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Wholesale society in the building materials sector permitted to adjust commitments

31. august 2006

4/0120-0500-0001/FI/CGA The Council meeting 31 August 2006

In its meeting on 31 May 2006, the Competition Council adopted adjustments in the commitments given by the wholesale association Ditas and made a condition for approving the merger with the wholesale society Dendek in April 2002.

Ditas is Denmark's largest buying organisation in the building-materials industry, with an annual through-invoiced turnover of approx. EUR 940 million. Ditas is owned by some 85 independent Danish timber merchants who own some 220 of the approximately 450 outlets of building materials in Denmark. Apart from its purchasing and finance functions, Ditas operates the two building materials chains and a chain of trade shops. The merger made Ditas the largest player on the purchase market for building materials

As conditions of approving the merger, the merging parties committed themselves to a range of limitations in their purchase agreements and on their business behaviour. These restrictions should enhance admission to the market for new suppliers, secure the right of the suppliers to trade with other costumers and grant rights of the members of the wholesale society to deal with suppliers without an agreement with Ditas as well as with the suppliers having an agreement with Ditas, but on other conditions.

Ditas had applied the Competition Council for adjustments in the commitments. Ditas wanted the possibility of committing its members, when doing business with Ditas’ suppliers, to purchase according to Ditas agreements with these suppliers. Furthermore Ditas wanted to be able to commit their members to buy and market a certain basic assortment of building materials from the suppliers with whom Ditas had purchase agreements. Finally Ditas wanted to be allowed to make agreements with suppliers containing provisions of individual bonus based on a retroactive bonus scale with a bonus accumulation period of one year.

Ditas had argued that there had been an increasing internationalisation in the market since the merger. Furthermore, acquisitions in the market had reduced Ditas share of the market.

The Competition Council did not agree that substantial changes in market structure had taken place since the merger between Ditas and Dendek was approved. On the contrary, the Council supports the view, that the construction sector still suffers from heavy competition deficiencies.

However, the Competition Council could recognize the wish of Ditas of committing its members to marketing a certain assortment of products and to let all business with suppliers with whom Ditas has agreements take place according to these agreements. The effect of these adjustments is a strengthening of the buying power of Ditas as a voluntary chain and a likely increase in its competitiveness against its strongest competitor – Danske Trælast, a capital chain. Taken that into account, the Competition Council decided to adjust the conditions, to open up for these possibilities.

However, the Competition Council could not meet the wish of Ditas to return to the bonus systems used before the merger, based on a retroactive bonus scale and on bonus accumulation periods of one year. But the Competition Council, as an alternative to the bonus system permitted since the merger, gave Ditas the option of making agreements with suppliers containing bonus provisions based on an incremental bonus scale, a bonus accumulation period of one year and a maximum marginal bonus of 7 percent.