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UK Competition regulator investigates Birmingham shopping centre acquisition


The UK's competition watchdog has opened an investigation into the purchase of Birmingham's Grand Central shopping centre by Hammerson, which already owns a stake in the Bullring centre in the same city.

Hammerson purchased Grand Central, which opened last September as part of the redevelopment of the area around the city's New Street Station, from Birmingham City Council for £335 million earlier this year. It has already announced its intention to dispose of half of its stake in the centre as part of a joint venture with the Canada Pension Plan Investment Board (CPPIB). CPPIB has itself recently acquired a 50% stake in the redevelopment of Paradise Circus, another major retail and commercial regeneration project in Birmingham.

An enforcement notice sent to Hammerson this week by the Competition and Markets Authority (CMA) commits it to running Grand Central as a separate business until the watchdog's investigation is complete. It must also inform the CMA of any "material developments" affecting either Grand Central or the main Hammerson business, including major staffing changes and any "substantial" changes in customer volumes.

Competition law expert Richard Snape of Pinsent Masons, the law firm behind Out-Law.com, said that the case would be watched closely to see whether the CMA adopted the same approach to shopping centre mergers as its predecessor, the Office of Fair Trading (OFT).

"In 2011, the UK competition authorities reviewed, and cleared, the purchase of the Trafford Shopping Centre by the owner of the Arndale Centre, Capital Shopping Centres (CSC)," he said. "In 2012, CSC's purchase of Broadmarsh Shopping Centre in Nottingham was again reviewed but ultimately approved."

"In both cases, the OFT conducted detailed analysis of both the geographic and product markets to determine the context in which competition took place and, therefore, whether the acquisitions were likely to result in a 'substantial lessening of competition'. Interestingly, in relation to Broadmarsh, the OFT focused its review narrowly on Nottingham city centre. It remains to be seen whether the CMA will follow a similar approach - however, this could be a significant consideration given the size of the Bullring and Grand Central developments," he said.

The UK's merger control rules allow the CMA to investigate corporate takeovers and acquisitions if either the target business has a UK turnover in excess of £70 million, or the combination of the target and acquirer will create or increase a 25% share of sales or purchases of any product or service, either in the UK or a substantial part of it. Businesses need not notify such mergers to the CMA; however, if they decide not to do so then the CMA has up to four months following the completion or announcement of the deal to decide whether to investigate on its own accord.

In July 2011, the OFT approved the acquisition of the Trafford Centre by CSC after a detailed review. During its investigation, it considered the likely effects of the proposed deal on both tenants and shoppers in the Greater Manchester area. It ultimately concluded that the out-of-town Trafford Centre and the Arndale Centre, which is located in Manchester city centre, were not close competitors, and that in fact the Arndale Centre considered its closest competitors to be other shops in the central area.

Richard Snape said that it was likely, from looking at past practice, that the CMA would again assess the relevant product market from the points of view of both tenants and shoppers.

"For example, the CMA is likely to consider the extent to which the two shopping areas act as close substitutes for tenants, both in terms of negotiating rent reviews as well as the profile of their target customers," he said. "Relevant factors relating to shoppers will include differences in the shopping experience and the extent to which customers have switched from the Bullring to Grand Central since it opened in September 2015."

"These factors were important in the review of CSC's purchase of the Trafford Shopping Centre: given its out-of-town location it was not considered to be sufficiently substitutable in the minds of consumers with the Arndale Centre to warrant any further, in-depth investigation by the competition authority," he said.

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