Malta’s Office for Competition (the Office) has prohibited the acquisition by an international discount retailer chain with a presence in Malta (the Acquiring Undertaking) of real estate from its owners to operate a new supermarket under its brand (the Concentration). The Office prohibited the Concentration under the Control of Concentrations Regulations (the Regulations)—Malta’s merger control law.
In the Office’s view, the Concentration would have led to a substantial lessening of competition, and the commitments offered by the Acquiring Undertaking were not sufficient to address these concerns.
This is the first prohibition decision that the Office has adopted with respect to a concentration in the past 10 years.
Background to the Concentration
The Acquiring Undertaking has been present in Malta since 2008 and operates around 10 supermarkets in Malta.
The real estate that the Acquiring Undertaking seeks to purchase is owned by a Maltese property holding company. It comprises a supermarket and a parking area. This real estate is leased out to another Maltese company (affiliated with the landlord) to operate a supermarket. This Maltese company has been operating supermarkets in Malta since 2002 and currently operates 4 supermarkets.
On 24 August 2023, the Acquiring Undertaking entered into a promise of sale agreement with the current owners to acquire the real estate. The Acquiring Undertaking intended to operate a new supermarket under its brand from this real estate once the sale closed. The Concentration involved the acquisition of the property as a stand-alone asset, without any personnel, goodwill, assets, or customer databases.
The Concentration was notified to the Office on 14 November 2023. Subsequently, the Office opened an in-depth investigation on 29 December 2023, and a statement of objections was issued on 25 July 2024.
The Acquiring Undertaking had previously attempted to acquire the real estate from its current owners back in 2021. In fact, the Acquiring Undertaking submitted that transaction for the Office’s screening under the Regulations. On 10 November 2021, the Office initiated a Phase II procedure in relation to that filing. On 8 February 2022, the Office published a press release stating that it deemed the concentration abandoned for the purposes of the Regulations.
The Office’s Decision
According to its press release, following its market investigation, the Office concluded that the Concentration would have resulted in a substantial lessening of competition in the relevant market. The Office appears to have defined the relevant market as the retail grocery market within a 15-minute drive from the real estate in question.
The Office asserts that the Concentration would have strengthened the Acquiring Undertaking’s market position, enabling it to widen the gap between itself and its competitors and to operate independently of them.
Under the Regulations, where the Office has expressed concerns that a proposed concentration may harm competition, the parties are given the opportunity to propose commitments to mitigate the harm to the competitive process identified by the Office. Commitments can be structural, requiring the divestiture of a business or an asset, or behavioural, imposing obligations to do or refrain from doing something.
The commitments offered by the Acquiring Undertaking were not considered sufficient by the Office, leading to its decision to prohibit the Concentration.
Phase I Decision
On 29 December 2023, the Office adopted its Phase I decision and initiated Phase II proceedings. A non-confidential version of that decision was published on the Office’s website in due course.
In its Phase I decision, the Office concluded, on a prima facie basis, that the Concentration could lead to horizontal unilateral effects.
- Product Market. The Office distinguished between grocery retail outlets with a sales floor area equal to or greater than 200 square meters and those with a smaller retail sales area. According to the Office, while the former pose a competitive constraint on the latter, this does not apply conversely. The Office used the same benchmark in at least one other Phase II decision involving the same sector.
- Geographic Market. The Office considered the geographic market to be restricted to Malta, excluding Gozo, Malta’s sister island, due to the additional 20-minute drive involved in the ferry crossing. The Office referenced another Phase II decision in which it concluded that, on average, consumers are willing to drive 12.8 minutes to conduct their grocery shopping.
- Competitive Assessment. In its preliminary assessment, the Office found that the Acquiring Undertaking already had a substantial market share in the grocery retail market, and the Concentration would further strengthen this position.
The Office noted that, for its Phase II investigation, it would conduct an exit-store survey targeted at consumers and would consider responses from grocery retail outlets following a request for information.
According to the Phase I decision, the Office received 4 third-party submissions raising concerns about the proposed transaction.
Malta Merger Control Law
The Office is the competent authority in Malta for screening proposed concentrations under the Regulations.
Under the Regulations, a concentration (including a merger, acquisition, or takeover) that meets the jurisdictional test must be notified to and cleared by the Office before implementation. The jurisdictional test under the Regulations is twofold:
- the combined aggregate turnover in Malta of the undertakings concerned for the previous financial year must exceed €2.3 million; and
- each of the undertakings concerned must have a turnover in Malta equivalent to at least 10% of the combined aggregate turnover.
In a transaction where no issues arise and no commitments are necessary, the Office will issue its decision within 4 weeks of complete notification if the simplified procedure is adopted, or within 6 weeks if the concentration is assessed under the standard Phase I procedure.
Where commitments are required to obtain clearance, the 6-week timeframe in Phase I may be extended to 2 months. Furthermore, these timeframes can be suspended for up to 3 weeks to allow discussion of new or revised commitments.
If the concentration raises serious competition concerns, and the Office deems it necessary to proceed to Phase II after Phase I, a decision will be taken within 4 months of the initiation of Phase II proceedings. This period can be extended by up to 1 month where commitments are offered.
Next Steps
The Office will publish a non-confidential version of the decision on its website in due course.
The Acquiring Undertaking is entitled to appeal the Office’s decision to prohibit the Concentration within 20 days of notification before the Civil Court (Commercial Section) on both points of law and fact.
There is a further right of appeal to the Court of Appeal from the decision of the Civil Court (Commercial Section).
If you require further information on Malta’s merger control laws, please contact Clement Mifsud-Bonnici or Chris Grech.