Affected market: Grocery retailing
The OFT’s decision on reference under section 33(1) given on 21 April 2009. Full text of the decision published on 24 April 2009
Tesco plc (Tesco) is the UK's largest grocery retailer.
Somerfield Limited (Somerfield) is a grocery retailer which was acquired by Co-operative Group Limited in February 2009.
FreshXpress Retail Limited (FreshXpress) was a grocery retailer which is currently in administration.
On 25 March 2009 a contract between Tesco and Somerfield was signed transferring Somerfield’s lease to Tesco on a retail property located on Four Acre Lane in the Clock Face area of St Helens. Somerfield is not the freeholder of the property but rather had the lease to the property and it allowed FreshXpress to operate from the site (Tesco submitted that FreshXpress never had a formal lease to the property despite operating as a supermarket from it).
FreshXpress has not traded at the St Helens site since 19 January 2009 (as a result of FreshXpress entering into administration) and Somerfield [see note 1] has not traded at the site since 2007. However, given that one supermarket operator (Tesco) has taken on the lease for a site around two months after another supermarket operator (FreshXpress) exited that site, the OFT has carefully considered the substance of the overall transaction, rather than just its legal form, to determine whether two enterprises have ceased to be distinct. Given that the jurisdictional aspect of the reference test under the Enterprise Act 2002 (the Act) is whether it is or may be the case that a relevant merger situation has been created, the OFT is required to take a cautious approach to jurisdictional matters at the phase I stage.
The relevant substantive facts are as follows.Tesco has not acquired any tangible or intangible assets from FreshXpress. TUPE regulations [see note 2] do not apply in this case with respect to FreshXpress’ staff at the St Helens store. Regarding goodwill, given the frequency of grocery shopping for the bulk of consumers, the OFT does not expect that a material degree of goodwill will be passed to Tesco after more than two months of the store being closed. [see note 3] There has been no consideration paid by Tesco to FreshXpress or its administrator (directly or indirectly).
Given the above factors, the OFT does not consider that, in this case, the assignment of a lease from Somerfield to Tesco is on its own sufficient to constitute an enterprise. This finding is consistent with the Tesco in Redruth case [see note 4] but is without prejudice to other transactions in which the circumstances and context are such that it may be the case that an assignment of a lease could form part of the basis for the finding of an enterprise.
For completeness, the OFT notes that the facts of this case differ from other recent transactions in which the OFT found that the transfer of some assets and employees did constitute an enterprise. In particular: in the Cineworld at Wood Green case [see note 5] fixtures and fittings were transferred, as potentially were employees (through the TUPE regulations); and in the Home Retail/Focus case [see note 6] the assets transferred included the lease and, in the OFT’s view, inevitable goodwill; employees were also transferred (again, through the TUPE regulations).
On the basis of the information available to it, the Office of Fair Trading has decided that the assignment of the lease at the St Helens site to Tesco does not qualify for investigation under the mergers provisions of the Act because it is not an enterprise as defined in section 129 of the Act. A relevant merger situation has, therefore, not been created.
As a Kwik Save branded store.
Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246.
Tesco submitted that once re-fitting has taken place at the site, the store would have been closed for considerably longer than two months. The OFT is aware of no suggestion that the closure of the store was in any way designed to avoid merger control from applying.
Completed acquisition by Tesco plc of property in Redruth (Pool) Cornwall, formerly traded by Woolworths Group plc, OFT decision of 17 April 2005, Case ME/1556/05.
Anticipated acquisition by Cineworld Group plc, through its subsidiary Cine-UK Limited, of the cinema business operating at the Hollywood Green Leisure Park, Wood Green, OFT decision of 17 March 2008, Case ME/3390/07.
Completed acquisition by Home Retail Group plc of 27 leasehold properties from Focus (DIY) Ltd, OFT decision of 15 April 2008, Case ME/3427/07.