint and hence in accordance with Article 12, Paragraph 1 of the Fair Trade Law, a prohibition of this merger is not yet needed. However, in order to prevent the enterprise in this merger from exploiting the merger by carry out competition restraint or abuse its market position, as well as to ensure that the overall economic benefit of this merger outweighs the disadvantages resulted from competition restraint, therefore, in accordance with the provision of Article 12, Paragraph 2 of the Fair Trade Law, the following undertakings are required and attached to the decision of this merger report:
   • The enterprise in this merger shall not exploit the market position that obtained from this merger to restrict its trading counterparts from having business transaction with particular enterprises.
   • The enterprise in this merger shall not exploit the market position that obtained from this merger to make improper price decision, support, or change, or has any conduct of impeding fair competition with other enterprises, or other abuses of its relative advantage position in the market.

Summarized by Yang, Chung-Lin;
Supervised by Chen, Yuhn-Shan

Appendix:
Carrefour Co. Ltd.’s Uniform Invoice Number: 22662550