The acquisition of Southern Co-op by Co-op Group faces increased regulatory scrutiny after the UK Competition and Markets Authority (CMA) detect potential competition problems in certain local markets.
The assessment corresponds to Phase 1 of the process, according to the agency, the combination of both cooperatives could substantially reduce competition in some areas due to the overlap between their retail activities.
The CMA sets a deadline for Co-op Group and Southern Co-op
For now, the CMA decision does not block the operation, Co-op Group and Southern Co-op have until September 22 to submit legally binding commitments that address the concerns raised by the regulator.
The measures proposed by both companies will be crucial in determining the next step in the process, if the CMA considers that the commitments adequately address the identified issues, the acquisition could proceed without further investigation.
However, if the solutions are not sufficient, the agency may refer the operation to a Phase 2 investigation, which would allow for a more detailed analysis of its potential effects on consumers and competition in local retail markets.
The analysis focuses on store overlap
The CMA review focuses particularly on areas where the supermarket and convenience store networks of both cooperatives overlap.
Co-op Group operates more than 2,500 stores and is among the leading food retailers in the United Kingdom Southern Co-op, for its part, maintains a more regional presence, mainly concentrated in the south of England.
In addition to its convenience stores, Southern Co-op develops activities related to funeral services and Starbucks establishments.
For this reason, the national size of Co-op Group is not the only relevant factor for the regulator, the concentration of establishments in certain locations can directly influence the number of alternatives available to consumers after the acquisition.
Southern Co-op enters the transaction under financial pressure
The review also comes at a time of financial pressure for Southern Co-op, which has seen its profits decline over the past three years. Its results were also impacted by the fallout from the cyberattack suffered by Co-op last year.
Furthermore, both organizations already maintain commercial ties, Co-op Group and Southern Co-op participate in the Federal Retail Trading Society, used by various cooperatives to coordinate activities related to purchasing and supply.
This context accompanies a transaction that would expand Co-op Group’s retail presence and which must now overcome competition concerns raised by the CMA.
The acquisition of Southern Co-op could move to Phase 2
Attention will now focus on the commitments that Co-op Group and Southern Co-op will submit before the deadline set by the regulator.
The conclusion of Phase 1 does not represent a prohibition on the acquisition, but rather a warning about the possible effects that the operation could generate in certain markets.
The procedure allows companies to propose solutions aimed at reducing those concerns before a decision is made about a more in-depth investigation.
If the CMA accepts the measures presented, the acquisition could continue without going to Phase 2, otherwise, the agency will deepen its analysis of competition in the areas where the operations of both cooperatives overlap.
Source: Reuters
Photo: Shutterstock
