Kinepolis's acquisition of Utopia's cinema complexes
Ahold/Delhaize merger
Comment
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.
Kinepolis's acquisition of Utopia's 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 Competition Authority 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 Competition Authority approval of any future acquisition by Kinepolis. The condition still applies, 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 significant negative unilateral effects on:
- consumers (by way of price increases and a less diverse film offer);
- competitors (because Kinepolis's improved economies of scale, stronger negotiating position with movie distributors and other suppliers and the increased barriers to entry and expansion); and
- film distributors (in light of Kinepolis's strengthened negotiating position).
In order to meet the identified competition concerns, the Competition College imposed both structural and behavioural remedies. Structural remedies included the divestiture of two of Utopolis's 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 behavioural remedies were 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 Utopolis's existing voucher system and keep the complexes open. In addition, Kinepolis must monitor and report to the Competition Authority on customers' price and quality satisfaction ratio in Turnhout and Lommel.
On March 15 2016, in the context of a Phase I procedure, the Competition College conditionally approved the merger of Ahold and Delhaize. The Competition Authority examined the case 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 United States, their activities significantly overlap only 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 sales 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.
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 emphasised 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 were aimed at maintaining a sufficient level of competition on the relevant local markets.
However, the cases differed with regard to the parties' approach to remedy discussions. In Kinepolis/Utopolis the parties were willing to initiate discussion of remedies only after the opening of the Phase II procedure. In addition, the remedies were the subject of extensive discussions between the parties and the investigation team and required several market tests. This resulted in a protracted review procedure. In Ahold/Delhaize 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.
Ahold/Delhaize is yet another example of the Competition Authority's practice of approving complex mergers leading to significant market positions in highly concentrated markets in the context of a swift Phase I procedure (Kinepolis/Utopolis is an exception in this line of decisions). Parties involved in such cases are therefore well advised to engage in early remedy discussions.
For further information on this topic please contact Koen Platteau or Geneviève Borremans at Simmons & Simmons LLP by telephone (+32 2 542 0960) or email ([email protected] or [email protected]). The Simmons & Simmons LLP website can be accessed at www.simmons-simmons.com.
