Taking Stock / Clubmarket Winners and Losers

The winners

Shareholders of companies operating in markets controlled by the big players. The nod that the trustbuster gave Israel's biggest retail chain to buy the third-biggest chain is occasion for glee for major shareholders in other uncompetitive sectors - retail, energy and communications, for instance.

By approving the merger of No. 1 with No. 3, Antitrust Commissioner Dror Strum showed that he is not only considering competition when making decisions. He is also factoring in profitability and the debt structure of the companies in question.

Everybody knows that if Clubmarket had not been head over heels in debt, it could have continued to operate on its own, or been bought by an independent player. The trustbuster allowed the biggest fish of all to buy the chain because it was bankrupt.

That is good news for Israel's business owners: The trustbuster is willing to overlook competition and extract companies from debt and losses through an anticompetitive merger if his back is to the wall, as it was in the Clubmarket affair.

Supersol. It is paying a huge price for Clubmarket, but the new market structure to be created may enable the supermarket chains to expand their margins. The aggressive price wars will abate, its power over the suppliers will be enhanced and administration can be made more efficient.

The small suppliers. Some of them might have collapsed in Clubmarket's wake, but now most stand to get most of their money. Their relief may be short-lived, though. After Supersol gains control of Clubmarket, the small suppliers' negotiating power may be badly weakened, and their profitability may be too.

The losers

The Antitrust Authority. A month before Clubmarket failed, when competition between the retailers was at its height, we praised Strum for his September 2000 decision to prevent Blue Square Israel from buying out Haviv. At the time Haviv boasted annual turnover of NIS 200 million. One result of his ruling was that competition bloomed and margins shrank, to the increasing benefit of consumers.

In June this year Strum, doggedly adhering to his policy, refused to allow a merger between Co-Op Jerusalem, which has 20 stores around the capital, and Sapir, which had four stores there. Two months later the same man agreed to let Supersol buy Clubmarket.

Ostensibly, he had little choice. Clubmarket would have been liquidated, wiped out - but in fact that is not the only possible scenario. Perhaps if Strum had advised Supersol and Blue Square in advance that they were prohibited from bidding for Clubmarket, more players would have shown up for the tender.

True, they would have offered half or a third of what Supersol did. But with Clubmarket in the hands of new players, the retail sector might have been more competitive.

Strum, and his predecessor David Tadmor, claim that in the antitrust world, there is a doctrine regarding failing companies that justifies mergers in certain cases. Even here they may be misguided: The doctrine states that such mergers could be allowed only when it is clear there are no alternative offers except the anticompetitive one. In the case of Clubmarket, it had not been proved that Supersol was the only body willing to operate the chain. It had only been proved that it was willing to pay the most.

The consumers. The retail sector has changed mightily in recent years. New players came in, such as Haviv, Tiv Ta'am, Hetzi Hinam, and other small, successful stores. Their existence may preclude Supersol and Blue Square from regaining total control of the marketplace and wringing consumers dry.

But just as preventing Blue Square from buying Haviv proved to be been a watershed for the industry, Supersol's takeover of Clubmarket may prove to be a turning point too, and not a good one for consumers.

The big suppliers. Osem Food Industries, Strauss-Elite, Coca-Cola Israel and Tnuva will get much of the money Clubmarket owes them, hundreds of millions of shekels that some already booked as problem debt. But they are not popping corks. At worst, Clubmarket's fall ruined one quarter for them. And they know well that Supersol merged with Clubmarket will bring the power back to the retailers, at their expense.

But they shouldn't fret. Just look at the profitability of the best of them; these are the last players the trustbuster should be worried about at this stage. No, the ones the antitrust commissioner should be concerned about are the consumers. He should ignore the wails, the threats, the spin and the criticism of the suppliers, bankers, Clubmarket's special administrators and judges, who all have their own agenda, be it money or image.