The UK Competition and Markets Authority (“CMA”) has published new commentary to inform companies on how it assess retail mergers. The commentary should be read by any retailer considering merging with a competitor in the UK.

On 10 April 2017, the CMA published new commentary on how they will assess retail mergers. The commentary is an update to a 2011 publication by the then Office of Fair Trading. The CMA felt that it had assessed a lot of retail mergers over the last 6 years and was now in a position to update its guidance for companies and their advisers.

The interest to retailers will be for anyone considering a merger in the UK, especially to a close competitor. The CMA has developed its thinking, particularly with regard to the relationship between online and bricks and mortar sales. We believe there are three main takeaways from the updated commentary:

  1. Locality and catchment area: When assessing competition for bricks and mortar stores, the CMA starts with the performance against competing stores in the local area. The catchment area will be where the shop derives 80% of its sales from and the CMA can use the store’s own data to assess the location of the customers, such as using loyalty cards and delivery records. Catchment areas may also vary depending on a stores size and between urban and rural areas. One size does not fit all.
  2. Claims as to online competition: The CMA has specifically singled out claims of online competition as needing scrutiny. This could occur for example where two close bricks and mortar competitors are merging, but insist any price rises will be tempered by online sales. The CMA will closely scrutinise these claims, likely based on evidence. This is clearly an argument they have heard too many times and hold little credence in it until proved.
  3. Internal documents and Data: As can be seen from the above, the CMA can request internal documents and data to help build their picture of the genuine competitive environment. Therefore, audit your own documents and data and be consistent with your arguments to the regulator. For example, it’s no use arguing that your number one competitor is online competition when your own management presentations and data point solely to local bricks and mortar competitors. Legal advisors and economists can do a lot of this competitive audit work at the outset of a merger or even in its negotiation, placing your anticipated merger in the best position come time to submit your regulatory documents.

The commentary can be found by following this link: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/607524/retail-mergers-commentary.pdf