Canadian Tire/Forzani position statement

Position statement

This statement summarizes the approach taken by the Competition Bureau in its review of Canadian Tire Corporation, Limited’s (Canadian Tire) acquisition of all the issued and outstanding shares of The Forzani Group Ltd. (Forzani), pursuant to a takeover bid announced on May 9, 2011.

Readers should note that analytical methodologies are applied, and enforcement decisions are made, on a case-by-case basis. The methodologies and conclusions discussed in this statement are specific to the review of the transaction in question and are not binding on the Commissioner of Competition. The legal requirements of section 29 of the Competition Act, and the Bureau’s policies and practices regarding the treatment of confidential information, limit the Bureau’s ability to disclose information obtained during the course of a merger review.

Background

The transaction involved the purchase of a national sporting goods retailer (including sporting apparel and equipment) by a mass merchandiser with significant sales in sporting equipment. At the time the transaction was announced, Canadian Tire had 485 independent dealer-operated outlets across Canada selling a wide range of products, including automotive parts, housewares, and sporting goods. Forzani, at that time, was a specialized sporting goods retailer operating 587 locations nationally under several banners, including Sport Chek, Sport Mart, and Sports Experts.

In conducting its review of the transaction, the Bureau obtained information from Canadian Tire and Forzani, as well as other market participants, including competitors, suppliers, and potential competitors; in particular, data, strategic marketing documents, and business plans produced by the parties and third parties assisted the Bureau in reaching its conclusions.

Relevant markets

In analyzing the transaction, the Bureau considered the following possible product markets: i) the retail sale of sporting equipment; ii) the retail sale of certain sporting equipment categories (e.g. hockey equipment); and iii) the retail sale of specific sporting equipment products (e.g. hockey skates). The Bureau analyzed the potential competitive effects of the transaction, from a quantitative and qualitative perspective on the basis of each of these potential markets. As discussed below, because the Bureau’s review did not find significant competitive effects in any of the candidate markets, it was not necessary to conclusively define the relevant product market(s).

Local effects and national offerings

At the time the Bureau was conducting its review, a large proportion of the parties’ respective retail outlets were located in close proximity to one another. As such, one approach taken by the Bureau to evaluate the potential competitive effect of the transaction was to assess whether the nature of competition between the parties was such that, following the transaction, market power could be exercised in local geographic markets. In particular, the Bureau examined the degree to which both parties, prior to the transaction, determined prices or product offerings in response to local competition with one another and with other retailers, and whether Canadian Tire, as a result of the transaction, would have the ability to increase prices or reduce product offerings in local markets or across one or more broader geographic areas.

Local markets

With respect to the above-noted possible product markets, the Bureau engaged in a competitive effects analysis to determine whether prices or product offerings varied in local markets, rather than on a broader geographic scale. Econometric results, under several different methodologies, indicated that neither party adjusted its prices or product offerings in local markets in response to the presence of the other party. Consistent with these results, the Bureau’s review of pricing and other strategic documents found that the parties were unlikely to adjust prices or product offerings locally as a result of the transaction. As a result, the focus of the Bureau’s analysis shifted to whether the transaction would allow Canadian Tire to exercise market power in broader geographic areas.

Presence of remaining competitors

To assess whether the transaction would create, maintain, or enhance market power across one or more broader geographic areas, the Bureau considered the degree to which effective competition from national mass merchandisers and regional sporting equipment retailers would remain post-transaction. Following its review of information collected from market participants, the Bureau concluded that the presence of competing retailers was likely to constrain the merged entity’s ability to exercise market power in each of the candidate product markets. In particular, the Bureau determined that certain retailers appeared to be well-positioned to expand their operations in the event of a potential exercise of market power by the merged entity. Owing to the presence of actual or potential competitors, the Bureau concluded that it was unlikely that the transaction would create, maintain, or enhance market power across any relevant geographic area.

Conclusion

The Bureau did not find sufficient evidence to conclude that the transaction would have created, enhanced, or maintained Canadian Tire’s ability to exercise market power in any relevant market.

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