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The Reitan Group's acquisition of the shareholdings in Hydro Texaco

29. august 2006

4/0120-0401-0005/FI/KH

1. The Reitan Group, which in Denmark primarily conducts its activities through the franchise based grocery chain Rema1000 and the convenience store/kiosk chain 7-Eleven, submitted information to the Danish Competition Authority (DCA) on July 10th 2006 regarding the Reitan Group’s acquisition of the shareholdings in Hydro Texaco A/S (Denmark) which conducts its activities through its service and automated stations, cf. the Danish Competition Act section 12 (b) (1).

2. The consequences of the merger are assessed for the following relevant product markets in Denmark: 1) the retail markets for different petroleum products, 2) the wholesale market for convenience products, i.e. storage and warehousing and 3) the retail market, i.e. the convenience stores’/kiosks’ sale of convenience and kiosk products to consumers.

3. The merger does not significantly impede the effective competition, in particular, as a result of the creation or strengthening of a dominant position, in the above mentioned markets. Therefore, the merger should be approved, cf. The Danish Competition Act section 12 (c) (1) and 12 (c) (2).

Decision

4. The DCA approves the Reitan Group’s acquisition of Hydro Texaco, pursuant to Section 12 (c) (1), cf. Section 12 (c) (2), of the Danish Competition Act.

Background

5. The Reitan Group submitted information to the DCA on July 10th 2006 regarding its acquisition of the shareholdings in Hydro Texaco, cf. the Danish Competition Act section 12 (b) (1).

6. The Reitan Group’s acquisition is done by acquiring Hydro Texaco Holdings A/S (Denmark), which is owned respectively by Norsk Hydro A/S (Denmark) and Texaco Investments Inc. (Netherlands). Each undertaking owns 50 pct. of the shareholdings in Hydro Texaco Holdings (Denmark). Norsk Hydro A/S (Denmark) is 100 pct. owned by Norsk Hydro ASA (Norway).

7. For the purpose of the acquisition the Reitan Group has formed a subsidiary, ‘Aksjeselskabet af 25-6-2006’, to acquire the shareholdings in Hydro Texaco Holdings A/S (Denmark). Hydro Texaco Holdings A/S (Denmark) also owns Hydro Texaco A/S (Norway), and thus the Reitan Group likewise acquires the Hydro Texaco’s activities in Norway, cf. diagram 1 (the circled undertakings are acquired).

8. The Reitan Group will thus own 100 pct. of the shareholdings and the votes in Hydro Texaco Holdings A/S.

9. The acquisition is subject to provisions laid down in The Danish Competition Act, since the combined turnover in Denmark for the notifying parties (The Reitan group and Hydro Texaco A/S Denmark) exceeds 3.8 billion DKK and each undertaking has a turnover exceeding 300 million DKK, cf. table 1 and the Danish Competition Act section 12 (1) and 12 (2). The thresholds in the EC Merger Regulation[1] are not exceeded.

Table 1: Turnover in million DKK, 2005

  The Reitan Group  The Hydro Texaco Group  Combined 
The World   -   -  -
EU   -  -  -
Denmark   -  -  -

Source: The notifying parties.

10. The DCA notified the parties that the notification of the merger was complete on July 27th 2006.

The parties

11. The Reitan Group specialises in the organisation and operation of franchise-based convenience stores /kiosks in the food-retailing sector. In addition, the Reitan Group also possesses a substantial property portfolio and conducts other financial and strategic investments.

12. In Denmark, the Reitan Group is active in the food-retailing business through the grocery chain Rema1000, owned by the Danish subsidiary Rema 1000 A/S, and the franchise convenience/kiosk chain 7-Eleven, which is operated by the Danish subsidiary Reitan Servicehandel Danmark A/S. As per year-end 2005, there were 136 Rema1000 stores in Denmark – primarily located in Jutland – and 55 7-Eleven stores – primarily situated in Copenhagen and larger towns.

13. Hydro Texaco's operations in Denmark comprise sale, distribution and marketing of petroleum products (gasoline, diesel, heating oil, marine gas oil, and lubricants). The sales of gasoline, diesel and lubricants take place through the company's service station chain Hydro Texaco and the automated station chain Uno-X. Hydro Texaco also to a small extent sells electricity to end-customers in Denmark in addition to the sale of fireplaces and pellets. Hydro Texaco, furthermore, sells non-car related consumer goods, and the service stations (except the automated Uno-X stations) offer a selection of convenience and kiosk products.

14. In Denmark, Hydro Texaco has a total of x service stations, whereof x are full-service stations and x are automated Uno-X stations (year end 2005). The ownership and operating structure of the station network is divided into the following categories: i) COCO’s (Company Owned Company Operated – Hydro Texaco owns and operates the station), ii) CODO’s (Company Owned Dealer Operated – Hydro Texaco owns and the dealer operates the station), and iii) DODO’s (Dealer Owned Dealer Operated – the dealer owns and operates the station), cf. table 2.

Table 2: Ownership structure

  Full-service stations (YX)  Automated stations (Uno-X) 
COCO Service   -  -
CODO Service   -  -
DODO Service   -  -
Total   -  -

Source: The notifying parties.

Concentration and the relevant markets

Petroleum products

15. Hydro Texaco’s market shares on the markets for retail sale of motor fuels (respectively gasoline and diesel)[2], heating oil and lubricants amount respectively to approx. x pct., x pct. and x pct.[3] The geographical market is national or narrower than national in scope.[4] In Denmark the Reitan Group is not active on any of the market segments concerning petroleum products except a pilot project of leasing 4 Q8 service stations. The merger, therefore, has little horizontal overlap.

16. The merging parties do not have any vertical overlapping activities on any of the markets for petroleum products.

Convenience and kiosk products

Retail

17. The convenience and kiosk retail market[5] will be more concentrated after the merger, since the parties have horizontal overlapping activities in the convenience and kiosk market. Hydro Texaco’s market share is x pct., the Reitan Group’s market share is x pct. and combined the market share in Denmark is x pct. These market shares are based on the assumption that the so called ‘grey market’ of individual kiosks compete on this market. If the kiosks in the ‘grey market’ are not considered to be a part of the same market the concentration is still not higher than x pct. combined. According to a decision from the European Commission in 2000, 'the relevant geographic market for retail sale of daily consumer goods is delineated by the boundaries of a territory where the outlets can easily be reached by the consumers.' [6] Locally, the market shares might be higher than the above stated, since the 7-Eleven convenience stores/kiosks primarily are situated in Copenhagen and in other large Danish cities. The Hydro Texaco service stations are slightly more concentrated in Copenhagen. Still the merger is assessed not to give rise to appreciable competition concerns.

Wholesale

18. The Reitan Group owns and has 33.33 pct. of the votes of the grocery supply and purchase cooperation Edeka Danmark A/S, which has an agreement with Hydro Texaco’s service stations. ‘A/S Danske Købmænd’ owns and has 33.3 pct. of the votes, the German equivalent to Edeka Danmark A/S, Edeka Nord (Neumünster) owns and has 22.2 pct. of the votes and the central purchasing organisation in Germany ‘Edeka Zentrale KG’ owns and has 11.1 pct. of the votes.

19. On the wholesale market Edeka has a market share of convenience products of 25 pct. The notifying parties state that it is unclear whether there is a separate wholesale market for convenience and kiosk products. The other large supplier and wholesaler is Dagrofa. Dagrofa has a market share of 73.[7] This market has earlier been assessed to be national in scope.[8]

20. The merger will not immediately imply a further concentration of the wholesale market since Edeka already widely supplies the Hydro Texaco service stations. On the other hand, more and more of the products which Hydro Texaco’s DODO service stations purchase may be invoiced or bought directly through Edeka and thus strengthen Edeka’s position on the wholesale market.

21. A market share of x pct. on the wholesale market for convenience products does not give rise to appreciable competition concerns.

Associated agreements

22. The notifying parties have stated that the existing Hydro Texaco convenience stores/kiosks will be changed into 7-Eleven franchise stores. The conversion of the contracts will be carried out ‘with due regard to current legislation and contractual relationship under the existing agreements’.

23. According to section 2 (1) of the Danish Act on Agreements for Gasoline vendors, conditions and registered easements or declarations on supply/distribution of motor fuels etc. for resale concerning binding of goods,[9] such agreements may not include other goods than motor fuels.

24. The parties have not explained how the future agreements will be drawn up in accordance with these rules. However, this question is not a part of the merger approval decision.

Conclusions

25. The Reitan Group’s acquisition of Hydro Texaco does not significantly impede the effective competition, in particular as a result of the creation or strengthening of a dominant position, on any of the above mentioned markets

26. The acquisition is therefore approved, cf. the Danish Competition Act section 12 (c) (2).