Competition panel approves Tesco's acquisition of 50% stake in Trent

A day after the newly-appointed commerce minister Nirmala Sitaraman said the government was in no hurry to pursue the policy of opening up multi-brand retail trade to foreign investors, the Competition Commission of India (CCI) today announced its approval of British retail major Tesco's acquisition of a 50 per cent stake in Tata Group firm Trent Hypermarket.

This is also the first FDI transaction in multi-brand retail since the sector was opened up in 2012.

The CCI noted that Tesco was not earlier engaged in the retail business in India and the transaction "is not likely to have appreciable adverse effect on competition in India".

But the CCI's approval comes close on the heels of the rekindling of a political debate over foreign direct investment (FDI) in multi-brand retail by the new government led by the BJP, which has been vocal about its opposition to FDI in this sector.

Voicing her concern over FFDI in multi-brand retail trade, the new commerce minister Nirmala Sitharaman said on Tuesday said that multi-brand retail is best not opened up now for FDI because medium and small-sized traders or small farmers have not been adequately empowered.

"...if you open up the floodgates of FDI in multi-brand retail, it may affect them," she said while responding to a question on the current policy allowing foreign investment in the sector.

While the central government has allowed FDI in this sector, some states have decided against implementing this FDI policy.

"Government of India has allowed 51 per cent FDI in the multi-brand retail, subject to specified conditions and leaving its implementation upon the discretion of the state governments," the CCI said in its order.

"As the FDI policy regarding multi-brand retailing has not been implemented in the states of Gujarat and Tamil Nadu, Trent Hypermarket Ltd has entered into a stores transfer agreement on 31 March 2014, with Fiora Hypermarket Ltd (a wholly owned-subsidiary of Trent), to transfer its four stores operating in Gujarat and Tamil Nadu," the regulator said.

"It is observed that while THL is engaged in the business of multi-format retail trading in India, including hypermarkets, supermarkets and smaller convenience stores, TOIL (Tesco Overseas Investments Ltd) is not present in the retail market in India and, therefore, there is no horizontal overlap between the business activities of THL and TOIL in the retail market in India."

Tesco Overseas Investments announced an equal joint venture with Trent, picking up a 50 per cent stake in the Tata Group firm for about 85 million pounds, on 21 March and subsequently, Tesco also approached the CCI seeking its clearance.

Tesco Overseas Investments is the holding company for several of the Tesco Group's overseas retail businesses and is into retail trading of grocery and general merchandise through hypermarkets, supermarkets, convenience stores and franchised stores.

Trent Hypermarket is a subsidiary of Trent Ltd engaged in the business of multi-format retail trading in India such as hypermarkets, supermarkets and smaller convenience stores for merchandise, including food and grocery.

Trent currently operates 16 retail stores at various locations in India.

Trent Hypermarket's total revenue during 2012-13 was about Rs785 crore, "which is insignificant as compared to the size of the overall retail market as well as the organised retail market in India," CCI observed.

The CCI also said the organised retail sector comprising hypermarkets and superstores accounted for an 8 per cent market share in the retail sector in 2012 and is estimated to have 20 per cent share by 2020.

"Additionally, due to increased Internet penetration and changing lifestyles, the Indian retail market has also witnessed a surge in online retailers, which has widened the choice for the consumers," the regulator said.

The Tesco Group through one of its entities, Tesco Hindustan Wholesaling, had, in 2008, executed a 'wholesale supply agreement' (WSA) with Trent Hypermarket to supply merchandise for the latter's retail stores.

In addition, Tesco Group provided expertise and technical know-how to Trent Hypermarket pursuant to a 'Franchise and Technical Services Agreement'.

However, in March this year, Tesco Hindustan and Trent Hypermarket amended the pact in order to terminate the WSA. Instead, Trent Hypermarket and Tesco Stores Ltd agreed to pursue a joint venture in the more lucrative retail segment.