Antitrust Authority approves Mega-Yeinot Bittan merger

Nahum Bittan/Mega photo: Tamar Matsafi Shuka Cohen
Nahum Bittan/Mega photo: Tamar Matsafi Shuka Cohen

Yeinot Bittan must dissolve its fruits and vegetables wholesale partnership and sell stores.

As expected, the Israel Antitrust Authority today approved the merger of the Yeinot Bittan and Mega supermarket chains, but set conditions: the dissolution of Yeinot Bittan's fruits and vegetables marketing partnership with Bikurei Hasade Daromom in the Bikurei Bittan company and the sale of branches in eight areas.

The decision was taken after the Antitrust Authority's economic analysis gave rise to two main concerns about competition: in food retailing (supermarkets) in certain areas of Israel and in wholesale purchases of fruits and vegetables. The Antitrust Authority concluded that without these restrictions, competition would be affected, and therefore decided that the merger could go ahead only after the dissolution of the fruits and vegetables partnership and the sale of branches.

When the merger takes place, it will make the Yeinot Bittan chain, owned by Nurit and Nahum Bittan, Israel's second largest supermarket chain, with 190 branches and an annual sales volume of NIS 5 billion.

Sources inform "Globes" that Nahum Bittan, who anticipated the requirement to sell branches, has already begun negotiations to sell some of the branches. He said in response, "I'm glad that the long path has finally come to an end with the Antitrust Authority director general's statement. The decision is praiseworthy, and we're confident that we'll succeed in restoring the consumers' trust in the Mega chain and regain its standing as the second largest chain. We'll cooperate completely with the 3,500 employees working to preserve their livelihood. We'll start work on putting Mega back together right away. I want to thank my family, my partner Nurit, management of the chain, and the employees, who responded with support for me throughout the long process, and wish us success in the work to come."

Liquidating the partnership with Bikurei Sade

Together with Bikurei Hasade South, Yeinot Bittan owns a wholesale market concern called Bikurei Bittan. The two companies operate a logistics site in the village of Timurim. Bikurei Bittan is the sole purchaser of fruits and vegetables for Yeinot Bittan stores.

According to the Antitrust Authority, one of the prominent features of the fruits and vegetables segment is the high level of risk for farmers. In effect, a farmer growing fruits and vegetables is in a perpetually inferior position to a buyer of merchandise, among other things due to the fact that his product is perishable, has a short shelf life, and must be sold quickly, sometimes within just a few hours.

Farmers have two main ways to sell their produce: to the wholesale market (such as the one in Tzrifin) or directly to the supermarket chains and the large wholesale companies (of which Bikurei Hasade is one of the largest). A check by the Antitrust Authority found that farmers usually prefer selling to a large purchasing entity, among other thing because large concerns can absorb significant quantities of agricultural produce, enabling farmers to reduce their level of risk.

A probe by the Antitrust Authority revealed that there was a real concern that a combination of Mega's bargaining power with that of Bikurei Bittan and Bikurei Darom was liable to have a negative impact on competition. In order to eliminate this power, the Antitrust Authority ruled that dissolution of the partnership would be a condition for the merger.

Sale of branches in eight areas

Where geographic competition is concerned, the Antitrust Authority found eight areas with Mega branches overlapped those of Yeinot Bittan, thereby creating concern about damage to competition: Ra'anana, Herzliya, Shoham-Airport City, Kiryat Shmona, Eilat, Migdal HaEmek, Tel Mond-Kadima, and Kiryat Ata.

Economic examinations conducted by the Antitrust Authority gave rise to concern that the merged chain would be able to raise prices (unilaterally) and exploit its power, given its high market share following the merger. In most of these areas, concern also exists about coordinated market power with Shufersal Ltd. (TASE:SAE), because the two chains' combined market shares will be very large.

"Coordinated market power" means that because of the lack of competitors in the area, it is convenient for the chains operating in the area to follow each other's example in raising prices, instead of competing by lowering them. The Antitrust Authority decision ruled that the merged chain would sell one or more of the branches it owned in those areas, and restrictions were imposed on whom the branches could be sold to.

Published by Globes [online], Israel business news - www.globes-online.com - on June 23, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Nahum Bittan/Mega photo: Tamar Matsafi Shuka Cohen
Nahum Bittan/Mega photo: Tamar Matsafi Shuka Cohen
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