Competition Bureau statement regarding the acquisition by Canadian Tire of Pro Hockey Life

Position statement

OTTAWA, February 7, 2014 — This statement summarizes the approach taken by the Competition Bureau in its review of the acquisition by Canadian Tire Corporation, Limited (Canadian Tire), through its wholly owned affiliate FGL Sports Ltd. (FGL Sports), of Pro Hockey Life Sporting Goods, Inc./Les Équipements Sportifs Pro Hockey Life Inc. (Pro Hockey Life), pursuant to an agreement announced on November 28, 2012. The parties completed the transaction on August 12, 2013.

On February 7, 2014, the Commissioner of Competition discontinued the Bureau’s inquiry into Canadian Tire’s acquisition of Pro Hockey Life following an extensive examination.Footnote 1 The decision to discontinue was primarily based on the observation of modest predicted price effects, the presence of remaining competitors and the determination that barriers to entry and expansion were not likely sufficiently high to deter entry or expansion.

Background

The transaction was a merger between two retailers of hockey equipment and hockey related goods. Pro Hockey Life operates 23 stores in five provinces under the Pro Hockey Life, Sports Rousseau and L’Entrepôt du Hockey banners. At the time the transaction was announced, Canadian Tire and FGL Sports had over 1,000 retail stores across Canada under various banners, including Canadian Tire, SportChek, Sports Experts, Hockey Experts, National Sports, Intersport and Sport Mart.

The parties’ operations overlap in all areas where Pro Hockey Life has stores.

In order to assess the degree of direct competition between the parties, the Bureau requested sales data at the transaction level from Pro Hockey Life and FGL Sports stores. Using this data, the Bureau then conducted an econometric study to compare prices at FGL Sports stores in areas where there was no Pro Hockey Life present against prices at FGL Sports stores in areas where there was a Pro Hockey Life store. This type of cross-sectional analysis was used to quantify the competitive impact that Pro Hockey Life had on FGL Sports stores,Footnote 2 and thus provide a basis for estimating the potential loss in competition that would arise from the combination of FGL Sports and Pro Hockey Life. In performing this analysis, the Bureau applied demographic controls for external factors that could affect supply and demand in any given area. The analysis showed that the prices at FGL Sports stores in areas where there was no Pro Hockey Life were higher than in areas where there was a Pro Hockey Life store; however, the observed price differences were relatively modest.

The Bureau then used merger simulation techniquesFootnote 3 to further refine the estimated price effects from the cross-sectional analysis. The price effects observed using this methodology were higher than those observed using the cross-sectional analysis.

In addition to econometric analyses, the Bureau reviewed other sources of information to assess the level of competition between Pro Hockey Life and the various Canadian Tire banners. This included reviewing internal documents from the parties, contacting and meeting with market participants (including competitors and suppliers) and obtaining orders under section 11 of the Competition Act to gather relevant information from key suppliers of hockey equipment. This information indicated that the parties were close competitors in the retail of hockey equipment and related goods.

In determining whether the observed price effects were material,Footnote 4 the Bureau considered their magnitude, scope and sustainability, as well as other market-specific factors that could have a constraining influence on price following the merger, including barriers to entry and the presence of remaining competitors.Footnote 5

Several factors, including market maturity, market saturation and access to supply, were evaluated in order to assess the degree to which they might deter entry. While all of these factors appeared likely to make entry to the market more challenging, difficulty in accessing supply may be mitigated by membership in buying groups, and barriers to expansion by existing retailers are relatively low.

Access to competitive terms of supply from key vendors was a particular focus of the Bureau’s investigation of barriers to entry and expansion. The Bureau examined the ability of new entrants or existing competitors to obtain supply of hockey equipment from key vendors on competitive terms. Evidence and testimony received pursuant to court orders were an important element in the Commissioner’s determination that competitive access to supply in this particular case is likely not a high barrier to entry or expansion.

With regards to effective remaining competition in this specific industry, there are a number of third-party competitors in each overlapping market that will likely continue to provide meaningful competitive constraint to the parties. Most of these competitors are members of large, national buying groups, allowing them access to the benefits of scale enjoyed by national or regional chains while maintaining their independence and localized customer service.

Given the presence of remaining competitors and barriers to entry and expansion that are not likely sufficiently high to deter entry or expansion, it was determined that the parties would not likely be able to sustain a material price increase. As such, the transaction is not likely to substantially lessen or prevent competition in the retail market for hockey equipment and hockey-related merchandise.

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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