Competition Bureau Provides Guidance on Minority Interest Transactions

The Competition Bureau (the “Bureau”) has released its Position Statement regarding why it obtained a Consent Agreement (the “Agreement”) in connection with the acquisition of La Coop fédérée (“LCF”) in Groupe BMR.

Background

As reported in our previous post, the Agreement requires that (i) certain store franchisees in four local markets in the Province of Québec find new banners under which to operate; and (ii) that LCF and BMR continue to supply the stores on competitive terms until either a new franchisor is found or the end of 2014.

For additional background on the transaction regarding LCF and BMR, please click here.

Bureau’s Analysis

While the position statement did not disclose the percentage of the minority interest acquired by LCF, it did note that the Bureau analyzed the potential competitive effects of the acquisition as it would a full merger between the parties. Below are some of the key highlights from the Bureau’s analysis.

  • Materially Influence Economic Behaviour.  The focus of the Bureau’s analysis was whether LCF’s minority interest would allow it to be in a “position to materially influence the economic behaviour” of BMR and LCF franchisees. In this case, because the LCF and BMR retail networks primarily consist of franchised stores, the Bureau considered factors such as purchasing requirements, information exchanged between the parties and their franchisees, retail pricing practices, marketing obligations and practices, as well as the parties’ integration plans post-transaction. Ultimately, the Bureau concluded that LCF would be in a position to materially influence the economic behaviour of BMR and its franchisees, who also competed with LCF franchisees.
  • Retail Markets are Local. Consistent with its review of brick and mortar retail mergers (including the recent Sobeys/Safeway merger) the Bureau found that the relevant geographic market for the retail sale of hardware products and building materials is local. Consumers choose retailers based on factors such as price, convenience, and the proximity of the stores and services.
  • Remaining Competition. While the Bureau concluded that sufficient competition (from retailers including Rona, Home Hardware, Ace, and Canac) would remain and that barriers to entry or expansion into new lines of products for existing retailers were relatively low, it identified four local markets where (i) LCF and BMR are each other’s closest competitors, (ii) there is limited or no remaining competition, and (iii) new entry is unlikely due to market saturation

Based on its analysis, the Bureau determined that the only appropriate remedy to preserve competition in these four markets was for LCF or BMR to terminate their franchise agreements so as to enable the entry of new competition.

For a copy of the Bureau’s position statement regarding LCF and BMR, please click here.

For a copy of the Consent Agreement registered with the Competition Tribunal regarding LCF and BMR, please click here.