Clearance of major deal in the retail industry

On December 23, 2008, the National Commission for the Defense of Competition (the “Antitrust Commission”) authorized an important transaction in the retail industry. On March 11, 2004, Jumbo Retail Argentina S.A. (“Jumbo”), a subsidiary of Chilean Cencosud Group, informed of its intention to acquire Disco S.A. (“Disco”), which included Disco and VEA supermarkets, from Ahold International (the “Transaction”). The Antitrust Commission found no competitive concerns and fully approved it. This Transaction was widely known because it gave rise to several judicial claims that were reported in previous articles.

The Transaction was initially filed with the Antitrust Commission on March 11, 2004 and was judicially challenged through injunctions issued by the Federal Court of Appeals of the Province of Mendoza (“Federal Court”). As a consequence of said challenges, on March 22, 2006, the Federal Court in re: “Belmonte, Manuel y Asociación Ruralista General Alvear s/Acción de Amparo c/ Estado Nacional”, declared the proceedings to be invalid. It based its decision upon an alleged irregular composition of the Antitrust Commission and therefore ordered the initiation of a new proceeding. Shortly after said decision, the Transaction was again filed but the proceedings were suspended because the Antitrust Commission did not have its five members, as required by the Federal Court.

The matter was finally resolved by the Supreme Court of Justice on April 16, 2008, when it revoked the Federal Courts’ decision and allowed the Antitrust Commission to continue with the analysis.

Jumbo and Disco are two of the biggest chains of supermarkets and hypermarkets in Argentina. Jumbo has 15 stores and Disco (including its different brands) has 232 stores covering the whole Argentine territory. The Antitrust Commission concluded that there were two principal markets: (i) retail segment; and (ii) suppliers of products segment.

Regarding the retail segment, it concluded that, although there are certain products that could be found in different kinds of retail stores (small markets, supermarkets, etc.), the supermarket and hypermarket format should be considered as a separate principal market. It considered both a national and a regional scale market to assess the retail segment.

The national scale market was analyzed considering Jumbo and Disco’s presence in the entire country. An analysis with a national scope was pertinent in view of the national policies that the parties usually adopt regarding advertising campaigns and expansion plans. The regional scale market which was analyzed by the Antitrust Commission considered the markets in which both Jumbo and Disco had a supermarket or hypermarket.

The Antitrust Commission stated that there are active competitors in the national and regional markets to counteract the effects of the Transaction, and therefore disregarded the anticompetitive concerns in the retail segment.

It is important to mention that the Antitrust Commission made a detailed analysis of the concentration in the retail segment considering a national geographical area. Although the Antitrust Commission also analyzed the market on a regional scale, it introduced innovative arguments that could result in a new approach regarding the geographic market definition in the retail sector for the future. It should be stressed that in the last decision in which the Antitrust Commission analyzed this market it did not made a detailed assessment regarding the possible definition of a national market (Decision No 621 issued by the Antitrust Commission on September 19, 2007 in re: “Inversiones Auchan S.A., Auchan Argentina S.A. y Wal Mart Argentina S.R.L. s/ Notificación Artículo 8 Ley N° 25.156 (Conc. 623).

As regards the suppliers of products segment, the Antitrust Commission analyzed whether the increase of the parties’ buying power could affect competition. The Antitrust Commission considered a national scale market for this segment. It stated that, although there was an increase of the parties’ buying power, the high competition existing between supermarkets and hypermarkets would not allow the performance of abusive practices from Jumbo and Disco.

Finally, the Antitrust Commission studied the possibility of uprising coordinated effects as a consequence of the Transaction. Considering that this market evidenced a dynamic evolution during the last years, the Antitrust Commission concluded that there were no concerns. Neither the product homogeneity nor the information exchange available in the market could lead to anticompetitive behaviors.

The authorization granted by the Antitrust Commission is important since it made an in-depth analysis of the definition of the principal markets for the retail and suppliers of products segments. With respect to the assessment of the retail sector, it is important to point out the thorough analysis made by the Antitrust Commission regarding a possible definition of a national geographical market. It means a new definition for the future. Finally, this decision means the end of a long notification process that lead to various judicial cases in which the validity of the Antitrust Commission integration and whether the control of mergers and acquisitions in Argentina is ex ante or ex post were decided.