Festi hf. notified the Competition Authority of its acquisition of Lyfju hf. The merger proceedings have now concluded with the companies reaching a settlement with the Competition Authority.
Festi hf. operates, among others, the Krónan, N1 and Elko stores. Lyfja operates the eponymous pharmacies and the wholesaler Heilsa. All of the aforementioned companies are in a strong position in the markets in which they operate. The activities of the merging parties overlap primarily in the market for retail of toiletries and cosmetics and the retail of health products.
The merger also affects the wholesale market for the import and distribution of health products, as Heilsa supplies various retail companies with health products. The merger also affects the retail market for pharmaceuticals, in particular as a result of the merger, Lyfja will become part of a large retail company that sells related products.
The merger parties requested settlement negotiations and submitted proposals for conditions to which the Competition Authority has agreed. The conditions consist mainly of the following:
During the investigation, competitors of Festi and Lyfju in the retail of these products expressed concerns about restricted and unequal access to essential health products, which distorts competition in the market. These conditions work against such effects.
Reviews of mergers in the pharmacy market have revealed a significant shortage of pharmacists in the country. Restrictions on their freedom to practise, resulting from the aforementioned competition prohibitions, limit the ability of smaller competitors as well as new entrants to start or expand their operations. This condition is intended to reduce such restrictions and the effects of the merger in this respect.
An investigation by the Competition Authority revealed market concentration in the retail of toiletries and cosmetics, and in the retail of health products (particularly vitamins, supplements and minerals) in certain regions, especially the East and South of Iceland. Lyfja also holds a strong position in the sale of these product categories in North-West Iceland and the Westfjords.
Such concentration can lead to reduced competition, for example resulting in a lower standard of service. In this case, however, the circumstances did not warrant intervention on this basis. In this regard, it is significant that Festi and Lyfja are not considered particularly close competitors in the sale of these products, there is competition from online retailers in these areas, and these are not everyday consumer goods.
It is also a factor that during the investigation, Festi announced plans for an increased level of service in the regions of the country in the grocery market, including in the aforementioned categories of cleaning and personal care products, and health products. These plans include expanded Kronan online shopping and home delivery services this year, which will extend to at least Reyðarfjörður, Eskifjörður, Neskaupstaður, Fáskrúðsfjörður and Stöðvarfjörður in the East of Iceland. In addition, Krónan's home delivery service in South Iceland will be expanded to cover at least Eyrarbakki, Stokkseyri, Tjarnarbyggð, Flúðir and Reykholt.
Krónan's one-price-nation-wide policy will therefore continue to apply after the merger, and the same applies to Lyfju's corresponding policy.
The terms of the settlement and the measures taken by Festi have, in the opinion of the Competition Authority, a positive effect on competition in the pharmacy and grocery markets. In the opinion of the Competition Authority, the settlement is sufficient to prevent any potential harmful effects of Festi's takeover of Lyfju. In light of this, the merger is therefore approved with conditions.
The treaty is accessible here , but a merger decision with explanations and reasoning will be published later.
Background information:
In accordance with Article 17 of the Competition Act, the Competition Authority is authorised, within statutory time limits, to enter into a settlement with the merger parties regarding the outcome of a case concerning a merger that prevents competition. The settlement is binding on the parties to the proceedings.
It should also be noted that the Competition Authority is investigating alleged breaches by Festi of the conditions set out in Decision 8/2019. The Competition Authority published a statement of objections against Festi in relation to the matter at the end of last year, see, for example, Festi's announcement on the Nasdaq stock exchange on 21 December. The settlement now reached is unrelated to the previous case and does not affect its ongoing investigation.
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