Belgian Competition Authority conditionally approves two mergers in highly concentrated local markets

In brief

In March 2016, the Competition College of the Belgian Competition Authority (BCA) conditionally approved two mergers: the acquisition by Kinepolis of Utopia’s four cinema complexes in Belgium and the merger of Ahold and Delhaize. Both mergers raised competition concerns in highly concentrated local markets. In both cases, the Competition College required remedies, which included the divestment of outlets, in order to maintain sufficient competition. Although the decisions concern totally different markets, the Competition College stressed in both cases that the divestiture of the outlets should prevent their closure. Therefore, it attached great importance to the fact that any potential buyer should have the financial means, expertise and incentive to manage the divested outlets and to become a viable competitor.

In detail

In March 2016 the Competition College approved two mergers subject to remedies. Both mergers concerned highly concentrated local markets. In both cases the Competition College considered that remedies would eliminate the competition concerns expressed in the context of the investigation. The decisions have now been made public.

The acquisition by Kinepolis of Utopia’s Belgian cinema complexes

The first merger concerned the acquisition by Kinepolis of Utopia’s four “Utopolis” cinema complexes in Belgium. Kinepolis is the largest operator of cinema complexes in Belgium. In addition, it is a distributor of films.

The transaction did not exceed the Belgian merger control thresholds, but had to be notified to the BCA on the basis of prior conditions imposed on Kinepolis at the time of its creation in 1997. One of the conditions imposed at that time was the prior BCA approval of any future acquisition by Kinepolis. The condition still applies today as a previous request from Kinepolis to obtain release from the condition was unsuccessful.

Although the transaction was notified under the 1997 remedy package and not under the normal merger control regime, the Competition College took the view that the merger control procedure as well as the legal test for concentrations applied. Hence, during the in-depth Phase II investigation it was assessed whether the acquisition would significantly impede competition on the national and local markets for the screening of films in cinemas, as well as on the vertically related national market for the distribution of films for screening in cinemas.

The investigation concluded that the merger would significantly impede competition. It would eliminate an important competitor and allow Kinepolis to considerably increase its market share on the national and local markets. According to the investigation team, this was likely to have important negative unilateral effects for consumers (by way of price increases and a less diverse film offer); competitors (because Kinepolis’ improved economies of scale, stronger negotiating position vis-à-vis movie distributors and other suppliers and the increased barriers to entry and expansion); and film distributors (in light of Kinepolis’ strengthened negotiating position).

In order to meet the identified competition concerns, the Competition College imposed both structural and behavioral remedies. Structural remedies include the divestiture of two of Utopolis’ cinema complexes in the local markets where Kinepolis and Utopolis primarily compete: Mechelen and Aarschot. The remedy should allow a viable new player to enter the market or an existing market player to strengthen its position.

The behavioral remedies are designed to address the concerns of a price increase at the cinema complexes in Turnhout and Lommel. The remedies have been imposed for a three year period and include commitments to maintain the existing Utopolis’ voucher system and keep the complexes open. In addition, Kinepolis must monitor and report to the BCA on the price/quality customers’ satisfaction ratio in Turnhout and Lommel.

The merger of Ahold and Delhaize

On 15 March 2016, and in the context of a Phase I procedure, the Competition College conditionally approved the merger between Ahold and Delhaize. The case was examined by the BCA following a referral by the European Commission upon request of the parties.

Delhaize and Ahold both operate chains of supermarkets and specialist stores. Although both parties are present throughout Europe and the US, their activities only significantly overlap in Belgium.

The investigation considered the impact of the merger on the national market for the procurement of daily consumer goods and the local markets for the resale of such goods.

With regard to the national procurement market the investigation team concluded that the merger would not significantly impede competition. Although the merger would strengthen the market position of the parties at national level, the increase would be limited. In addition, the investigation team noted an efficiency in the sense that the proposed merger would enable the parties to improve their negotiating position with suppliers at a supra-national level. However, the investigation team reached a different conclusion with regard to the local selling markets. The investigation showed that the parties were close competitors in already highly concentrated and saturated local markets, resulting in a combined market share of more than 50% in some markets. In addition, as a recent entrant Ahold was found to exert a considerable competitive pressure on Delhaize and the other retailers and their ability to raise prices.

Due to the cumulative effect of the aforementioned competition concerns, the Competition College concluded that the merger would significantly impede competition on some local markets. To meet these concerns, the parties agreed to divest 19 supermarkets. These include supermarkets which are already in operation and a number of supermarkets which are yet to open. The remedy should allow a new player to viably enter the Belgian market and take the place of Ahold.

Comment

Although both decisions concern totally different markets, the Competition College took similar factors into consideration when assessing the appropriateness of the remedies. In both cases, the Competition College emphasized that the divestiture of the outlets should prevent their closure. Therefore, it attached great importance to the fact that any potential buyer should have the financial means, expertise and incentive to manage the divested outlets and to become a viable competitor to the merging parties and other competitors on the market. Hence, the remedies are aimed at maintaining a sufficient level of competition on the relevant (local) markets.

However, both cases show a different approach towards remedies discussions. In the Kinepolis/Utopolis case, the parties were only willing to initiate discussion of remedies after the opening of the Phase II procedure. In addition, the remedies were subject of extensive discussions between the parties and the investigation team and required several market tests. This resulted in a protracted review procedure. In the Ahold/Delhaize case the parties broached the subject of remedies early on in the procedure by offering a detailed package of structural remedies shortly after the notification. This allowed the Competition College to clear the transaction in the context of a Phase I procedure.

The Ahold/Delhaize case is yet another example of the BCA’s practice of approving complex mergers leading to significant market positions in highly concentrated markets in the context of a swift Phase I procedure (the Kinepolis’ case is an exception in this line of decisions). Parties involved in such cases are therefore well-advised to engage in early remedies discussions.