Friday, September 3, 2010

Sale of Carrefour may interest Competition Commission

PETALING JAYA: The sale of hypermarket Carrefour’s Malaysian outlets may be closely watched by the soon-to-be-formed Malaysian Competition Commission, according to lawyers familiar with the new Competition Act.

This is because some of the bidders are believed to be existing hypermarket players such as Tesco, Dairy Farm (which owns the Giant chain) and Aeon Co Ltd, the Japanese retail group that runs the Jusco stores.

According to some estimates, Tesco enjoys a 30% market share of the Malaysian hypermarket industry by sales, followed by Giant (24%) and Jusco (22%).

Carrefour itself has a share of about 15%. Hence, if Tesco were to buy all the Carrefour stores in Malaysia, it would emerge as the clear leader in the Malaysian hypermarket sector with a 45% market share.
“Any of the big hypermarkets getting Carrefour would end up as the single largest player, raising concerns of a dominant position in the market,” said one Kuala Lumpur-based corporate lawyer who declined to be named.

Malaysia’s Competition Act 2010, which will come into force on Jan 1 next year, is intended to prevent large companies from engaging in monopolistic and cartel activities.

Section 10 of the Act prohibits abuses by enterprises occupying a “dominant position” in the market they are operating. “Dominant position” is defined in the Act as the ability of such businesses to adjust prices or dictate trading terms in the market without effective constraint from competitors or consumers.

However, another lawyer pointed out that unlike in other markets, where merger and acquisition deals require an approval from the competition regulator, the Competition Act does not have such a stipulation.

“Instead, the Act only kicks in when it is proved that a player has abused its dominant position,” he said.

Tesco is said to have put in a bid for the more than 60 Carrefour stores in Thailand, Malaysia and Singapore and it has been reported that Tesco sees this as part of its strategy to conquer Asia and cement its position as a global force in supermarket retailing.

Carrefour’s stores are expected to fetch about US$1bil (RM3.12bil) and Carrefour may decide to sell them piecemeal, if single-store or country sales will achieve a better price. Carrefour’s Thai business may be worth US$500mil to US$600mil, while the Malaysian and Singapore operations may be valued at US$350mil to US$400mil, according to some reports.

The Carrefour portfolio consists of 40 supermarkets in Thailand, 19 in Malaysia and two in Singapore.

Meanwhile, it has been reported that other bidders for Carrefour’s Malaysian assets include French retailer Casino and a consortium led by Malaysia-based private equity firm Navis Capital Partners.

Navis, which is run by former executives of the Boston Consulting Group, has not bid for the assets in Thailand, Reuters reported.

Navis recently completed the raising of a US$1.2bil fund called Navis Asia Fund 6 from global investors, it was reported.

According to its website, Navis invests in growth companies in South and South-East Asia and has about US$3bil in capital committed to it.

Reuters reported that the large number of bidders for Carrefour meant there would be a second round of bidding after a few were shorlisted. Carrefour had split the sale into two, with the Singapore and Malaysia business being offered in one deal and Thailand being sold separately.

Goldman Sachs Group Inc and UBS AG are advising Carrefour on the deal.

The French hypermarket group is said to have been planning to sell its assets because it wanted to focus on its business in China and India, which offer high-growth potential.

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