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CARREFOUR

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Carrefour : Merger Control In France And Two Blocking Decisions

07/08/2021 | 02:10am EDT

I. THE SCOPE OF MERGER CONTROL IN FRANCE

The Autorité de la concurrence was invested with the power of blocking merger in 2009. The relevant provisions for merger control in France are Articles L.430-1 to L.430-10 and R.430-1 to R.430-10 of the French Commercial Code (FCC). The Autorité does not examine all mergers that take place in France. The Autorité review a merger when the following conditions are met:

For the general thresholds (Article L.430-2 I of the FCC):

  • The total global pre-tax turnover of all the undertakings or groups of legal persons or individuals who are parties to the merger is greater than 150 million euros;
  • The total pre-tax turnover generated in France by at least two of the undertakings or groups of legal persons or individuals concerned is greater than 50 million euros;
  • The transaction is not within the European Union's jurisdiction and the EUMR (European Union Merger Regulation)

Specific thresholds apply to transaction in the retail section (Article L.430-2 II of the FCC):

  • The combined worldwide turnover of all the undertakings involved exceeds 75 million euros;
  • The turnover achieved in the retail sector in France by each of at least two of the undertakings involved exceeds 15 million euros;
  • The transaction is not within the European Union's jurisdiction and the EUMR (European Union Merger Regulation)

There are also specific thresholds to transactions in French overseas territories which are governed by Article L.430-2 III of the FCC.

Where the transaction concerns the territory of several Member States and the turnover of the companies concerned is very large (particularly if the global turnover is in excess of 5 billion euros for all parties to the transaction and 250 million euros is generated by at least two of the companies within the EU), the European Commission has jurisdiction. However, it can choose to pass the review to the Autorité if it believes the Autorité is best placed to review the case. This is generally the case where the transaction will mainly have an effect in France.

The notification is mandatory for all mergers that meet the above-mentioned conditions. Any company that meets the conditions to notify a transaction but fails to refer it to the Autorité risks a fine for failing to notify.

When reviewing a merger, the Autorité carries out an analysis that includes the impact of the transaction on competition in the relevant market(s), the effect on competition in the sector but also on suppliers, customers or prices and quality etc.

As for the timing:

  • If the deal does not pose any major competition issues, the Autorité may clear the transaction unconditionally or subject to conditions at the end of a rapid review known as phase 1 (25 working days maximum).
  • If doubts remain, following this first review, as to the risk it poses to competition, the Autorité opens an in-depth examination, known as phase 2 (a further 65 working days).

Most mergers did not in the past pose a problem and were the subject of a simplified procedure that takes 3 weeks.

At the end of its review, the Autorité can reach 3 different outcomes:

  • The transaction is clear unconditionally.
  • The transaction is clear if certain conditions are met (such as commitments or measures ordered).
  • The transaction is blocked.

The parties must wait the Autorité's final decision. If the merger starts before the authorization of the Autorité ("gun jumping") the parties risk a fine.

The accepted commitments are binding for the parties. If not complied with, the Autorité can withdraw the decision clearing the deal, impose a fine or order the parties to implement the remedies under a periodic penalty payment.

Two types of commitments can be proposed:

  • Structural, i.e. relating to the market structure (retailers, brands, companies, factories).
  • Behavioural, i.e. relating to the new entity's actions, e.g. its commercial policy.

In the event of disagreement with the companies or if the proposed commitments would not address the competition concerns, the Autorité can impose remedies by issuing injunctions. When remedies appear to be necessary, the Autorité consults the market via questionnaires and meetings/hearings to gather the views of interested third parties (competitors, suppliers, customers).

Exceptionally, the Minister of the Economy can require a case to be put into phase 2, or "evoke" it, i.e. override the Autorité's decision by adopting a decision based on public interest reasons other than upholding competition (industrial development, international competitiveness of the companies in question, job creation or protection).

Finally, the parties and any interested third parties have two months to appeal against a decision by the Autorité de la concurrence before the French Administrative Supreme Court (Conseil d'État).

II. IN AUGUST 2020, THE AUTORITÉ BLOCKED FOR THE FIRST TIME A MERGER WHILE EXERCISING ITS MERGER CONTROL POWER

Since invested with the power to block mergers, the Autorité issued its first blocking decision in August 2020. Soditroy and the Association des Centres Distributeurs E. Leclerc (ACDLec) were planning to acquire joint control of a Géant Casino hypermarket in the conurbation of Troyes. This operation raised some important competition concerns relating to price increases for consumers to which no remedies were capable to address these concerns. Thus, the Autorité decided to block the merger.

For the relevant markets, the operators are active in the upstream consumer product supply markets and the downstream retail distribution markets predominantly for food products.

The competition concerns in the case were as follows:

The disappearance of Géant Casino would have caused a significant loss of diversity for consumers

In an area which, prior to the merger, had two Carrefour hypermarkets, a Leclerc hypermarket and a Géant Casino hypermarket, the disappearance of Géant Casino would automatically have led to a reduction in the diversity of products offered to consumers.

A risk of increased prices due to unilateral effects

The Autorité noted the pricing policy at the Géant Casino hypermarket were high compared to its competitors in the area, which would lead to a loss of customers and poor sales performance for this store. A takeover of the Géant Casino store by the Leclerc store would naturally give rise to a risk of increased prices (or lower price reductions) by eliminating the competition between these two stores.

Risk of coordinated effects: facilitating the coordination of the behavior of the sales outlets operated by Carrefour and E. Leclerc

Lastly, the merger would have created a duopoly between the hypermarket retailers Carrefour and E. Leclerc in the conurbation of Troyes, which would have facilitated tacit coordination in the catchment area concerned.

The Autorité first noted that the retail distribution market for predominantly food products is a transparent market in which the stakeholders can easily find out about the behavior of their competitors (prices, promotions, etc.). Then, based on the fact that the merger would have created a balanced duopoly in the Troyes area both in terms of store surface area and the geographical location of the different sales outlets, the Autorité found that each of the stakeholders would have been in a position to retaliate in the event of divergences from the common line adopted, which would not have been possible prior to the merger. Lastly, the Autorité considered that there would be no current or potential competitor remaining capable of challenging coordinated behavior by Carrefour and E. Leclerc.

When examining the expected contribution of the merger to economic progress, the Autortié considered that the parties to the transaction had not proven that the planned merger would generate sufficient efficiency gains to counterbalance the competition concerns identified.

In order to address the competition concerns identified, the notifying parties submitted a commitment proposal that would, according to them, remedy the concerns identified on the retail distribution market for predominantly food products by proposing to reduce the surface area of the Géant Casino store from 8 210 m˛ to 6 000 m˛. The commitments proposed by the parties were not considered to be tailored to eliminating the competition concerns identified. Such a commitment would in fact reduce the product offering available to consumers.

In the absence of suitable remedies, the Autorité decided to block the notified merger.

III. IN MAY 2021, THE AUTORITÉ DE LA CONCURRENCE BLOCKED FOR THE SECOND TIME A TRANSACTION

The Autorité, carried out an in-depth examination of the transaction involving the takeover of the Pipeline Méditerranée-Rhône (SPMR) by the Ardian group. However, faced with the insufficiency of the proposed commitments and the impossibility of issuing injunctions, the Autorité blocked the transaction. The Ardian group already owns 42,2 % of SPMR. The transaction consisted of a takeover by the Ardian Group of the 5% of the capital shares held by another shareholder, ENI.

The Ardian group is a private investment company active in the transport, telecommunications and renewable energy sectors. The SPMR is active in the transport of hydrocarbons by pipeline.

The competitive concerns of the Autorité were as follows:

The Autorité considers the SPMR as an essential infrastructure.

The SPMR is in a monopoly position on the market for the transport of refined petroleum products by pipelines in the south of France. Besides that, the SPRM is essential for customers since other alternatives do no not constitute a credible alternative for them. In addition, the SPMR is an infrastructure that cannot be duplicated by a competitor since the field requires a high amount of investment for the creation of an oil pipeline and the regulatory constraints of the licensing regime.

The transaction has the effect of giving Ardian the ability to decide on its own the PMR's commercial policy.

Prior to the transaction, the shareholding of the SPMR was fragmented, so that the decision-making process was blocked. The transaction (acquiring the 5% shares of ENI) would thus have allowed Ardian to decide on its own the commercial policy of the PMR and thus the price level. Ardian would have used SPMR's monopoly situation in order to increase its own prices. Moreover, Ardian could have decided to degrade the quality of services offered by the SPMR or limit investments.

Insufficient state control to prevent Ardian from using the market power conferred by SPMR control.

The Autorité noted that the State (the Government Commission and the Minister in charge of energy) currently exercise a control over SPMR. However, this control is limited. Consequently, for the Autorité this control by the State is not enough to prevent potential competition damages possible to occur after the transaction.

In addition, Ardian has not demonstrated that the notified transaction is likely to generate efficiency gains that would offset the anticompetitive effects of the transaction. The Autorité did not accept Ardian's various commitments in order to address competitive risks since they were deemed insufficient.

As for injunction, the Autorité noted that no structural injunctions could be issued since the identified risks were related to the transaction itself. Regarding behavioural injunctions, the Autorité focused on the fact that SPMR has a monopoly situation in the market and the sectoral regulations. According to the Autorité, the only possible way to accept this type of transaction is that regulatory authorities include in competitive concerns in their regulations, since an injunction cannot replace a sectoral regulation. Finally, the Autorité noted the impossibility of issuing injunctions, whether of a structural or behavioral nature. Regarding structural injunctions, the Autorité considered that such a possibility was excluded, since the risks identified by the Autorité relate directly to the notified transaction, the takeover of the PMR by Ardian. No structural injunction would therefore have been able to address competition concerns.

In consequence, the Autorité blocked the transaction since no corrective remedy has been reached in identified the form of injunctions or commitments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Metin Pektaş
Nazali
19 Mayıs Cad. Dr. İsmet
Öztürk Sok. Elit Residence
Kat 4-10-29 Şişli 34360
Istanbul
TURKEY
Tel: 212217 1880
Fax: 212217 1890
E-mail: info@nazali.com
URL: www.nazali.av.tr/

© Mondaq Ltd, 2021 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source Business Briefing

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