Kaiser's-Edeka No Express Lane for Grocery Merger

German antitrust authorities are objecting to a sale that would make the country's leading grocer, Edeka, even bigger. The objections complicate the plans of Karl-Erivan Haub, who has threatened to break up and sell money-losing Kaiser's Tengelmann if regulators block its sale.
Antitrust concerns seem likely to block a German supermarket merger that would boost the size of the current market leader, Edeka. The sale of the Kaiser's chain is a central part of the turn-around strategy of Karl-Erivan Haub, the CEO of Tengelmann.

Germany’s Monopolies Commission has serious reservations about a proposed retail merger that would make the country’s biggest supermarket chain, cooperative group Edeka, even bigger, Handelsblatt has learned. The opposition may lead to the breakup of the seller, Kaiser's Tengelmann.

The commission, an independent panel of experts that advises the German government on competition issues, said the proposed takeover of some 450 Kaiser’s Tengelmann supermarket branches would hamper competition in the grocery purchasing and retail markets.

“The Monopolies Commission is not convinced that a merger of Kaiser’s Tengelmann with Edeka would be better, and especially secure more jobs, than an alternative constellation,” Daniel Zimmer, the head of the Monopolies Commission, told Handelsblatt.

The commission’s recommendation, made in a report, isn’t binding for German Economy Minister Sigmar Gabriel, also the vice chancellor, who is expected to decide in the coming weeks whether to allow the tie-up. In most cases, the government accepts the competition watchdog's views.

The commission's opinion comes three months after another regulator, the German Federal Cartel Office, blocked the acquisition in April, saying it “would have greatly limited choice for local consumers and the possibilities for them to switch to another retailer.”

Edeka is the supermarket industry market leader in Germany with a share of around 20 percent through its Edeka own-name stores and its Netto discount chain, according to a study by market research firm Trade Dimensions that was published in March.

Edeka had sales of €51.85 billion, or $56.8 billion, in 2014, well ahead of the number two, Rewe, with €38 billion.

By comparison, Kaiser’s Tengelmann, which operates in the mid- and upper-price grocery segments, ranks seventh as a supermarket retailer in Germany but has a market share of up to 30 percent in some German cities.

The Federal Cartel Office in April blocked the acquisition, saying it “would have greatly limited choice for local consumers and the possibilities for them to switch to another retailer.”

The commission’s recommendation is a blow to the the chief executive of the 148-year-old Tengelmann group, Karl-Erivan Haub, who is intent on selling the Kaiser's chain, which last year lost €40 million. The company hasn’t made a profit in any of the 16 years since since Mr. Haub took over. Its losses in that time amount to €500 million. “We can’t shoulder that any more,” he said.

Family-owned Tengelmann also owns do-it-yourself stores under the OBI brand and a discount clothing chain, KiK, neither of which it plans to sell. It also has a venture capital unit to fund start-ups that has 40 stakes in its portfolio, including in a German online fashion retailer, Zalando.

Mr. Haub argued that a merger of Kaiser's with Edeka would protect thousands of jobs and boost tax revenues by putting the merged group on an improved business footing.

But the commission, in its report, rejected both claims. The commission said an Edeka takeover would lead to “not insignificant job reductions.” As for tax revenues, any impact from a merger “would not be calculable and quantifiable with any sufficient certainty,” the report said.

 

Quelle: dpa
Markus Mosa, the CEO of Edeka, Germany's leading supermarket retailer, had hoped the purchase of the rival Kaiser's chain would strengthen its position. But antitrust regulators may block the deal. Here, Mr. Mosa before Edeka's annual press conference in Hamburg in April 2014.
(Source: dpa)

 

Government leaders and Verdi, a trade services union, said the deal was all but dead in the water.

“I recommend that Mr. Gabriel take the conclusions of the Federal Cartel Office and the Monopolies Commission seriously,” said Gitta Connemann, deputy parliamentary group leader of Chancellor Angela Merkel’s Christian Democratic Union party in the Bundestag.

Stefanie Nutzenberger, a member of Verdi’s national executive board, said Edeka’s takeover wouldn’t secure the future of supermarkets.

Mr. Haub will now have to come up with alternatives. “If the sale doesn’t succeed as planned, it could turn into a very big financial burden for us,” he said in mid-July at a news conference.

At the time, Mr. Haub said that if Mr. Gabriel vetoed the deal, he would have no option but to break up the supermarket chain, which would cost a sum in the “medium treble-digit million range.”

If the sale doesn’t succeed as planned it could turn into a very big financial burden for us. Karl-Erivan Haub, CEO, Tengelmann, a German food retailer

Following the commission's recommendation, he may be forced to follow through on those plans.

No one seriously expects Mr. Gabriel to override the regulators' recommendations.

“The arguments provided by Tengelmann and Edeka were simply very thin,” said Maxim Kleine, a competition lawyer at law firm Norton, Rose, Fulbright in Hamburg.

 

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A competing chain, Rewe, which opposed the merger, was pleased with the government's panel's recommendation.

“This confirms our view. The decision corresponds 100 percent with our own assessment,” a spokesman for Rewe said on Monday. “Even if the minister has yet to make his decision, this clear rejection should make the applicants consider withdrawing the application and paving the way for other options.”

Those include a possible takeover by Rewe of the Kaiser's stores, instead of Edeka.

But the monopolies commission has said a Rewe bid will also raise cartel concerns, but might be approved if conditions are met.

Mr. Haub has said he doesn’t want to sell to Rewe. He's also said it is too late to start fresh merger talks, because Kaiser's losses are piling up too fast.

Besides, Mr. Haub didn’t make friends at the German cartel office after he publicly criticized its opposition to the merger. He had earlier raised eyebrows by signing the merger deal and making it public before he applied for cartel approval.

The most likely scenario now is that the Kaiser’s stores will be sold in batches, and maybe even individually.

There are a number of possible bidders.

Rüdiger Kasch, chief operating officer of retailer Coop eG, told Handelsblatt his group was interested in buying the 200 Kaiser’s stores in Berlin and the surrounding region.

Migros, Switzerland’s largest retailer, is interested in the group’s stores in Bavaria and might buy 130 through a German subsidiary, Tegut.

 

Germanys Biggest Supermarket Chains-01 edeka kaiser

 

Discount supermarkets are likely to pick off the best remaining stores. But they tend to just take ownership of locations — not staff.

Mr. Zimmer, the head of the Monopolies Commission, said bids by Coop and Migros would be good for competition because neither chain had stores in the affected regions.

“A purchase of the Kaiser’s Tengelmann stores by several companies may seem less questionable,” he told Handelsblatt. “With such a constellation the same number of jobs could be preserved as in a purchase by Edeka, without the disadvantages for competition.”

 

Dana Heide and Florian Kolf are Handelsblatt editors who write about the retail sector and German supermarket chains, among other companies. To reach the authors: [email protected] and [email protected]