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Case No COMP/M.3990 – BOOTS /ALLIANCE UNICHEM

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Article 4 (4) Date: 30/11/2005

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 30.11.2005

SG-Greffe(2005) D/206485/6

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description.

PUBLIC VERSION

MERGER PROCEDURE ARTICLE 4 (4) DECISION

To the Notifying Party To the Office of Fair Trading

Dear Sir/Madam,

Subject: Case No COMP/M.3990 – BOOTS /ALLIANCE UNICHEM Reasoned submission pursuant to article 4(4) of Regulation No 139/2004 for referral of the case to the United Kingdom.

1.1. On 28/10/2005, the Commission received by means of a Reasoned Submission a referral request pursuant to Article 4(4) of the Council Regulation (EC) No 139/2004 (“EC Merger Regulation”) with respect to the transaction cited above. A copy of this submission was transmitted to Member States on 3/11/2005.

2.2. In support of their referral request, the submitting parties have mentioned in the Reasoned Submission that the geographic focus of the proposed concentration is on the territory of the United Kingdom.

3.3. By fax of 22/11/2005, the Office of Fair Trading (“OFT”) informed the Commission that it agrees to the request to refer the case to the UK. The OFT points out that this authority has previously considered the competition in the retail pharmacy sector to be local in scope. The OFT considers that the proposed concentration may significantly affect competition within several distinct markets within the UK, some of which are of a very local nature. The OFT therefore agrees that it is appropriate for the transaction to be referred to the UK in its entirety for a fuller examination of its impact under UK competition law.

I. THE PARTIES

4.4. Boots Group PLC (“Boots”) is a UK health and beauty retailer offering a full range of health and beauty products, including medicines, toiletries, skincare, cosmetics/fragrances, healthcare and baby products in its 1,426 stores across the UK.

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

5.Out of these stores, 1,351 contain a pharmacy. Boots is also active in the optician business and as a contract manufacturer of pharmaceuticals and beauty and personal care products. Outside the UK, Boots has only very limited activities.

6.5. Alliance UniChem Plc (“Alliance UniChem”) is mainly active in pharmaceutical wholesaling in the Czech Republic, France, Italy, the Netherlands, Norway, Spain and the UK. Alliance UniChem also operates retail pharmacies in the UK (946 retail outlets, trading under the Alliance Pharmacy brand), Norway and to a lesser extent in Italy and the Netherlands.

II. THE OPERATION AND CONCENTRATION

7.6. The proposed concentration concerns the acquisition of sole control of Alliance UniChem by Boots within the meaning of Article 3(1)(b) of the EC Merger Regulation by way of a public offer/scheme of arrangement. The offer by Boots for Alliance UniChem is pre-conditional upon the completion of the sale by Boots of its OTC business, Boots Healthcare International (“BHI”). Therefore BHI is excluded from the analysis of the operation subject to the Reasoned Submission.

7. The transaction therefore is a concentration within the meaning of Article 3(1)(b) of the EC Merger Regulation..

III. COMMUNITY DIMENSION

8. The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 billion (Boots: EUR […] billion, Alliance UniChem: EUR […] billion). Each of them has a Community-wide turnover in excess of EUR 250 million (Boots: EUR […] billion, Alliance UniChem: EUR […] billion). While Boots achieved more than two-thirds of their Community-wide turnover in the UK, Alliance UniChem did not. The notified operation therefore has a Community dimension.

IV. ASSESSMENT

A. Relevant product markets

8.9. On the basis of the information submitted in the Reasoned Submission, the following are the relevant markets: retail pharmacy, pharmaceutical wholesaling, and contract manufacturing of specials.

10. The activities of the parties overlap only in the retail pharmacy market. However the effects of the concentration need to be assessed as well at a vertical level on

OTC: over the counter.

Moreover, the parties submit that Boots has already entered into a binding agreement to sell BHI.

Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C66, 2.3.1998, p25).

“Specials” are products prescribed by doctors when a licensed product for a particular indication does not exist.

¾ the pharmaceutical wholesaling market, where only Alliance UniChem is active, and which is upstream to the retail pharmacy business where Boots and Alliance UniChem are both active

¾ and on the market for contract manufacturing of specials where only Boots is active and which is an upstream market to retail pharmacy as well.

B. Relevant geographic market

11.11. The parties submit that the retail pharmacy markets are local in scope and that an area corresponding to a one mile radius around each of the parties’ stores is the most appropriate basis for analysing local overlaps. However, the parties have also provided market share data at the national level, in line with the approach taken by the Commission in its Article 9 decision in GEHE/Lloyds.

12.12. The parties consider that the geographic dimension of the pharmaceutical wholesaling market should be defined, in line with previous Commission’s and OFT’s decisions, as regional.

13.13. With regard to the market for contract manufacturing of specials, the parties consider its geographic dimension to be national, in line with a previous OFT’s decision.

C. Assessment

14.14. On the basis of the information submitted in the Reasoned Submission, both parties are active in retail pharmacy in the UK where the concentration would give rise to one horizontally affected market, if defined on a national basis or several horizontally affected markets on a local basis. Boots and Alliance UniChem would have a combined market share of [20-30%] by value and [15-20%] by number of outlets in the UK, if considered at national level, whereas at local level, there would be [30-40] local areas of overlap where there is no competitor pharmacy within a one mile radius and [40-50] local areas if assessed on the basis of a half mile radius.

15.15. According to the parties, the proposed transaction would also give rise to two vertically affected markets in UK which are both upstream to the retail pharmacy market.

16.16. On one hand, Alliance UniChem is active in UK in pharmaceutical wholesaling where its market share is comprised, depending on the region considered, between less than [0-2%] and [20-30%] on the basis of a market including full-line and short-line wholesaling of ethicals to retail pharmacies and dispensing doctors, between less than [0-2%] and [30-40%] on the basis of a market for full-line wholesaling only and between less than [0-2%] and [5-10%] on the basis of a market for short-line wholesaling only.

17.17. On the other hand, Boots is active in UK in contract manufacturing of specials and has a free market share (excluding captive supply to its own retail pharmacies) of less than [5-10%].

V. REFERRAL

18.18. On the basis of the information provided by the parties in the Reasoned Submission, the case meets the legal requirements set out in Article 4(4) of the EC Merger Regulation in that the concentration may significantly affect competition in a market within a Member State which presents all the characteristics of a distinct market. The Commission notice on case referral in respect of concentrations(point 17) indicates that, in seeking a referral under Article 4(4), “the merging parties are … required to demonstrate that the transaction is liable to have a potential impact on competition in a distinct market within a Member State, which may prove to be significant, thus deserving close scrutiny”, and that “such indications may be no more than preliminary in nature…”. The Commission considers, on the basis of the information submitted in the Reasoned Submission, that the principal impact on competition, if any, of the concentration is liable to take place on distinct markets in the UK, and that the requested referral would be consistent with point 20 of the notice.

VI. CONCLUSION

19.19. For the above reasons, and given that the UK has expressed its agreement, the Commission has decided to refer the transaction in its entirety to be examined by the UK. This decision is adopted in application of Article 4(4) of Council Regulation (EC) No 139/2004.

For the Commission signed Neelie KROES Member of the Commission

Full-line wholesalers stock the full range of pharmaceutical products (over 17,000 product lines) and generally offer a twice daily delivery service.

Short-line wholesalers supply a more limited product range (typically around 3,000 of the particularly fast-moving or high-volume lines) and tend to make less frequent deliveries than full-liners.

http://europa.eu.int/comm/competition/mergers/legislation/consultation/case_allocation_tru.pdf

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