Super Market? Edeka Clings to Takeover Plan

Berlin isn't making it easy for German supermarket chain Edeka to take over competitor Kaiser's Tengelmann. That hasn't stopped the company from moving forward with its plan.
Critics say that government conditions for the takeover are too harsh.

Despite strict conditions imposed by the German government, Edeka is determined to move forward with its planned takeover of supermarket chain Kaiser's Tengelmann.

According to industry insiders, the company has not changed its position, even after reviewing German Economy Minister Sigmar Gabriel's terms. Edeka wants to "tackle the takeover as quickly as possible and with due diligence," one source said.

The deadline for the company's response is on Tuesday, after which Mr. Gabriel will make his final decision.

A single person has the ability to make such a far-reaching decision with no public involvement whatsoever. This makes the decision highly susceptible to lobbying pressure. Katharina Dröge, Green Party spokeswoman for competition policy

There are no surprises to be expected on the part of Tengelmann, either. Chief executive Karl-Erivan Haub is pleased that, after almost a year of waiting anxiously, the solution he favors could very well succeed, after all.

By contrast, experts have sharply criticized Mr. Gabriel's position, saying that they fear it will bring substantial disadvantages for the competition. "It's a very bad decision from the standpoint of competition policy," Thomas Duso, head of the Companies and Markets department at the German Institute for Economic Research, told Handelsblatt.

This is why the center-right Christian Democratic Union and the Green Party are calling for a reform of the law. "In the course of the upcoming amendment to the Act Against Restraints of Competition, we in the parliamentary group will take a closer look at the scope for evaluation in the ministerial approval," Matthias Heider, rapporteur for cartel law with the CDU's parliamentary group, told Handelsblatt.

Mr. Heider has also criticized Mr. Gabriel's decision. "We need a narrower version of the scope for evaluation, especially in cases where there is high market concentration," he said. "Even in the case of a ministerial approval, the effects on competition need to be taken into account."

The Greens also want to see the law reformed, and some party members want to get rid of it entirely. Katharina Dröge, Green Party spokeswoman for competition policy in the German parliament, the Bundestag, called for clear rules on the time period for ministerial approval. In the current case, the proceedings have dragged on for eight months.

She also wants to see more transparency in the decision-making process. "The ministerial approval in its current form is a back-room decision," Ms. Dröge told Handelsblatt. "At the moment, a single person has the ability to make such a far-reaching decision with no public involvement whatsoever. This makes the decision highly susceptible to lobbying pressure."

Under the current rules, the Bundestag is not entitled to receive information about a ministerial approval. An attempt to learn more about the decision-making process in the plenary assembly of the economy ministry failed. "In the Tengelmann/Edeka case, it is not clear how Minister Gabriel's decision was reached," DIW economist Duso said critically. The Ministry of the Economy had announced that it would issue a detailed statement after making its final decision.

For the two companies, the real work begins now that the deadline has expired.

Edeka and Tengelmann can only sign a contract once the trade unions and members of the works councils have signed the required wage agreements. And these talks, according to insiders, are unlikely to be easy.

"We were in the locker room for 15 months, but now it's time to get out on the playing field," said a member of the Tengelmann works council, describing the current mood. A result is not expected before the end of February.

The negotiations are complicated by the fact that the employees' side is divided and has taken various positions in the merger negotiations.

Furthermore, the case involves uncharted legal territory. "Edeka needs to lead the negotiations, even though it doesn't even own the company yet. This isn't a sure-fire success," said Tengelmann insiders.

It is not entirely clear how this will stand up in court, they added. The approval could still be challenged in court by competitors, for example.

 

Dana Heide is a correspondent for Handelsblatt in Berlin, focusing on energy policies, small and medium-sized companies and innovation. Florian Kolf leads a team of reporters covering the retail, consumer goods, luxury and fashion markets. Christoph Kapalschinski covers consumer goods, textiles and food. To contact the authors:  [email protected][email protected][email protected]