Kingfisher plc and Dixons Group plc: A report on the proposed merger

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Summary

On 6 December 1989 Kingfisher plc, a large diversified United Kingdom retailing group, announced that it wished to acquire Dixons Group plc, whose main activity is the retail distribution of electrical appliances and of photographic equipment. The response of the Dixons Group Board was to reject the bid. On 15 January 1990 the Secretary of State for Trade and Industry asked the Commission (see Appendix 1.1) to examine whether or not a merger between Kingfisher and Dixons Group might be against the public interest.

Our investigation has concentrated on the United Kingdom retail market for electrical appliances, worth about £6 billion a year. These comprise both brown goods (television sets, video recorders, hi-fi etc) and white goods (washing machines, dishwashers etc) together with small domestic appliances such as toasters and kettles. Kingfisher operates in this market principally through its Comet subsidiary, and Dixons Group through its Dixons and Currys stores which are the principal outlets of Dixons Stores Group (DSG).

DSG is the largest United Kingdom retailer of electrical goods. Using one definition of the market, it has a share of about 17 per cent whilst Comet, the second largest retailer, has about 9 per cent. The combined market share would thus come to 26 per cent. On a wider definition of the market the combined share would be 21 per cent. For some product groups, for example washing machines, dishwashers and audio systems, the two groups' combined share is considerably higher. DSG and Comet play a particularly prominent role in the rapidly growing out-of-town market, which is especially important for bulky white goods.

Rumbelows, the only other major electrical appliance retailer competing across the board on a national basis, has a much smaller share of the market with 5 per cent. Whilst most of the specialist multiple chains which were in this market have been acquired by the leading companies, other competitors remain: for example, the 15 electricity supply companies, some regional chains, department stores and independents. However, none of these compete with Comet and DSG on a national basis across the range of products.

Competition between DSG and Comet appears to be exceptionally keen. This applies to prices as well as to other terms of sale, including in-store and after- sales service.

Advertising, mostly in the national press, plays a key role in the rivalry between DSG and Comet. Weekly advertisements in most if not all the popular newspapers serve as a constant reminder to consumers of the role in the market of the two store groups, with strong emphasis given to the attractive terms on which goods are for sale.

Kingfisher emphasised that for the ordinary consumer it is competition in the local market that counts. However, we believe that the terms ruling in local markets are decisively influenced by the national competition between, above all, Comet and DSG. The rivalry between Comet and DSG would disappear if the merger were to take place. The effect would be, we believe, that retail prices for electrical appliances would be higher and other terms of sale less favourable than would be the case if the merger did not occur.

Some though not all manufacturers which supply the United Kingdom electrical appliance market are large international companies with well-established brands. We do not think that many could resist pressure by the enlarged group to increase retail margins and prices. An enlarged Kingfisher would be able to obtain better terms from manufacturers; in so far as these would be accompanied by less advantageous terms for Kingfisher's remaining competitors the ability of a merged company to bring about higher levels of margins and prices would be enhanced.

We conclude that a merger between Kingfisher and Dixons would significantly weaken competition in the electrical appliance market, and lead to prices higher than otherwise with no compensating benefits. We therefore further conclude that the proposed merger would be against the public interest, and recommend that it should not be permitted.

One of our group dissents from these conclusions.

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