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MONDAY, December 05, 2022
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Why CP group got the nod for takeover of Tesco

Why CP group got the nod for takeover of Tesco

SATURDAY, December 19, 2020

The Office of Trade Competition Commission (OTCC) on Friday published a report on its decision regarding Charoen Pokphand’s (CP) acquisition of Tesco’s Thailand business from Ek-Chai Distribution System.

The OTCC on November 6 voted 4:3 in favour of the US$10-billion (Bt302.5 billion) takeover deal.

According to the report, the majority of the commissioners who voted for the acquisition argued that the acquisition was necessary for business operation and would help create revenue for the country’s economy. It would also help preserve the sales channels of domestic products as well as expand exports to Malaysia, as CP would also acquire Tesco Lotus in Malaysia under this deal.

“The deal would subsequently increase domestic sales and exports, create more employment and promote both retail and manufacturing industries,” said the commissioners.

The majority of the commissioners also said that the deal would not create serious negative impact on the economy, as it would not create unemployment in other related sectors, such as wholesale, which is responsible for 50 per cent of the country’s GDP.

“The deal would instead create up to 1.1 million jobs in the small, medium and large industrial supply chain while keeping the manufacturing sector uninterrupted,” they added.

“It will not add to the impact of Covid-19 that has resulted in recession in the macro economy and caused uncertainty among future investors, both domestic and overseas.”

Meanwhile, a minority of commissioners who voted against the acquisition argued that the acquisition could affect Thailand’s economy as it could lead to monopoly, unfair market dominance and socio-economic disparity, as CP is already the largest manufacturer of agricultural and consumer products that are vital to daily life, while the acquired party holds a large market share in wholesale and retail modern trade.

“The acquisition could also result in an obstacle for new entrepreneurs to enter the market, while other businesses would need to adjust their strategies and lower their costs and selling price to remain in the market,” said the minority of commissioners.

“As the biggest player in the market, CP will have more bargaining power against suppliers of products and raw materials, while SME manufacturers will be at a disadvantage when negotiating trade terms with suppliers.

“Furthermore, the acquisition will result in fewer number of competitors, and in the long term consumers will have limited choices of products and prices,” they added.

The OTCC also set terms and conditions that the acquisition parties: CP Retail Development Ltd and Tesco Stores (Thailand) Ltd, as well as their parent companies: CP All and Ek-Chai Distribution System, must follow:

1. The acquisition parties must not acquire other businesses in a similar sector for three years, excluding those in e-commerce.

2. CP All and Ek-Chai must increase the sales of SME products, including agricultural products, community products and OTOP in 7-Eleven and Tesco Lotus stores by at least 10 per cent annually for a period of five years.

3. The acquisition parties must not share related marketing information to product distributors, manufacturers or suppliers of raw materials. The information shall be classified as a trade secret.

4. Ek-Chai will abide by conditions stated in the contract or agreement that they have made with product distributors or manufacturers for a period of two years, unless product distributors or manufacturers agree to change the terms of the contract or agreement.

5. CP All and Ek-Chai must promote SMEs by providing credit terms of 30 days for agricultural products, community products and OTOP, and 45 days for other types of products for a period of five years.

6. CP All and Ek-Chai must submit their business operations report to the OTCC every three month for a period of three years.

7. Acquisition parties must set the business code of conduct to be displayed to the public, while they shall uphold the code of conduct as well as abide by regulations stated in the Trade Competition Act BE 2560.

Related Story: OTCC sets new criteria for businesses to be considered monopolies

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