Competition Bureau statement regarding La Coop fédérée’s proposed acquisition of a minority interest in Groupe BMR

Position statement

OTTAWA, November 13, 2013 — The Competition Bureau (the Bureau) announced that on November 1, 2013, following a review of La Coop fédérée’s (LCF) proposed acquisition of a minority interest in Groupe BMR (BMR), it has registered a Consent Agreement with the Competition Tribunal that preserves competition in the retail sale of hardware products and building materials in certain areas in the province of Quebec.

Under the terms of the Consent Agreement, the parties will terminate four franchise agreements in order to preserve competition in the areas surrounding the following municipalities:

  • Lac-Mégantic, QC;
  • Montmagny, QC;
  • Saint-Cyprien, QC; and,
  • Saint-Pamphile, QC.

The Consent Agreement requires that the parties terminate a franchise agreement with one of their franchised retailers in each of these four local markets by December 31, 2014. The exact termination date within that time period is at the discretion of the franchisee and would occur once the franchised retailer secures an agreement with an alternate franchisor or decides to continue its operations independently from the parties. The Consent Agreement includes preservation obligations to ensure the viability and competitiveness of the franchised retailers until such time as the termination occurs, as well as measures to facilitate the transition of the franchised retailers.

This statement summarizes the approach taken by the Bureau in its review of the proposed transaction.Footnote 1

Proposed transaction

The proposed transaction consists of the acquisition by LCF of a minority interest in BMR. The parties overlap with respect to the wholesale supply of hardware products, building materials and agricultural hardware products.

The retailers that are franchisees of LCF operate under the Unimat banner. BMR sells its products through corporate stores and franchised dealers operating under the BMR banner. LCF and BMR each have a network of approximately 180 retailers distributed over the provinces of Quebec, Ontario, and the Maritimes.

Competitive effects analysis

Based on a careful examination of the parties’ transaction documents and the post-merger business plans, for the purpose of its review, the Bureau treated the proposed acquisition by LCF of a minority interest in BMR as a full merger.

The LCF and BMR retail networks are mostly comprised of franchised stores. As a result, the Bureau assessed the extent to which the parties’ franchisees are independent from their network. The Bureau conducted a detailed analysis of the relationship between the parties and their franchisees and carefully considered a number of factors including: purchasing requirements; the exchange of information between the parties and their franchisees; retail pricing practices; obligations related to flyers and marketing practices; and the parties’ integration plans post-transaction. The Bureau ultimately determined that the parties were in a position to materially influence the economic behavior of their franchisees which, in turn, could significantly alter the competitive dynamic in certain local markets. As a result, following the transaction, LCF would be able to materially influence the economic behavior of both the LCF franchisees and the BMR franchisees.

A significant number of BMR and LCF stores are in close proximity to each other. The Bureau’s review of the parties’ retail operations therefore focused on whether the proposed transaction would provide LCF and BMR, post-transaction, with enhanced market power in the retail sale of hardware products and building materials.

Based on information obtained from various industry stakeholders, including the merging parties, competitors and customers, the Bureau concluded that the relevant geographic market for the retail sale of hardware products and building material is local. The Bureau’s analysis revealed that consumers’ choice of retailers for hardware products and building materials is based on a number of factors, such as price, convenience and the proximity of the stores and service. In rural areas, the relevant geographic market generally did not extend beyond a 30 kilometre radius from a store.

Competitors to the parties in Quebec include established players such as Rona, Home Hardware, Ace and Canac. In most local markets, the Bureau found that sufficient competition would remain post-transaction and that barriers to entry or expansion into new lines of products for existing retailers are relatively low. However, in certain local markets where LCF and BMR are each other’s closest competitors, there is limited or no remaining competition and new entry is unlikely due to market saturation.

Following a detailed analysis of each area of overlap, the Bureau determined that the proposed transaction is likely to result in a substantial lessening or prevention of competition in the retail sale of hardware products and building materials in four areas surrounding the municipalities of Saint-Pamphile, Saint-Cyprien, Lac-Mégantic and Montmagny. In each of these areas, the parties’ products are sold through franchised retailers rather than corporate-owned stores.

Given the specific facts of this case, the Bureau deemed that the only appropriate remedy to preserve competition in these four areas was for the parties to terminate franchise agreements so as to enable the entry of new competition at the retail level.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.

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