Israel Antitrust Authority Warns It Will Bar Sale of Mega Supermarket Chain to Rami Levy

Officials fear takeover would give discount retailer too much power, but Levy says he would bring low prices to Mega stores.

Ofer Vaknin

The Israel Antitrust Authority warned Monday it would almost certainly block the discount supermarket chain Rami Levy from acquiring food retailer Mega from court-appointed receivers. Levy, the CEO of the eponymous chain, said the regulators were wrong to bar him.

The warning came amid reports that Levy met with Mega’s receivers last week ahead of an offer to buy the chain, which has 126 stores around the country.

Sources at the authority, who asked not to be named, said Super-Sol, Israel’s biggest food retailer, would also be barred from buying Mega, although Super-Sol has not publicly expressed an interest in entering the contest for Mega, which is due to be sold this month after seeking court protection from creditors in January.

Antitrust officials said Rami Levy — the biggest of a handful of supermarket chains that have emerged in recent years to take on Super-Sol and Mega with very low prices — would gain too much market power if it acquired Mega, enabling it to dictate terms to food manufacturers and importers.

But Levy told TheMarker in an interview that regulators were misreading the competitive situation, saying he would bring his discount policy to Mega stores, most of which are located in residential neighborhoods.

“If the authority wants to deal with the high cost of living, they should let me into the neighborhoods,” he said.

“I’ll introduce real competition for the first time, like I did with the discount market. I’ll lower prices for the captive consumers, older people or those without cars, who are forced to pay high prices” at supermarkets in urban neighborhoods.

Levy said barring him from buying Mega would mainly serve the interest of suppliers. “It’s definitely not in the interest of consumers,” he said.

In a series of meetings with Mega’s receivers, antitrust officials indicated that they preferred that Mega’s stores be sold separately to different rival retailers. If the chain is to be sold in its entirety, then the antitrust officials would prefer that it be bought by one of the smaller upstart deep-discount supermarket chains, such as Yenot Bitan or Victory.

Even in the latter scenario, regulators would be careful to enforce rules on geographic concentration and force the buyer to sell or close stores in areas where it has too big a market share.

The policy signaled by antitrust officials seems to favor Yenot Bitan, which had been in talks to buy Mega before the court intervened. The chain has 79 branches and is believed to have annual turnover of as much as 3 billion shekels.

Rami Levy has only 35 stores, but has sales of about 3.8 billion shekels. Mega would add 2.5 billion shekels in turnover to whoever buys it.

A source close to the receivers, however, said they believed the authority would take a wider view of competition and take into account the ability of the buyer to grapple with Mega’s deep financial problems. Receivers said last week the chain could post an operating loss of as much as 15 million shekels in the month after the court put it into receivership.

“The receivers are relying on the antitrust authority to examine carefully every merger offer for Mega,” the source, who asked not to be named, said. “They have to pay attention to the chain’s [financial] situation and the need to restore it.”

The source said there are a lot of competitive advantages to Mega’s being bought by an existing retailer like Victory, Yeinot Bitan or Rami Levy. Rami Levy has a relatively small presence in the great Tel Aviv area, the source noted.