Irish Competition Authority Decisions

1. Notification was made of a Franchise Agreement between Homebase Limited and Hampden Group PLC on 1 July 1996 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2).

2. The notification concerns a franchise agreement, dated 18 March 1996 between Homebase Limited, “the Franchisor” and Hampden Group Plc, “the Franchisee”, relating to “the products” which are defined as “all goods from time to time retailed by Homebase in the Homebase Stores and also substitute products”. The Franchise Territory is Northern Ireland and the Republic of Ireland.

3. Homebase, a UK based company, is a wholly owned subsidiary of J. Sainsbury PLC. It is the master franchisor of a number of stores involved in DIY goods, kitchens, lighting and gardening tools and equipment. In the State, the Homebase franchise is operated through Texas Homebase (Ireland) Limited, a wholly owned subsidiary of Hampden Group Plc.

4. Hampden Group Plc, whose registered office is in Belfast, is a company which was originally formed to trade a DIY franchise in Ireland for “Texas” , a well known DIY retailer. The Texas franchise has now been replaced by the Homebase franchise which is ultimately owned by J Sainsbury Plc. J. Sainsbury has a 29.9 % shareholding in Hampden. Through its subsidiary, Homebase Ltd, J Sainsbury has the right to nominate Directors to the Board of Hampden Group Plc under the terms of a Subscription Agreement dated 31 October 1985. At its current level of shareholding, Homebase has the right to nominate two directors (out of seven) to the Board of Hampden. Other substantial interests in the ordinary shares of the company as at 12th March 1996 were as follows:

Scottish Amicable Nominees Limited 7.3%

State Street Nominees Limited 7.2%

Britel Fund Nominees Limited 6.0%

Bishopsgate Nominees Limited 5.7%

E P Coppel 4.0%

Possfund Nominees Limited 3.9%

J P Goldstone 3.5%

For the year ended 31 December 1995 the turnover of the Hampden Group Plc was £36.8m. Included in this figure is £7.8m turnover in respect of the Republic of Ireland. The profit of the company before tax was £1.5m.

5. The products according to the definition in the franchise agreement are all goods from time to time retailed by Homebase in Homebase stores and also substitute products. The market information furnished in the Annex states that the Franchise Agreement relates to DIY goods, kitchens, lighting and gardening tools and equipment. This is a large market with a large number of retailers both large and small. Products are readily substitutable. The market share for Homebase is stated to be 13% and for Hampden, .42%. Under the agreement, Hampden were appointed the sole franchisee for Northern Ireland and the Republic of Ireland. The geographical market is the State.

6. The notified franchise agreement dated 18 March 1996 is between Homebase Limited and Hampden Group Plc. A letter dated 18 March referred to as “the side letter”, relating to financial aspects only, also forms part of the agreement. Under the agreement, Homebase grants to the Franchisee the sole and exclusive right to use the Homebase Trade Names and the Homebase System throughout the Franchise Territory in the Franchise Stores. Homebase undertakes not itself to use or licence or franchise the Homebase Trade Names or the Homebase System in the Franchise Territory or sell any of the Products through any other retail forms of marketing in any part of the Franchise Territory.

7. The notifying party stated that the arrangements were only those necessary to ensure (i) a proper return to Hampden on the capital commitment involved in acquiring premises and stock purchases and (ii) that the know-how acquired by Hampden was not improperly applied. The Agreement ensured the presence in the market place of a major retailer of the products in question thus providing customers with a readily accessible range of products. Competition would be maintained as the result of the arrangement.

8. Section 4(1) of the Competition Act, 1991 states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void ”.

9. Section 3(1) of the Competition Act defines an undertaking as “a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service”. Homebase the Franchisor and Hampden the Franchisee, both located outside the State, are engaged in the sale of DIY goods, kitchens, lighting and garden tools and equipment accessories for gain and are therefore undertakings within the meaning of Section 3(1) of the Competition Act.

10 In its Decision No. 2 of 14 May 1992 [1], the Competition Authority decided that two companies which were wholly-owned subsidiaries of the same holding company were not independent undertakings but were in fact separate arms of the same organisation and were not therefore in competition with each other. The Authority held that the agreement did not contravene Section 4(1) because ICI and CG had no real freedom to determine their course of action on the relevant market, and the proposed arrangements merely involved a reallocation of functions within the group. Similarly, in its Decision No. 5 of 30 June 1992 [2], an agreement between Performing Right Society (PRS) and Irish Music Rights Organisation (IMRO), which at that time had a parent-subsidiary relationship, was found by the Authority not to contravene Section 4(1) for the same reasons. In the case of AGF-Irish Life/NEM Insurance [3], the agreement involved a subsidiary which was not wholly-owned. Nevertheless, the Authority concluded that “there is no question of the members of the group having sufficient commercial autonomy for them to decide to compete with one another in their respective markets. Consequently the Authority has come to the same conclusion as in AGFI and PRS/IMRO that such an arrangement does not prevent, restrict or distort competition.”

11 In this case, J. Sainsbury plc, the parent company of Homebase, also owns 29% of Hampden, and has the right to appoint two directors. This shareholding is sufficient to bring the two companies under common control, according to the criteria in the Mergers Act and the Competition Authority’s Category Certificate for Mergers [4]. The other shareholdings in Hampden are largely institutional and the largest shareholding is 7.3%. The Authority therefore considers that, given the position of the major shareholder vis-à-vis the other shareholders, the agreement is not, in fact, an agreement between separate undertakings but rather is an assignment of functions between different parts of the same organisation. As the undertakings involved are not competitors, the Authority considers that the notified agreement does not have the object or effect of preventing, restricting or distorting competition and therefore does not contravene Section 4(1).

12 Hampden Group Plc and Homebase Limited are both undertakings within the meaning of Section 3 (1) of the Competition Act, 1991 and the notified agreement constitutes an agreement which applies within the State. The Agreement does not contravene Section 4(1) of the Act because both companies are under common control and are not in competition with each other, the arrangements merely involving an assignment of functions between different parts of the same organisation.

The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the franchise agreement dated 18 March 1996 between Homebase Limited and Hampden Group Plc (notification no. CA/23/96), notified under Section 7 on 1 July 1996, does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority

[1] CA/7/91 - AGF-Irish Life Holdings plc

[2] CA/1/91E - Performing Right Society and Irish Music Rights Organisation

[3] Decision No. 18 of 9 June 1993: CA/12/93 - AGF-Irish Life/NEM Insurance

[4] Category Certificate in respect of Agreements involving a Merger and/or Sale of Business: Decision No. 489, 2 December 1997.