The competition watchdog has defended its decision to reject Tuskys Supermarket’s bid to take over six stores managed by its rival Ukwala Supermarkets, arguing that its analysis had showed the buyout would have distorted competition in the retail market.
The Competition Authority of Kenya (CAK) in a ruling earlier this year denied Tuskys approval to finalise the acquisition, allowing it to take over just one out of six Ukwala stores it had intended to buy out.
CAK says in a response filed at the High Court that it was mandated to investigate the effect that a buyout would have had on the retail industry in the city centre, contrary to Tuskys’ argument that the authority should not have narrowed its scope to a small geographical area in the Capital.
CAK is also fighting a request by Tuskys and Ukwala to have the regulator refund Sh5.3 million they paid in June as a fine for initiating the transaction, said to be valued at Sh200 million, without its approval.
Tuskys was given the greenlight to take over Ukwala’s Jogoo Road branch, but disallowed from buying two stores along Tom Mboya Street, and three more on Hakati, Ronald Ngala and Haile Selassie streets.
“The court should decline the invitation to enter into a competition policy appraisal involving questioning the merits of the analysis of the authority’s decision,” says Kariuki Wang’ombe, CAK’s director general in an affidavit.
Tuskys and Ukwala, in a joint appeal filed in September, stated that the watchdog should have stuck to geographical areas as defined in the District and Provinces Act, and not narrow down on the CBD.
CAK, in its replying affidavit filed in court last week by Mohammed Muigai Advocates, says geographical demarcations drawn by the State do not necessarily consider competition or consumer welfare matters, and therefore the regulator acted within its powers when it chose to focus on the CBD.
A relevant market, according to the authority, is one where customers can easily switch between products and services offered in that area, without being inconvenienced by factors like distance.
“It is important to note that a relevant market must have both a product and geographical aspect and the former must be defined clearly in order to arrive at geographical boundaries,” argues Mr Wang’ombe.
CAK’s assessment of the market share in the CBD’s retail industry was based on the number of stores Ukwala and Tuskys have compared to rivals Nakumatt, Naivas, Uchumi and Eastmatt. Ukwala was found to have a 17.85 per cent of the market while Tuskys was given a 39.3 per cent market share.
CAK argues that if the two businesses merged unconditionally, their combined market share would soar to 57.15 per cent, above the 50 plus one per cent dominance threshold.
Taib Ali Taib, Tuskys’ advocates, argued that the market share calculations were made to his clients’ “prejudice and detriment.”
CAK’s latest response also touched on claims by the two retailers that the decision to halt the buyout was reached arbitrarily and without evidence.
In its affidavit, the competition watchdog argues that it based its decision on material furnished by both retailers, research, was well as site visits.
On the Sh5.3 million paid by the two retailers as settlement for initiating the acquisition, CAK says the retailers and their lawyers were party to the settlement negotiations and were not coerced into signing it.