Finnish food firms deal comes under close scrutiny

Date: 17/10/1996

FINNISH wholesaler Kesko Oy claims it is defusing European Commission doubts about its take-over of rival Tuko Oy, an operation which gives it a dominant position in the domestic retail market.

“The Commission is starting to understand that the dangers of the deal are not so big,” said a Kesko spokesman.

His comments follow a meeting in Brussels last week between the companies, the Commission, and national competition experts which examined the problems posed by the Kesko take-over and considered how serious competition worries could be addressed.

The Finnish wholesale deal is subject to an in-depth probe by the Commission under its merger vetting rules. In July, officials warned that the combined company would have a high market share and could shut out market newcomers.

Kesko maintains that the Commission has a muddled picture of its role in the Finnish retail sector and has over- estimated its influence as a wholesaler.

“We are trying to explain that we are a wholesaler, not a retailer, and there is sufficient competition in the wholesale area,” said the Kesko spokesman. “Our network is not a chain and they (retailers) can buy wherever they want.”

Any Commission confusion could be forgiven given the unique nature of the Finnish retail market. Both Kesko and its new acquisition Tuko sign private retailers up to their distribution networks in exchange for a fee. Membership gives the retailers guaranteed supply, access to the wholesalers' branded products, and financial help if needed.

Certainty of supply is a big plus in a country as thinly populated as Finland.

Together Kesko and Tuko have about 60&percent; of Finnish food shops within their wholesale networks. “Other shops have difficulty being supplied if they are not within the network,” said a spokeswoman for Finland's Merita Bank.

Merita was part of the group which sold majority control of Tuko to Kesko and is now keeping a close watch on developments, although it says there is no danger that it will have to buy the shares back if the Commission bans the deal.

Both the combined market share of Kesko and Tuko and the precise nature of their influence on associated retailers are under discussion, said an official from Finland's Office of Free Competition.

But he refused to comment on Finnish newspaper reports that a weakening of the links between Tuko and Kesko and their member retailers might be enough to win Commission acceptance of the deal.