98/663/EC: Commission Decision of 26 June 1997 declaring a concentration to be incompatible with the common market (Case No IV/M.890 - Blokker/Toys 'R' Us) (notified under document number C(1997) 1884) (Only the English text is authentic) (Text with EEA relevance)
Date: 1997-06-26
Institutions: European Commission
Subjects: Netherlands, common market, economic concentration, merger control, shareholding, toy industry

25.11.98

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Official  Journal  of  the  European  Communities

L 316/1

II

(Acts  whose  publication  is  not  obligatory)

COMMISSION

COMMISSION  DECISION

of  26  June  1997

declaring  a  concentration  to  be  incompatible  with  the  common  market

(Case  No  IV/M.890  —  Blokker/Toys  ‘R’  Us)

(notified  under  document  number  C(1997)  1884)

(Only  the  English  text  is  authentic)

(Text  with  EEA  relevance)

(98/663/EC)

THE  COMMISSION  OF  THE  EUROPEAN  COMMUNITIES,

Having regard to the opinion of the Advisory Committee
on  Concentrations (2),

Having  regard  to  the  Treaty  establishing  the  European
Community,

Whereas:

Having  regard  to  the  Agreement  on  the  European
Economic  Area  and 
in  particular  Article  57(2)(a)
thereof,

Having  regard  to  Council  Regulation  (EEC)  No  4064/89
of  21  December  1989  on  the  control  of  concentrations
between  undertakings (1),  as  amended  by  the  Act  of
Accession  of  Austria,  Finland  and  Sweden,  and  in
particular  Article  8(3)  and  (4)  and  Article  22  thereof,

Having 
21  February  1997  to  initiate  proceedings  in  this  case,

the  Commission  Decision  of

regard 

to 

Having given the undertakings concerned the opportunity
to  make  known  their  views  on  the  objections  raised  by
the  Commission,

(1) The  procedure  under  consideration  concerns  a
request received by the Commission on 23 January
1997  from  the  Dutch  Government  pursuant  to
Article  22  of  Regulation  (EEC)  No  4064/89  (‘the
Merger  Regulation’)  to  examine  the  acquisition  of
the  Dutch  operations  of  Toys  ‘R’  Us  by  Blokker.
The  agreement  (which  contains  implementation
agreements)  underlying  the  operation  was  signed
by the parties in the form of an exchange of letters
on  24  December  1996.  By  letter  of  13  January
1997  the  transaction  was  notified  to  the  Dutch
authorities.

(2) On  21  February  1997  the  Commission  adopted  a
decision  under  Article  6(1)(c)  in  conjunction  with
Article  22  of  the  Merger  Regulation  finding
that  the  request  was  admissible  in  accordance
with  Article  22,  that  the  request  had  been  made
within  the  one-month  period  provided  for  in

(1) OJ  L  395,  30.12.1989,  p.  1;  corrected  version,  OJ  L  257,

21.9.1990,  p.  13.

(2) OJ  C  363,  25.11.1998.

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Article  22(4)  and  that  the  concentration  raised
serious  doubts  as  to  its  compatibility  with  the
common  market.

I. THE  PARTIES

(3) Blokker  Holding  BV  (‘Blokker’)  is  a  major  retail
operator in the Netherlands. Its principal activities
are  retail  trade  in  household  articles,  toys  and
other  products.  Blokker  operates  several  retail
chains  either  as  owner  of  shops  or  through
franchising agreements. Blokker currently operates
147 wholly owned toy shops under the ‘Bart Smit’
trade  mark  and  196 
the
‘Intertoys’  trade  mark,  of  which  [. . .] (*)  are
franchised  to  individual  operators.  Blokker  also
sells  a  broad  assortment  of  toys  in  its  household
articles  stores,  in  particular  in  the  outlets  under
the  ‘Blokker’,  ‘Marskramer’  and  ‘Familux’  trade
marks  (431  shops  of  which  [. . .]  are  franchised).
The  total  turnover  of  Blokker  in  1995  was  ECU
[. . .]  million.

toy  shops  under 

(4) Blokker  is  also  active  in  other  Member  States.  It
operates  about  160  Blokker  household  stores  in
Belgium,  Luxembourg,  Germany  and  France,  15
Bart  Smit  stores  in  Belgium  and  2  Intertoys  stores
in Germany.

(5) Toys ‘R’ Us Inc. (US) is one of the world’s biggest
toy  retailers  and  is  active  in  most  Member  States
of  the  European  Community.  The  worldwide
turnover  of  Toys  ‘R’  Us  Inc.  (US)  in  1996  was
ECU 7 523 million. Toys ‘R’ Us (Netherlands) BV
is  a  wholly  owned  subsidiary  of  Toys  ‘R’  Us  Inc.
(US)  and  achieved  in  1996  a  total  turnover  of
ECU  27,5  million.  The  undertakings  are
hereinafter  jointly  referred  to  as  ‘Toys  ‘R’  Us’.

II. THE  OPERATION

(6) The  operation  as  set  out  in  the  agreement  of
24  December  1996,  referred  to  as  the  ‘Letter
Agreement’ has been implemented through a set of
agreements:  the  ‘Master  Sub-lease  Agreement’,
‘Asset Purchase Agreement’, ‘Franchise Agreement’
and  the  ‘Marketing  Subsidy  Agreement’.  Of  the

(*) This  version  of  the  Decision  has  been  edited  to  ensure  that

confidential  information  is  not  disclosed.

nine stores operated by Toys ‘R’ Us, Blokker takes
over  the  six  stores  in  Alkmaar,  Utrecht,  Breda,
Beek  and  Muiden  and  Rotterdam-De  Boog.  The
three  stores  in  Arnhem,  Rotterdam-Zuidplein  and
Eindhoven  are  operated  by  Blokker  under  a
temporary  operating  agreement.  The  latter  will  be
closed once another tenant has been found for the
premises  or  an  agreement  has  been  reached  with
the  respective  landlords.  The  transaction  was
concluded  on  3  February  1997.  That  is  also  the
date on which Blokker started to operate the Toys
‘R’  Us  stores.

(7) Speelhoorn  BV,  a  wholly  owned  subsidiary  of
Blokker, sub-leases from Toys ‘R’ Us the premises
for  the  five  shops  in  Alkmaar,  Utrecht,  Breda,
Beek  and  Rotterdam-De  Boog  which  are  currently
(Netherlands)  BV.
‘R’  Us 
leased  by  Toys 
Speelhoorn  leases  the  shop  in  Muiden  from  Toys
‘R’  Us  which  is  owned  by  Toys  ‘R’  Us  Inc.  (US).
The  respective  lease  terms  will  end  between  the
years  [. . .]  and  [. . .],  the  respective  sub-leases,  or
in  the  case  of  Muiden  the  lease,  are  valid  as  long
as  the  franchise  agreement  is  in  effect.  The  floor
from
capacity  per 
store  will  be 
3 000-4 000  m2 
the
remaining space will also be sub-leased per square
metre  by  Toys  ‘R’  Us  if  possible.  The  amount  of
rent  Blokker  pays  to  Toys  ‘R’  Us  is  less  than  the
amount  Toys  ‘R’  Us  is  paying  to  its  respective
landlords.

to  approximately 

reduced 

[. . .], 

(8) Blokker purchases from Toys ‘R’ Us (Netherlands)
BV  the  assets  and  inventory  of  all  nine  stores
except  for  the  cash  register  and  the  computer
system.  Blokker  pays  Toys  ‘R’  Us  NLG  [. . .]  for
the  inventory  and  an  amount  of  NLG  [. . .]  for
so-called  assets  (fixtures  and  furniture).  Blokker
also  takes  over  the  employment  contracts  of  the
personnel  of  all  stores  [. . .].

(9) The  Franchise  Agreement  provides  that  Blokker
has  the  exclusive  right  to  use  the  trade  mark  and
the  Toys  ‘R’  Us  system  in  the  Netherlands.  Toys
‘R’  Us  has  developed  requirements  for  type,
quality and category mix of the items to be carried
Blokker  has  the  right  to  add  other  product
categories  which  are  usually  not  sold  in  Toys  ‘R’
Us  stores  and  is  free  to  determine  the  individual
products  in  each  category  and  the  respective
prices.  The  term  of  the  franchise  is  12  years,  the
franchisee  has  the  right  to  renew  the  agreement
for  terms  of  10  years  provided  the  franchisee  has
not committed material breaches of the agreement.
is  [. . .]  of  net  sales,  the
The  franchise  fee 
franchisee  has  to  pay  a  service  fee  of  [. . .]  on
merchandise  procured 
connection  with
coordinated  purchases  [. . .].

in 

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(10) The  Franchise  Agreement  gives  Blokker  the  right
to  purchase  toys  through  the  Toys  ‘R’  Us  central
buying  operation.  According  to  the  Agreement,
this  merchandise  can  be  offered  for  sale  by  the
franchisee  or  in  any  ‘franchised  store’.

(11)

[. . .].

(15)

III. CONCENTRATION

that 

facilitating 

the  execution  of 

(12) The  parties  argue  that  this  operation  is  not  a
concentration  within  the  meaning  of  the  Merger
Regulation.  They 
the  Franchise
state 
Agreement  is  the  nucleus  of  the  transaction  and
that  the  other  agreements  are  merely  ancillary
agreements 
the
Franchise  Agreement.  They  further  that  Blokker
does not obtain control within the meaning of the
Merger Regulation and that Blokker does not gain
any  more  security  of  tenure  than  a  franchisee  in
any  typical  franchise  agreement.  They  also  argue
that  a  franchise  agreement  needs  to  be  assessed
under  Article  85  of 
the  EC  Treaty  and
(EEC)  No  4087/88,
Commission  Regulation 
the  Franchise  Block  Exemption  Regulation (3),
and  cannot 
therefore  be  an  element  of  a
concentration.

(13) According  to  Article  3(1)(b)  of  the  Merger
Regulation,  a  concentration  arises  when  one
undertaking  acquires  direct  or  indirect  control  of
the  whole  or  parts  of  another  undertaking.
Article  3(3)  defines  the  element  of  control  as
constitued by rights, contracts or any other means
which  confer  the  possibility  of  exercising  decisive
influence  on  an  undertaking,  in  particular  by
ownership  or  the  right  to  use  all  or  part  of  the
assets of an undertaking. Control for the purposes
of  the  Merger  Regulation  means  the  possibility  of
exercising  decisive  influence  on  an  undertaking.
Therefore,  acquisition  of  control  is  not  limited  to
cases  where  a  legal  entity  is  taken  over  but  can
also  happen  through  the  acquisition  of  assets.  In
this situation the assets in question must constitute
a  business  to  which  a  market  turnover  can  be
clearly attributed (4).

(14) The mere fact that a franchise agreement is a part
the  operation  cannot  exclude  the  whole
of 
operation  from  the  application  of  the  Merger
Regulation.  The  decisive  question  is  whether  the

(3) OJ  L  359,  28.12.1988,  p.  46.
(4) Commission  notice  on  the  notion  of  a  concentration  under
Council  Regulation  (EEC)  No  4064/89,  paragraph  11  (OJ
C  385,  31.12.1994,  p.  5).

whole  set  of  agreements  concluded  between  Toys
‘R’  Us  and  Blokker  will  give  Blokker  control  of
the  Toys  ‘R’  Us  business  which  remains  on  the
Dutch  market.  The  three  shops  which  are  to  be
closed  and  are  only  temporarily  in  operation  are
not  part  of  the  concentration,  since  Blokker  does
not  acquire  control  on  a  lasting  basis.

In  this  operation  Blokker  takes  over  all  the  assets
(leases,  fixtures  and  inventory,  personnel,  use  of
brand  name)  which  make  up  the  business  of  Toys
‘R’  Us  in  the  Netherlands.  To  this  business,  a
turnover  can  clearly  be  attributed.  The  operation
leads  to  a  lasting  change  in  the  structure  of  the
undertakings  concerned  since 
the  agreements
underlying  the  operation  are  of  a  long-lasting
nature.  Toys  ‘R’  Us  has  repeatedly  stated  that  it
has  definitely  decided  to  leave  the  Dutch  market
and that it will not choose any other buyer for its
business. The fact that Blokker operates the stores
as  a  franchisee  is  not  a  factor  militating  against
the  exercise  of  control  by  Blokker.  The  particular
Franchise  Agreement  does  not  confer  upon  Toys
‘R’  Us  rights  which  could  lead  to  the  assessment
that Toys ‘R’ Us retains control of the business. It
is  the  franchisee  who  selects  the  products  within
the given categories and who determines the prices
at  which  they  will  be  sold.  Blokker  has  confirmed
in  its  letter  of  7  February  1997  that  its  particular
agreement with Toys ‘R’ Us allows it to add other
product  categories  which  are  usually  not  sold  in
Toys  ‘R’  Us  stores,  such  as  garden  furniture  or
Christmas  items.  Blokker  has  also  stated  that  it
wants  to  create  a  new  shopping  formula  which
differs  essentially  from  the  existing  Toys  ‘R’  Us
concept. This confirms that Blokker not only gains
control  over  the  day-to-day  operations  but  that
Blokker  determines  the  concept  of  the  shops.
Therefore,  Toys  ‘R’  Us  will  no  longer  determine
the  course  of  the  business  but  cedes  its  influence
to  Blokker.

(16) Therefore,  Blokker  acquires  control  of  parts  of  an
undertaking  within  the  meaning  of  Article  3(1)
and  the  operation  constitutes  a  concentration
within  the  meaning  of  Article  3(1)(b)  of  the
Merger Regulation.

IV. COMMUNITY  DIMENSION

(17) The  combined  worldwide  turnover  of  the  parties
does  not  exceed  ECU  5 000  million.  The
worldwide  turnover  of  Blokker  is  ECU  [. . .]
million.  The 
‘R’  Us
(Netherlands)  BV  that  can  be  attributed  to  the
shops  taken  over  by  Blokker  is  estimated  by  Toys

turnover  of  Toys 

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‘R’  Us  at  ECU  [. . .]  million.  It  follows  that  the
concentration  has  no  Community  dimension
within  the  meaning  of  Article  1  of  the  Merger
Regulation.

abovementioned categorisation of toys usually sold
in  retail  outlets  is  used  in  the  available  market
studies (6)  and  is  generally  accepted  in  the  toy
industry,  and  is  confirmed  by  the  Commission
investigation  with  retailers  and  suppliers  of  toys.

V. EFFECT  ON  TRADE  BETWEEN
MEMBER  STATES

is 

imported 

from  other  Member  States. 

(18) Article  22(3)  of  the  Merger  Regulation  requires
that  the  concentration  affects  trade  between
Member  States.  A  [. . .]  proportion  of  the  toys
([. . .] %) sold by the Blokker group and in general
into  the
on  the  Dutch  market 
Netherlands 
In
addition,  before  the  operation  the  majority  of
the  products  sold  by  Toys  ‘R’  Us  were  provided
from  their  German  organisation.  Following  the
operation,  that  is  no  longer  the  case.  Blokker
obtains  its  products  from  a  variety  of  sources,
including direct imports from manufacturers in the
Far  East  and  from  Dutch  importers  or  sales
offices.

(19)

In  addition,  the  acquisition  of  the  Toys  ‘R’  Us
stores by Blokker can increase barriers to entry for
new  entrants  to  the  Dutch  market  for  toys,
including  entrants  from  other  Member  States.

(20) Thus,  the  change 

in  structure  of  the  Dutch
specialised  toy  retail  market  as  set  out  below  will
have  an  appreciable 
influence,  directly  or
indirectly, actually or potentially, on the pattern of
trade  between  Member  States (5).

VI. COMPATIBILITY  WITH  THE  COMMON
MARKET

A. Toy  retaling  in  the  Netherlands

Market  information  on  retail  of  toys

(21) The  range  of  products  generally  sold  in  toy  retail
outlets  includes  principally  the  following  product
categories:  baby  and  toddlers’  toys,  puppets,
cuddly  toys,  play  animals,  construction  toys,
board  games,  puzzles,  assembly  kits,  outdoor  play
items, look and listen toys and hobby articles (the
so-called  classic  toys)  and  electronic  toys  such
as  computer  games  and  video  games.  The

(22) There  are  only  two  publicly  available  studies
providing  information  on  the  total  value  of  sales
of toys in the Netherlands. These are published by
the  EIM/Centre  for  Retail  Research (7),  and  the
Gfk  Interact (8)  respectively.  Both  studies  give
estimates  of  the  total  retail  sales  of  toys  in  the
Netherlands  and  estimates  of  the  importance  of
the various retail channels through which toys are
sold to the final consumer. Both studies indicate a
decline in the value of total sales of toys in recent
years.  According  to  the  Gfk  study  the  number  of
toys  sold  in  the  Netherlands  shows  a  slight
increase  over  the  last  three  years  but  the  average
price  per  toy  item  has  decreased  which  leads  to  a
decrease  in  total  value.

(23) A  specific  feature  of  toy  retailing  is  its  highly
seasonal character. About 50 % of the yearly sales
are  realised  in  the  period  between  1  October  and
31  December.  A  characteristic  feature  of  the
Dutch  market  in  this  respect  is  the  Saint  Nicholas
period  which  starts  in  November  and  has  its  high
point  on  the  evening  of  5  December.  Thus  the
annual  peak 
the
Netherlands  than  in  neighbouring  countries.  A
specific  feature  of  the  Dutch  market  is  also  that
the  amount  of  money  spent  on  toys  per  child  in
the Netherlands is approximately 20 % lower than
the  average  in  Western  Europe.

in  sales  occurs  earlier 

in 

Total  value  of  sales

(24) The EIM/Centre for Retail Research has estimated
the  total  value  of  toy  sales  in  the  Netherlands  at
NLG  870  million  (ECU  410  million)  in  1996.
According to the EIM definition, this figure covers
classic  and  other  toys,  electronic  and  computer
games,  but  does  not  cover  CD-ROMs  and
children’s  videos.  The  EIM  bases  its  findings  on
the  production  statistics  of  the  Dutch  Centraal
Bureau  voor  de  Statistiek  together  with  its  own
estimations.

(25) The  Gfk  market  study  estimates  the  total  sales
value  of  toys  in  the  Netherlands  at  around  NLG
734  million  (ECU  343  million)  in  1996.  The  Gfk

(6) These  studies  will  be  discussed  below  (paragraphs  24  to

25).

(5) Judgment  of 

the  European
the  Court  of  Justice  of 
Communities  in  Case  56/65  Société  Technique  Minière  v.
Maschinenbau  Ulm  [1966]  ECR,  p.  235.

(7) EIM/Centrum 

voor  Retail  Research, 

Brancheschets

Speelgoeddetailhandel,  1996  and  1997.

(8) Gfk  Interact  Consumer  Panel  1996.

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regularly 

questioned 

study  covers  all  categories  of  toys,  including
electronic  and  video  games,  but  does  not  cover
children’s  videos  and  CD-ROMs.  This  market
study  is  based  on  a  consumer  panel  of  5 000
people, 
their
expenditure  on  toys.  The  study  covers  only
purchases  with  a  value  of  more  than  NLG  10
(ECU  4,7)  by  persons  older  than  12  years.  Two
major suppliers (Lego and Mattel) have stated that
the  Gfk  figures  cover  only  about  75-80 %  of  the
total  sales.  Based  on  this  assumption  the  total
sales  value  can  be  estimated  at  NLG  980  million
(ECU  457  million)  in  1996.

about 

study  prepared  by  Lego.  According  to  this  study
the relevant market should be defined according to
products  and  services  requested  by  children  for
their  leisure  time.  This  approach  is  referred  to  as
the  concept  of  the  children’s  wish-list.  The  parties
state  that  the  appropriate  criterion  for  the  market
definition  should  be  the  children’s  entertainment
character  of  a  product.  The  parties  cite  as
examples  the  facts  that  sports  shoes,  CD-ROMs
or  computer  games  or  hi-fi  equipment  are
perceived  by  children  as  perfect  substitutes  for
‘traditional’ toys.

(26) The  Commission  received  one  market  study  from
Lego  which  stated  that  the  size  of  the  total  sales
amount  to  NLG  1 053  million.  This  market  study
does  not  cover  children’s  videos  and  CD-ROMs.

B. Relevant  product  market

(27) The  parties  concerned  in  the  operation  are  active
in  the  retail  of  a  broad  assortment  of  toys  in
specialised  toy  shops  or  shops  with  a  specialised
toy  department.  In  the  Netherlands  toys  are  sold
for  the  most  part  by  specialised  toy  shops  which
toy  products
carry  a  broad  assortment  of 
throughout  the  whole  year.  In  addition,  toys  are
also  sold  through  other  retail  channels  such  as
certain  drugstores,  petrol  stations,  supermarkets,
electronic  or  computer  shops,  a  cash  and  carry
wholesaler  and  mail  order  companies.

(28)

It  is  the  view  of  the  Commission  that  the  relevant
market is the market for retail outlets which sell a
broad  assortment  of  toys  the  final  consumer
throughout  the  year.  In  the  Netherlands  these
outlets  include  specialised  toy  shops  and  shops
toy  department  such  as
with  a  specialised 
department  stores  and  household  articles  stores.
These  outlets  are  referred  to  as  specialised  toy
outlets.  By  contrast,  the  parties  argue  that  the
relevant  market  should  be  defined  more  broadly
including  all  the  distribution  channels  through
which  toys  are  sold  to  the  final  consumer.

to 

the  children’s  wish-list 

(30) The  concept  of  defining  the  relevant  market
according 
is  not
accepted  by  the  Commission.  In  so  far  as  services
are  included  it  would  already  go  beyond  retailing.
Under  the  Merger  Regulation,  a  relevant  product
market comprises those products or services which
are  substitutable  by  the  consumer  by  reason  of
their  characteristics,  their  price  and  their  intended
use.  Even  if  the  market  definition  were  restricted
to  the  retail  of  products  with  an  entertainment
character, 
the  retail  of
products  for  which  competition  takes  place  on
other  markets.  The  relevant  market  in  a  retail
context  cannot  be  defined  by  all  possible  options
of  consumer  spending.

that  would 

include 

(31) The  specialised  toy  outlets  can  be  distinguished
from  other  retail  channels  because  they  carry
throughout  the  whole  year  a  broad  assortment  of
toy  products  specifically  aimed  at  children.  These
specialised  outlets  enable  consumers  to  make  a
choice  from  a  broad  assortment.  Toys  ‘R’  Us
stated  at  the  hearing  that  specialised  toy  retailers
carry a range of toy products selected with the aim
of  attracting  as  many  consumers  to  the  store  as
possible.  A  broad  assortment  normally  includes
products  from  the  following  categories:  baby  and
toddlers’  toys,  puppets,  cuddly  toys,  play  animals,
construction  toys,  board  games,  puzzles,  assembly
kits,  outdoor  play  items,  look  and  listen  toys  and
hobby  articles  (the  so-called  classic  toys)  and
electronic  toys  such  as  computer  games  and  video
games. The abovementioned categorisation of toys
is  used  in  the  available  market  studies  and  is
generally  accepted  in  the  toy  industry,  and  is
confirmed  by  the  Commission’s  investigation  with
retailers  and  suppliers  of  toys.

(29) The  parties  submit  that  the  exclusion  of  other
outlets is arbitrary. Furthermore, the parties argue
that  all  sales  of  products  such  as  CDs,  audio
appliances,  computers,  children’s  videotapes  and
sports  articles  should  also  be  included  in  the
definition  of  the  relevant  market,  since  these
products  are  sold  in  specialised  toy  shops  as  well
as  in  other  outlets.  The  parties  also  refer  to  a

(32) Specialised  toy  retail  outlets  have  the  distinctive
feature  that  they  all  publish  special  toy  catalogues
for  the  Saint  Nicholas  sales  period,  which  in  the
Netherlands  is  the  annual  peak  in  sales.  Other
catalogues  such  as  the  catalogue  published  by  the
drugstore  Kruidvat,  are  not  toy  catalogues  since
they  use  toys  only  as  an  eye-catcher  and  toy
products  make  up  only  a  small  percentage  of  the
overall  number  of  products  advertised.

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(33) The  composition  of 

the  dynamics  of 

the  assortment  of 

toy
products  may  vary  between 
the  different
specialised  toy  retail  outlets  as  some  put  more
emphasis  on  certain  categories  or  select  other
products  within  the  categories.  Furthermore  due
the
to 
indroduction  of  new  toys,  the  relative  weight  of
product  categories  themselves  can  change  over
time.  For  example  products  such  as  electronic
games  and  video  games  have  entered  the  range  as
a  mainstream  product  category  in  recent  years.  In
this  respect  the  most  recent  development 
is
CD-ROMs  for  children  which  are  now  being
introduced  in  certain  toy  shops.

the  market  and 

(34) A  specific 

in 

feature  of 

toy  retailing 

the
Netherlands is that the majority of sales of toys (at
least  80 %)  is  concentrated  in  specialised  outlets.
Outlets  such  as  computer  shops  and  electronics
shops  normally  carry  only  video  games  and
computer games which is only one category out of
the  assortment  of  specialised  toy  retail  outlets.
Other  distribution  channels  such  as  supermarkets
and  drugstores  only  carry  a  limited  number  of
products  as  part  of  another  range  of  consumer
goods.  Those  supermarkets  which  carry  toys  have
a  small  selection  of  usually  small  items  below  a
certain  price  level.  Similarly  drugstores  offer  a
limited  selection  usually 
three
branded  suppliers.  Even  the  drugstore  chain
Kruidvat  which  has  the  highest  turnover  among
the  drugstores  only  carries  up  to  100  items  of  the
three  brands  Lego,  Fisher  Price  and  Barbie  on  a
permanent  basis.  All  other  items  are  only  sold  on
a  temporary  basis.  This  is  considerably  less  than
the  toy  department  of  the  Blokker  household
shops  which  carry  up  to  [. . .]  toy  items.  Some
petrol  stations,  in  particular  Shell,  carry  a  very
limited  number  of  branded  products  (for  instance
Lego),  often  on  a  temporary  basis.  The  products
are  usually  packaged  specifically  for  the  outlet  in
question  and  differ  slightly  from  the  products
available  in  the  specialised  toy  outlets.

from  one 

to 

contrast, 

consumers  go 

(35) Moreover,  in  these  other  distribution  channels,
toys are often used as a means to attract consumer
traffic for the sale of other products or as impulse
purchases.  By 
to
specialised  toy  outlets  with  the  expectation  of
having  a  choice  from  a  broad  assortment  of  toys
or  finding  the  item  or  product  category  there.
Although the sales of a small selection of branded
in  non-toy  outlets  may  have  some
products 
influence  on  prices  of  similar  products 
in
specialised  toy  retail  outlets,  they  cannot  be
regarded  as  fully-fledged  competitors  with  these
outlets. This view has been confirmed by other toy
retailers.

(36) The parties argue that the hypermarket Maxis and
the  cash  and  carry  wholesaler  Makro  should  be
included  in  the  relevant  market.  Maxis  carries  a
broad assortment comparable with a Blokker store
and  is  considered  to  be  part  of  the  relevant
market. Makro as such, is a wholesaler which is in
principle  not  open  to  the  general  public.  Sales  of
mail  order  companies  are  negligible.

(37) The  assortment  of  products  in  specialised  toy
retail  outlets  may  include  products  such  as  books,
sports  articles,  watches  and  in  some  outlets  even
computers,  which  are  more  commonly  found  in
other  outlets.  Competition  for  these  items  largely
takes  place  on  neighbouring  retail  markets.  The
fact  that  a  small  number  of  these  items  may  be
sold in specialised toy retail outlets does not affect
is  not
this  conclusion.  For 
appropriate  to  include  all  these  products  in  the
assessment  of  competition  between  specialised  toy
retail  outlets.  In  any  event,  this  does  not  make  a
substantive  difference  to  the  assessment  of  the
case (9).  Children’s  videotapes  are  sold  in  a  variety
of  outlets  including  specialised  toy  retail  outlets.
Since  the  question  whether  these  have  to  be
considered as a toy is not decisive for the case, the
product  category  can  be  left  open.

this  reason 

it 

C. The  relevant  geographic  market

(38)

In  earlier  decisions  concerning  retail  operations,
the  Commission  has  generally  taken  the  view  that
retail  markets  can  be  defined  as  national  under
certain  circumstances (10).  Although  the  catchment
area  of  a  retail  outlet,  which  can  be  based  on  the
distance a consumer is willing to travel to reach it,
is  of  a  local  or  regional  scale,  the  catchment  area
does  not  necessarily  determine  the  geographic
market.  In  a  situation  where  several  retail  chains
operate  networks  of  stores  on  a  national  scale,
the 
important  parameters  of  competition  are
determined  on  a  national  scale.  Therefore,  from
the viewpoint of the catchment area, what may be
a local or regional market has to be aggregated to
a  national  market  in  these  circumstances.

(9) Since the proportion of these products in Blokker’s turnover
seems to be higher than that of its competitors, the inclusion
of  these  products  would  only  increase  Blokker’s  market
share  among  the  specialised  toy  retailers.

(10) Commission  Decision  97/277/EC  in  Case  IV/M.784  —

Kesko-Tuko  (OJ  L  110,  26.4.1997,  p.  53,  paragraph  21).

25.11.98

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(39) The 

in 

toy 

specialised 

the
retail  market 
Netherlands 
is  characterised  by  chains  which
operate on a country-wide basis. Both Blokker and
Toys  ‘R’  Us  operate  their  retail  outlets  according
to a national, and in the case of Toys ‘R’ Us, even
international,  store  concept.  In  these  concepts
important 
are
competition 
determined  at  the  central  level  of  the  chain.

parameters 

of 

(40) Pricing  decisions  for  toys  sold  in  stores  belonging
to the Blokker group are determined at the central
level of each chain. Even the Blokker and Intertoys
shops,  which  are  operated  under 
franchise
agreements, are bound by the prices determined at
the  central  level.  Franchisees  of  Blokker  and
Intertoys are obliged to inform the management of
the  chain  about  local  competition  but  it  is  the
central management which decides whether or not
to  react  to 
local  competition.  Although  the
members  of  Otto  Simon  are  not  bound  by  the
centrally  recommended  prices,  most  of  them
follow  those  prices.

(41) Advertising  by  retailers  is  mainly  carried  out  on  a
national  scale  as  catalogues  and  flyers  have  the
same  appearance  and  are  distributed  throughout
the  country.  Furthermore,  the  product  ranges  of
the chains, especially the retail outlets belonging to
the  Blokker  group,  are  determined  at  the  central
level  of  the  chains.

(42) Although  the  chains  operated  by  Blokker  are
active  in  other  Member  States  (Bart  Smit  and
Blokker in Belgium, Intertoys in Germany) and the
Toys  ‘R’  Us  formula  is  operated  in  large  parts  of
Europe,  the  geographic  market  cannot  be  defined
than  a  national  market.
on  a  basis  wider 
Consumer  preferences  and  habits  differ  from  one
Member  State  to  another.  The  catalogues  of
retailers  are  published  and  distributed  only  on  a
national  scale.  The  poor  performance  of  Toys  ‘R’
Us  in  the  Netherlands  which  introduced  on  the
Dutch  market  the  German  Toys  ‘R’  Us  concept
and  the  product  range  selected  for  the  German
market is a good example to show that the Dutch
specialised  toy  retail  market  is  national.

D. Effects  of  the  concentration

(i) S t r u c t u r e   o f   s u p p l y   i n   t h e   r e l e v a n t

m a r k e t

The  Blokker  group

The  147  Bart  Smit  shops  are  all  owned  by
Blokker. The Intertoys chain comprises 196 shops,
of  which  [. . .]  are  operated  through  franchise
agreements  and  [. . .]  are  wholly  owned.

for 

articles: 

(44) Blokker  also  sells  an  assortment  of  toys  in  its
chains 
‘Blokker’,
household 
‘Marskramer’ and ‘Familux’. In total, toys are sold
in  288  Blokker  shops.  Of  these  shops  [. . .]  are
owned  by  Blokker  while  [. . .]  are  operated
through 
the
Marskramer  and  Familux 
formulas,  Blokker
operates  143,  shops  of  which  [. . .]  are  operated
through  franchise  and  [. . .]  owned.

agreements.  Under 

franchise 

(45) The  position  of  Blokker  in  toy  retailing  is  for  a
large  part  the  result  of  acquisitions.  In  1985  the
Blokker  group  acquired  Bart  Smit.  In  1994  the
Blokker  group  acquired  Intertoys,  Marskramer
and  Familux  in  which  it  earlier  had  a  minority
interest.

Toys  ‘R’  Us

in  out-of-town 

(46) Toys  ‘R’  Us  entered  the  Dutch  market  in  1993,
introducing a new concept of toy retailing: that of
so-called  megastores 
locations.
Toys  ‘R’  Us  operated  nine  megastores  in  the
Netherlands  in  1996.  Because  of  their  extensive
floor  size  the  stores  can  carry  the  largest  possible
range  of  toy  products.  The  product  range  of  Toys
‘R’  Us  also  contains  other  products  including
bicycles,  nappies  and  baby  food.

The  Otto  Simon  group

(47) Otto  Simon  BV (11)  is  a  wholly  owned  subsidiary
of  Otto  Simon  Beheer  BV  which  belongs  to  the
German  Vedes  group.  The  members  of  the  Otto
Simon  system  are  all  independent  retailers.  Otto
Simon offers its members joint purchasing, accepts
the  del  credere  risk  and  provides  marketing  and
other  support  services.

toy  shops. 

(48) Otto  Simon  operates  four  different  formulas  of
specialised 
is  a
specialised  toy  shop  carrying  a  broad  product
range (100 shops). ‘Wigwam’ is a ‘shop in a shop’
concept  which  is  mainly  operated  in  combination
with  other  outlets  such  as  household  shops,  book
shops,  drugstores  and  carries  a  smaller  range  of

‘De  Speelboom’ 

(43) The  Blokker  group  operates 

two  chains  of
specialised  toy  shops:  ‘Bart  Smit’  and  ‘Intertoys’.

(11) Otto  Simon  BV  was  formerly  operating  under  the  name

Toypartners  BV.

L 316/8

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toys  (241  shops).  ‘Techno  Hobby’  is  a  chain
specialising  in  model  trains,  radio-controlled  toys,
miniature  cars  and  model  construction  sets
(45  shops) (12).  From  1  May  1997  Otto  Simon
took  over  the  operation  of  the  five  specialised  toy
shops of ‘Early Learning Centre’ through a master
franchise  agreement.  These  shops  carry  a  broad
range  of  toys  with  educational  value  for  children
aged  between  0  and  8  years.

In  Den  Olifant

(49)

In  Den  Olifant  is  a  franchise  chain  of  small
specialised  toy  shops.  It  operates  seven  stores  in
the  Netherlands.

Department  stores  and  hypermarkets

(50)

In  the  Netherlands  there  are  three  important
chains of department stores which have specialised
toy departments: Vroom & Dreesmann (63 stores,
of which 46 sell toys), which is owned by Vendex
International,  and  De  Bijenkorf  (6  stores)  and
Hema  (236  stores),  which  are  both  owned  by
Koninklijke  Bijenkorf  Beheer  (KBB).  The  only
hypermarket  in  the  Netherlands  is  Maxis,  which
operates  5  stores.

Other  independent  specialised  toy  outlets

(51) There  are  also  a  number  of  small  independent
specialised  toy  shops  and  independent  household
articles shops. Their operations are not substantial
and  they  are  declining.  In  addition,  there  are  a
number  of  smaller  independent  department  stores
which  sell  toys.

(12) Techno Hobby does not carry a broad assortment as defined
above.  The  question  whether  it  should  be  part  of  the
relevant  market  can  be  left  open  since  it  would  make  a
substantive  difference  to  the  assessment.  For  the  purpose  of
this  case,  it  is  incorporated  in  the  market  share  of  Otto
Simon.

(ii) M a r k e t   s h a r e s   i n   t h e   r e l e v a n t

m a r k e t

(52) As  described  above,  the  Commission  has  defined
the  relevant  product  market  as  the  retail  of  toys
through  specialised  toy  retail  outlets.

(53)

in 

the 

relevant  market 

In  order  to  determine  the  market  shares  of  the
parties  active 
the
Commission  has  sent  questionnaires  to  supplies/
and retailers regarding the size of the total market,
the  relative  importance  of  various  distribution
channels and the actual turnover figures of parties
active  in  the  relevant  market.  In  this  way  the
Commission  has  determined  the  market  shares  of
all  main  players  in  the  market (13).  The  combined
market  share  of 
independent
specialised  toy  shops,  the  independent  household
articles  stores  and  independent  department  stores
is estimated at 10 % of sales in the relevant market
since  it  would  be  nearly  impossible  to  obtain
turnover  figures  for  these  outlets.  (This  figure  is
based  on  the  Gfk  market  study.)

the  remaining 

(54) Based  on  the  aggregation  of  actual  turnover
figures  of  the  parties  active  in  the  relevant  market
and  the  estimation  of  the  combined  market  share
of the independent operators, the sales value in the
relevant  market  is  estimated  at  around  NLG  785
million  (ECU  366  million)  in  1996.

(55) The  market  shares  of  the  parties  in  the  relevant
market,  calculated  on  the  basis  of  their  actual
turnover  figures,  are  set  out  in  the  table.  These
figures  have  not  changed  substantially  over  the
last  three  years.

(13) For the purpose of calculating market shares, other products
such  as  books,  sports  articles,  watches  and  children’s
into  account.  Since  not  all
videotapes  are  not  taken 
toy
Blokker’s  competitors 
department  (department  stores),  CD-ROMs  are  not  taken
into account in calculating Blokker’s market share. For these
reasons,  the  Commission  has  based  the  calculation  of
Blokker’s  market  share  on  a  turnover  figure  of  which  20 %
has  been  deducted  as  indicated  by  Blokker.

sell  CD-ROMs 

their 

in 

25.11.98

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Official  Journal  of  the  European  Communities

L 316/9

Market  shares  in  the  relevant  market  in  1996

Bart  Smit

Intertoys

Marskramer/Familux

Blokker

Toys  ‘R’  Us

Otto  Simon

Vroom  &  Dreesmann

Bijenkorf

Hema

In  den  Olifant

Total  Blokker  group

Blokker  +  Toys  ‘R’  Us

[20-30 %]

[20-30 %]

[, 5 %]

[5-15 %]

[55-65 %]

[3-10 %]

[. . .]

[10-20 %]

[3-10 %]

[. . .]

[. . .]

[. . .]

[. . .]

[. . .]

[. . .]

[. . .]

[. . .]

[. . .]

[,5 %]

[,5 %]

[,5 %]

Other  (including  Maxis)

[10 %]

Combined  market  share  (estimate)

Total  relevant  market

100 %

(56)

In  the  calculation  of  Blokker’s  market  share,  all
chains  are  taken  together.  According  to  Blokker,
the  Bart  Smit,  Intertoys  and  Blokker  chains  all
have their own commercial policies with regard to
purchasing,  determination  of  product  ranges  and
retail  prices.  [. . .].  However,  this  cannot  lead  to
the  conclusion  that  Blokker,  Bart  Smit  and
Intertoys  are  independent  undertakings.  What  is
decisive  is  that  the  chains  all  operate  within  the
control over the competitive behaviour of all three
chains.  [. . .].

from 

respect 

it  appears 

three  chains  with 

(57) Moreover,  although  Blokker  argues  that  there  is
no  coordination  on  purchasing  between 
the
the  Commission’s
chains, 
that  a  degree  of  coordination
investigation 
between 
to
the 
purchasing  conditions  does  exist.  A  number  of
supplies  have  stated  that,  although  the  Blokker
chains  make  their  purchases  separately,  the  prices
and  conditions  fixed  are  the  same.  In  addition,  a
number  of  suppliers  have  stated  that  they  operate
a bonus system in which bonuses are based on the
aggregated  purchasing  volume  of  the  Blokker
chains  taken  together.  Furthermore,  the  Blokker
Group does make certain purchases as a group, as
is  confirmed  by  Blokker  itself.

(58)

[. . .].

(iii) P o s i t i o n   o f   B l o k k e r   p r i o r

t o   t h e   o p e r a t i o n

Market  share

in 

itself 

[55–65 %]  on 

(59) On  the  basis  of  the  Commission’s  investigation,
prior  to  the  operation  the  Blokker  group  held  a
market  share  of  around 
the
specialised  toy  retail  market.  This  high  market
creates  a  presumption  of
share 
dominance (14),  especially  when  compared  to  the
fragmented  structure  of  the  rest  of  the  market.
The nearest competitor, Otto Simon, is more than
three  times  smaller  than  Blokker  with  [10-20 %].
Vroom  and  Dreesmann  has  between  [, 3 %]  and
[, 10 %]  and  Toys  ‘R’  Us  is  in  a  similar  position,
while  all  the  other  market  players  have  market
shares  significantly  below  5 %.

Formula diversity

(60) Prior  to  the  operation,  Blokker  already  operated
three  different  formulas  of  specialised  toy  retail

(14) Commission  Decision  97/277/EC 

in  Case  IV/M.784—
Kesko/Tuko  (OJ  L  110,  26.4.1997,  p.  53,  paragraph  106).

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25.11.98

is  more  often 

outlets  all  of  which  were  located  in  city-centre
shopping  streets  and  urban  shopping  centres.  Bart
Smit 
larger  and
medium-sized supply areas while Intertoys is more
often found in smaller cities and communities. The
average  size  of  the  stores  does  not  exceed
[. . .]  m2.

found 

in 

(61) Both Bart Smit and Intertoys offer a large but not
complete  product  range.  This  is  due  to  the  high
lease  costs  of  retail  space  in  the  city  centre  and  in
shopping  centres  resulting 
in  relatively  small
stores. Both chains focus on the articles which are
most  popular  at  the  time.  The  toy  departments  of
the  Blokker  stores  carry  a  smaller  product  range
than  the  Bart  Smit  and  Intertoys  stores  (for
example, Blokker stores do not sell video games or
PC  software).  The  product  assortment  of  the  Bart
Smit,  Intertoys  and  Blokker  formulas  differ  to  a
certain  extent,  as  confirmed  by  Blokker  and  the
Commission’s  investigation  of  the  catalogues  of
the  chains.  Nevertheless,  the  chains  together  carry
an  extensive  range  of  toy  products.

(62) The  fact  that  Blokker  operates  three  distinct
formulas,  particularly  with  varying  product
is  a  competitive  advantage.  The
assortments, 
difference  in  product  range  reduces  the  overall
transparency  of  prices  vis-à-vis  competitors  and
consumers.  Moreover,  it  enables  Blokker  either  to
initiate or react to product or price changes on the
level of the chain rather than the group as a whole
which 
its
increases 
competitors  on  the  market.

flexibility  vis-à-vis 

its 

Scale  economies  in  unbranded  and  own-branded
products

(63) On the Dutch toy retail market, the proportion of
unbranded  and  own-branded  products  directly
purchased  from  the  Far  East  is  higher  than  in
neighbouring  countries.  According 
to  several
competitors  the  Blokker  chains  have  a  reputation
for  carrying  a  large  proportion  of  unbranded  and
own-branded  products.  Blokker  itself  states  that
its  direct  purchases 
include
branded  products.

in  the  Far  East 

(64) The  higher  proportion  of  unbranded  and
own-branded  products  on  the  Dutch  market  is
explained  by  the  parties  by  the  relatively  high
costs  of  retailing  due  to  expensive  high  street
locations. As a result of this, parties state, retailers
tend to compensate the lower margins on branded
products,  of  which  prices  are  usually  harmonised
by  suppliers  at  a  European  level,  with  higher
margins 
own-branded
products.

unbranded 

and 

on 

(65) The fact that Blokker carries a large proportion of
unbranded,  own-branded  and  directly  purchased
branded  products  in  combination  with  its  high
market  share  enables  it  to  realise  economies  of
scale  in  purchasing  which  cannot  be  achieved  by
its  competitors.  These  economies  of  scale  confer
upon  Blokker  a  significant  competitive  advantage.
Furthermore  the  high  volume  of  unbranded  and
own-branded  products  also  enables  Blokker  to
behave  more  independently  on  the  market  in
relation to pricing strategies, since it is not subject
to  direct  price  comparisons  by  competitors  and
customers  in  the  same  way  as  with  branded
products.

(66) The  parties  argue  that  the  prices  of  unbranded
products  are  determined  by  prices  of  similar
competing  branded  products  and  as  a  result  of
this,  Blokker  is  restricted  in  its  pricing  strategies
on  unbranded  products.  Although  unbranded  and
own-branded  products  will  generally  not  be  sold
at prices higher than those of competing products,
this  still  leaves  Blokker  considerable  scope  for
independent  pricing  behaviour.

Gatekeeper  function  of  Blokker

(67) With  regard  to  the  position  of  Blokker,  some
suppliers  have  confirmed  that,  as  a  result  of  its
high  market  share,  Blokker  has  a  ‘gatekeeper’
function  as  concerns  access  to  the  toy  retail
market.  To  introduce  a  new  toy  product  on  the
market  a  supplier  needs  to  have  access  to  the
important  distribution  channels  in  order  to  realise
the  necessary  critical  sales  volume  to  recover  its
investments  in  radio  and  television  commercials.
One  of  the  largest  suppliers  stated  that  it  would
need  access  to  and  the  support  of  a  minimum  of
two  of  the  current  three  Blokker  formulas  for  a
successful  strategic  new  product 
launch  with
media  support,  in  order  to  recover  the  cost  of
introduction  of  the  new  product  on  the  market.
Furthermore,  two  other  large  suppliers  stated  that
introducing  a  new
they  would  not  consider 
product  on  the  Dutch  market  without  it  being  in
the Blokker outlets. It follows from the above that
Blokker  can 
influence  the  range  of  products
introduced  on  the  Dutch  market.  This  was
also  stated  by  a  number  of  competitors  who
complained  that  they  were  uanble  to  make
purchasing 
lines
independently  of  Blokker.

decisions 

product 

on 

The  parties’  argument  on  prices

(68) The  parties  argue  that  prices  are  low  in  the
Netherlands  and  that  the  Dutch  consumers  are

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L 316/11

very  price  conscious  and  they  state  that  is  an
indication  that  Blokker  does  not  hold  a  dominant
position.  The  Commission  acknowledges  that  the
average  value  per  toy  item  sold  on  the  Dutch
market  may  be 
in  neighbouring
lower  than 
markets.  However,  as  the  parties  themselves  state
that ‘pricing levels of branded products are usually
harmonised  at  the  European  level’,  the  supposed
low  average  price  per  toy  item  therefore  mainly
concerns  unbranded  or  own-branded  products,
which  make  up  a  large  proportion  of  toy  sales  in
the  Netherlands  and  for  which  price  comparison
parameters  do  not  exist  or  are  not  available.
Furthermore,  one  of 
suppliers
mentioned as an additional explanation the Dutch
habit  of  giving  many  small  presents  at  Saint
Nicolas  instead  of  one  big  present.

largest 

the 

(iv) T h e   p o s i t i o n   o f   c o m p e t i t o r s

Otto  Simon

(69) As stated above, the aggregate market share of the
three  Otto  Simon  formulas  is  less  than  one  third
of  that  of  the  Blokker  group.  In  addition,  the
structure  of  the  Otto  Simon  group  is  relatively
loose.  Since  the  shops  may  differ  in  appearance,
the  members  of  the  Speelboom  formula  do  not
necessarily  give  the  impression  of  belonging  to  a
chain.  The  central  organisation  of  Otto  Simon
operates  a  common  purchasing  system,  advises  on
product ranges and offers certain support services.
However,  members  are  free  to  determine  their
product  range.  Although  this  flexibility  might  be
an  advantage  in  so  far  as  it  enables  members  to
adopt  individual  marketing  strategies,  the  loose
organisation  in  combination  with  the  relatively
small  market  share  limits  the  possibility  for  Otto
Simon  as  a  group  to  carry  out  a  sustained
competitive  strategy  against  the  Blokker  Group.

(70) According to Otto Simon, between 1992 and 1997
more  than  30  Otto  Simon  members  have  left  one
of  the  Otto  Simon  formulas  to  join  the  Intertoys
formula of the Blokker group. Blokker has pointed
out  that  the  acquisition  of  Intertoys  was  made  in
1994 and not in 1992. However, in 1992 Blokker
had a significant minority stake in Intertoys. How
Blokker views the strengh of competition from the
Otto  Simon  group  is  illustrated  by  the  remark
from  Mr  Blokker,  Chairman  of  the  Board  of
Blokker,  in  an  interview  published  in  the  business
magazine  Quote  in  December  1994  in  which  he
states: 
‘For  some  time  we  have  been  busy
converting  a  number  of  these  shops  (Otto  Simon
members) to the right belief’ and ‘If they don’t opt
for  Intertoys,  they  face  the  risk  of  getting  one  of
our  shops  next  door’.  It  should  be  noted  in  this
context  that  Blokker  does  not  sell  toys  in  all  its
household articles shops. It therefore has flexibility

to  open  toy  departments  in  its  stores  where  and
when  it  considers  appropriate.

Toys  ‘R’  Us

(71) Toys  ‘R’  Us  entered  the  Dutch  market  in  1993
and  operated  nine  stores  in  the  Netherlands  in
1996.  [. . .].

(72) The  Toys 

‘R’  Us  concept 

is  based  on  a
merchandise  and  logistics  system  which  ensures
that  the  broad  product  range  is  always  in  stock.
This  concept  needs  a  certain  critical  mass  of  sales
in  order  to  be  economically  viable.  According  to
Toys ‘R’ Us, the critical mass of sales and number
of  stores  needed  to  achieve  an  acceptable  return
could  not  be  achieved  in  the  smaller  European
markets  (such  as  the  Netherlands).  Therefore  the
strategy  of  Toys  ‘R’  Us  operating  in  these  smaller
markets  was 
from
expand 
neighbouring  bigger  markets  using  the  existing
infrastructure  in  these  bigger  markets.

them 

into 

to 

through 

the  German  Toys 

(73) The  Toys  ‘R’  Us  operations  were  managed  and
‘R’  Us
supplied 
subsidiary. However, in copying the German Toys
the  Netherlands  without
‘R’  Us  concept 
‘R’  Us
changing 
underestimated 
in
and  German
preferences 
consumers, which had an adverse effect on sales in
the  Netherlands.

range,  Toys 
significant  differences 

between  Dutch 

the  product 

the 

in 

(74)

In  addition,  it  is  common  knowledge  that  in  its
first  year  of  operations  Toys  ‘R’  Us  was  not  fully
aware  of  the  specificity  of  the  Dutch  Saint
Nicholas  Day,  the  peak  of  toy  sales  in  the
emphasised
appearances 
Store 
Netherlands. 
Christmas  instead  of  Saint  Nicholas.

(75)

[. . .].

(76)

It can be seen, therefore, that Toys ‘R’ Us suffered
from  structural  weaknesses  and  made  marketing
errors which severely limited its ability to compete
strongly  on  the  Dutch  market.  These  weaknesses
are  recognised  by  Blokker,  the  market  in  general
and  Toys  ‘R’  Us  itself.  In  the  light  of  the  above,
Toys  ‘R’  Us  did  not  develop  into  a  significant
competitive  force  on  the  Dutch  market.

Department  stores  and  other  specialised  outlets

(77) The  departments  stores  have  a  combined  market
share  of  between  5 %  and  10 %.  Although  they

L 316/12

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Official  Journal  of  the  European  Communities

25.11.98

are all part of major retail operators, their market
shares  in  the  relevant  market  are  nevertheless
small. According to one department store, toys are
considered  to  be  a  necessary  component  of  the
overall  product  range  offered  by  such  a  store.
Nevertheless, with such a small market share their
ability  to  compete  is  limited.

the  competitive  effect  of  these  sales  only  concerns
one  category  of  the  broad  assortment  of  the
specialised  toy  retail  outlets,  which  makes  up  at
most  10 %  of  total  turnover  of  these  outlets.
Furthermore,  the  Bart  Smit  and  Intertoys  retail
outlets  of  Blokker  are  still  the  most  important
vendors  of  these  products.

(78) All  other  operators  in  the  relevant  market  have
market  shares  considerably  lower  than  5 %.  Most
of  them  can  be  characterised  as  specialised  niche
players  which  lack  the  possibility  or  the  intention
to  compete  against  the  retailers  which  carry
broader  ranges.

Competitive  pressure  from  other  outlets

(79) The  Commission  acknowledges  that  to  some
extent  the  specialised  toy  retail  outlets  do  face
competition  from  other  outlets  selling  toys,  in
particular  in  the  toy  season.  As  stated  above,  toys
are  sold  for  the  most  part  through  specialised  toy
retail  outlets.  In  reaction  to  the  request  from  the
Dutch  Government,  which 
the
importance  of  other  outlets  at  5 %  of  total  sales,
Blokker  estimates  this  percentage  at  a  maximum
of  20 %  of  total  sales.

estimates 

(80) As  regards  the  so-called  classic  toy  products,
certain  other  retail  outlets  have  had  some  success
with  the  sale  of  individual  classic  toy  products.
These retail outlets do not sell a broad assortment
of toys but offer only individual items or a limited
number  of  products  from  between  one  and  three
suppliers.  These  products  are  used  to  attract
consumer 
traffic  by  offering  a  particularly
attractive  price  or  are  intended  to  be  bought  as
impulse  purchases.  For  example,  Shell  has  sold  a
considerable number of Lego products in its petrol
stations.  The  drugstore  chain  Kruidvat  currently
sells  Lego  products,  Barbie  dolls  and  Fisher  Price
articles  on  a  permanent  basis  and  certain
non-branded items as action sales. These sales can
have  a  competitive  effect  on  the  same  or  similar
products  offered  by  specialised  toy  retail  outlets.
However, their effect on the overall position of the
specialised  toy  retail  outlets  is  limited.  Moreover,
to  the  extent  that  these  sales  are  of  a  temporary
nature, their competitive effect will also be limited
in 
from
drugstores, supermarkets and petrol stations is not
regarded  as  sufficient  to  counteract  the  market
power  of  Blokker  in  the  relevant  market.

time.  Therefore, 

competition 

this 

Conclusion

(82) On 

the  basis  of 

the
the 
Commission’s view that prior to the concentration
Blokker  already  had  a  dominant  position  on  the
market  for  specialised  toy  retail  outlets.

foregoing, 

is 

it 

(v) P o s i t i o n   o f   B l o k k e r   a f t e r   t h e

o p e r a t i o n

Market  share

(83) The  market  share  of  the  Toys  ‘R’  Us  operation  at
the  nine  stores  in  the  Netherlands  is  estimated  at
[3-10 %].  According  to  Toys  ‘R’  Us,  the  six  shops
which  Blokker  has  taken  over  account  for  [. . .] %
of its total turnover, which leads to a market share
of  at  least  [. . .] %.

(84)

[. . .].

(85) The  combination  of  Blokker  with  the  Toys  ‘R’  Us
operation  in  the  Netherlands  will  lead  to  a
combined  market  share  of  at  least  [60-70 %).

(86) The  calculated  increase  in  market  share  of  the
Blokker  group  does  not  include  the  increase  in
market  share  gained  from  three  shops  which  will
be closed. It can be expected that a significant part
of  the  market  share  of  those  three  stores  will  be
obtained  either  by  the  existing  chains  of  Blokker
or  by  the  remaining  Toys  ‘R’  Us  stores.  Therefore
the  actual  combined  market  share  after  the
operation  will  be  higher.

(87) The parties argue that the increase in market share
is 
insignificant  and  cannot  be  considered  to
strengthen a dominant position. They state further
that  ‘irrespective  of  whether  the  transaction  is
approved,  the  accretion  of  market  share  will  be
insufficient  to  effect  any  meaningful  change  in  the
competitive  structure  of  the  market’.

(81) Electronic  and  videogames  are  more  widely
available  through  other  retail  channels  such  as
computer  shops,  electronics  shops  and  record
shops.  The  sale  of  these  items  through  other
outlets  can  affect  prices  of  these  items  in  the
specialised  toy  retail  outlets  of  Blokker.  However

(88)

In  the  view  of  the  Commission,  the  combination
of  the  increase  in  market  share  with  a  number  of
the
factors  which 
potential  of  the  acquired  business  is  much  greater
than is reflected in its actual market share, further
strenghtens  the  dominant  position  of  Blokker.

together  demonstrate 

that 

25.11.98

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Official  Journal  of  the  European  Communities

L 316/13

Strategic  value  and  complementarity  of
Toys  ‘R’  Us  to  Blokker

(89) Through  the  acquisition  of  the  six  Toys  ‘R’  Us
stores,  Blokker  adds  a  fourth  formula  to  its  three
existing  toy  formulas.  This  fourth  formula  is
distinct  from  the  three  formulas  already  under
control  of  the  Blokker  group  with  respect  to
location,  size  and  product  ranges.

beyond  the  Toys  ‘R’  Us  stores  and  directly  to
other  Blokker  chains.  Although  the  parties  claim
that  Blokker  is  not  entitled  to  use  the  central
buying  operation  for  outlets  other  than  Toys  ‘R’
Us  outlets,  this  interpretation  is  not  supported  by
the  wording  of  the  Franchise  Agreement.  The
parties  further  claim  that  joint  purchasing  is  only
of  limited  importance,  representing  about  [. . .]  of
the  Toys  ‘R’  Us  stores  sales.  However,  this
argument  does  not  negate  the  potential  value  of
joint purchasing.

(90)

[. . .].

(91) The  Toys  ‘R’  Us  formula  consists  of  megastores
with  substantial  floor  space  located  outside  the
city centres and urban shopping centres which are
easily accessible by car. Toys ‘R’ Us sells toys in a
supermarket-like  environment  which  is  aimed  at
efficient  shopping  without  services  such  as  gift
wrapping.  Because  of  their  extensive  floor  space,
Toys  ‘R’  Us  stores  can  offer  a  very  large  product
range  (according  to  Toys  ‘R’  Us,  ‘the  widest
possible  choice’)  which  also  includes  therefore  the
widest  range  of  branded  toys  and  also  the  more
bulky  toy  products.  The  Toys  ‘R’  Us  formula
applies  not  only  to  toys  but  also  to  other
child-related  products  such  as  nappies,  baby  food
and  baby  furniture.  These  other  products  can  be
used as a means to attract consumers and increase
the  frequency  of  consumer  visits  to  the  store.
Another distinctive feature of Toys ‘R’ Us is that a
part  of  the  warehousing  is  done  in  the  stores
themselves.  Therefore  Toys  ‘R’  Us  claims  that  it
can  guarantee  that  its  products  are  always  in
stock.

(92) Since the Toys ‘R’ Us megastores are all located at
peripheral  and  suburban  locations,  the  acquisition
gives  Blokker  relatively  easy  access  to  the  market
segment of large-scale suburban retailing, which is
considered to be of great importance for the future
of  retailing.  This  assessment  is  made  by  the
majority  of  suppliers.  As  a  result  of  this  Blokker
has an important first mover advantage. Although
the  Dutch  Governmental  policy  on  large-scale
retailing  has  been  relaxed  recently,  large-scale
suburban  retailing  of  products  like  toys  is  still
restricted  to  only  13  urban  agglomeration  centres
(‘stedelijke  knooppunten’).  To  date  Toys  ‘R’  Us  is
the  only  specialised  toy  retailer  operating  in  this
market  segment.

toys 

(93) The  franchising  agreement  permits  Blokker  to
purchase 
central  buying
through 
operation  for  sale  by  the  franchisee  or  in  any
franchised  store.  This  provides  Blokker  with  an
additional  advantage  which  could  be  even  more
valuable  to  the  extent  that  it  could  also  apply

the 

the 

(94) Moreover,  by  acquiring  control  over  the  Toys  ‘R’
Us  formula,  Blokker  can  seek  to  ensure  the
greatest 
four
complementarity  between 
formulas  with  respect  to  product  ranges  and
prices.  [. . .].  Although  Blokker  may  have  to  keep
up  the  Toys  ‘R’  Us  image  of  attractive  prices  to
attract  consumers  out  of  the  city  centres,  it  can
seek  to  prevent  actual  competition  between  the
Toys ‘R’ Us stores and the Bart Smit and Intertoys
stores  by  for  example  using  selective  low-price
strategies  on  products  which  are  only  sold  at
Toys 
‘R’  Us  stores  or  using  complementary
product-range  strategies.  The  fact  that  Blokker
carries  a  large  proportion  of  unbranded  goods
further increases its possibility to carry out such a
strategy.  In  this  respect  it  may  be  noted  that  the
Franchise  Agreement  gives  Blokker  considerable
freedom  within  the  product  categories  given  by
Toys  ‘R’  Us.

The  potential  of  Toys  ‘R’  Us  in  the  Blokker
Group

(95) Although  the  Dutch  Toys  ‘R’  Us  operation  had
relatively  little  market  success  and  is  in  a  difficult
financial  position,  the  formula  and  the  stores  still
have  a  considerable  market  potential,  particularly
in  the  hands  of  Blokker,  which  has  the  necessary
knowledge  of  the  Dutch  market.  Toys  ‘R’  Us  is  a
very  strong  brand  name.  According  to  Toys  ‘R’
Us,  it  has  a  reputation  of  having  the  broadest
product  ranges  at  attractive  prices.  In  a  situation
where  a  local  partner  acts  as  a  franchisee  of  the
Toys ‘R’ Us stores, the stores will still be linked to
the network of stores of one of the world’s largest
toy  retailers  and  can  profit  from  any  services
provided  by  the  network  as  well  as  its  brand.

(96) The fact that Toys ‘R’ Us is now operated by what
is by far the leading player in the market brings a
number  of  significant  advantages  for  Toys  ‘R’  Us.
More  specifically,  Blokker  will  bring 
its
extensive  knowledge  of  the  specific  preferences
and habits of consumers in the national market. It

in 

L 316/14

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Official  Journal  of  the  European  Communities

25.11.98

is entitled to select the products and is likely to do
so in a way that better suits the preferences of the
Dutch  consumers.  Blokker  will  not  face  the  same
structural  weaknesses  as  Toys  ‘R’  Us  and  is
unlikely to make the same marketing errors. [. . .].
In  addition,  all  the  advantages  of  economies  of
scale, including discounts, will apply. Furthermore,
Toys  ‘R’  Us  can  benefit  from  the  advantages  of
being  linked  to  a  major  Dutch  retailer  such  as
access  to  advertising,  personnel  management  and
(for  example  cleaning  and
support  services 
security).

“R”  Us  puts  a  formula  in  the  market  which  is
necessary for a healthy and balanced toy market in
the  Netherlands.  A  takeover  of  Toys  “R”  Us  has
become  necessary  at  this  moment  to  secure  the
continuity  of  this  undertaking  in  the  Netherlands.
The  fact  that  this  formula  is  picked  up  by  a
professional party in the Dutch toy market is very
favourable  for  the  Durch  consumer.  The  possible
takeover of the Toys “R” Us activities by Blokker
will  not 
the  competitive  situation
influence 
significantly  further’.

(97) From the above it can be concluded that it is likely
that Toys ‘R’ Us controlled by a local partner with
the  required  knowledge  of  the  national  market
will  perform  significantly  better  than  it  has  done
to  date  and  will  show  substantial  growth  in
market  share  and  potential  expansion  in  the
number  of  stores.  [. . .].

(101)

In  a  meeting  with  the  Commission  services,
ORNES  confirmed  its  support  for  the  operation,
particularly  on  the  premise  that  otherwise  Toys
‘R’  Us  would  exit  the  market.  At  this  meeting,  it
also  confirmed  the  potential  success  of  Toys
‘R’  Us  in  the  hands  of  Blokker.

local  distributors 

(98) This  argument  is  also  borne  out  by  the  statement
of  Toys  ‘R’  Us  which  cites  the  success  of  its
partnerships  with 
in  other
Member  States.  The  poor  performance  of  Toys
‘R’  Us  in  smaller  markets  was  not  only  limited  to
the Dutch market. Similar situations have occurred
in  Sweden  and  Denmark.  The  Toys 
‘R’  Us
operations  in  Sweden  and  Denmark  were  started
up  in  1994  and  were  originally  managed  and
supplied 
the  United  Kingdom.  The
operations  in  Denmark  (one  store)  and  Sweden
(three  stores)  did  not  achieve  the  financial  returns
required  by  Toys  ‘R’  Us  in  1994  and  1995.  In
1996  the  operations  were  transferred  to  local
retailers  operating  under  a  franchise  agreement.
After  the  new  franchise  operators  introduced  a
market-specific  merchandise  assortment,  sales  per
store  went  up  significantly  in  both  Sweden  and
Denmark.  In  Denmark  the  number  of  stores
increased  from  one  to  nine  in  the  year  1996.

from 

(vi) C o m m e n t s   o f   s u p p l i e r s

(99)

In  the  course  of  its  investigation  the  Commission
contacted a number of suppliers to Blokker as well
as  ORNES,  the  organisation  in  which  Dutch
subsidiaries 
toy
manufacturers  and  Dutch  suppliers  of  branded
toys  are  represented.

international 

branded 

of 

(100) On  an  individual  basis,  suppliers  tended  to  be
neutral  or  indifferent  to  the  operation  while
acknowledging  the  already  strong  position  of
Blokker. Some, however, were more critical of the
operation  while  others  recognised  advantages  and
disadvantages  arising  from  the  operation.  ORNES
has  stated:  ‘ORNES  is  of  the  opinion  that  Toys

(102)

It  must  be  said  at  the  outset  that  the  interests  of
suppliers and consumers in a retail market are not
necessarily  the  same.  The  consumer’s  interest  is
not  generally  served  by  the  concentration  of
supply in the hands of a single player. In addition,
it is noted that the Dutch Toys ‘R’ Us stores were
previously  not  supplied  by  the  Dutch  sales  offices
but through the German Toys ‘R’ Us operation. In
this  respect,  therefore,  the  Dutch  sales  offices  will
gain  in  sales  from  the  operation,  a  fact  which  has
been  expressly  recognised  by  many  individual
suppliers.

(vii) T h e   a b i l i t y   o f   c o m p e t i t o r s   t o

r e a c t

(103) As  explained  above,  the  operation  will  further
increase  the  substantial  lead  of  Blokker  over  its
competitors.  These  will  be  even  less  able  to
compete  with  Blokker,  in  particular  as  one  of  the
potentially strong competitors is now in the hands
of  Blokker.  In  addition,  Blokker  will  be  able  to
minimise  any  negative  effects  of  the  increase  in
market  share  by  Toys 
its  other
operations  by  adapting  its  product  range  and
pricing strategy.

‘R’  Us  on 

(104) Since  products  stocked  in  Toys  ‘R’  Us  stores  by
the  German  sales  organisation  prior  to  the
operation  will  now  be  purchased  by  Blokker,  this
will  increase  the  latter’s  control  over  the  products
supplied  on  the  Dutch  market,  especially  branded
products.  This  can  only  further  weaken  the
negotiating  position  of  competitors  vis-à-vis
suppliers  by  comparison  with  the  position  of
Blokker.

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(viii) B a r r i e r s   t o   e n t r y   a n d   p o t e n t i a l

c o m p e t i t i o n

strengthening  of  a  dominant  position  on  the
market 
toy  retail  outlets  by
Blokker.

for  specialised 

Barriers  to  entry

(105) There  are  no  regulatory  barriers  to  entering  the
market  of  specialised  toy  retailing  except  that
planning  restricitons  may  apply  to  large-scale
outlets.  In  recent  years,  three  toy  retail  formulas
have  entered  the  Dutch  market,  Toys  ‘R’  Us,  the
Early  Learning  Centre  and  In  Den  Olifant.
However,  the  market  share  of  the  latter  two  is
minimal.  Moreover,  Toys  ‘R’  Us  and  the  Early
Learning  Centre,  which  have  been  managed  from
outside  the  Netherlands,  have  since  been  taken
over  by  Dutch  operators.  This  underlines  the
difficulties  for  new  entrants  from  outside  the
Netherlands  to  penetrate  successfully  the  Dutch
market.  Moreover,  the  dominant  position  of
Blokker  is  in  itself  a  barrier  to  entry.  In  addition,
market  entry  has  not  necessarily  been  encouraged
by  a  generally  declining  value  of  the  toy  retail
market  in  recent  years. 

Potential  entry  into  the  relevant  market

indicate  that  there 

(106) The  reactions  from  Dutch  retailers  approached  by
the  Commission 
little
likelihood  that  other  Dutch  retailers  will  enter  the
market 
the
foreseeable  future.  There  is  nothing  to  indicate
that  those  retailers  which  already  carry  a  small
selection  of  toys  intend  to  become  specialised  toy
retail  outlets  in  the  near  future.

for  specialised 

toy  retailing 

in 

is 

(107) Argos,  a  major  catalogue  retailer  in  the  UK,  is
planning  to  enter  the  Dutch  market  in  1998  and
will  start  operations  with  five  stores.  The  concept
of Argos is based on the publication of a catalogue
which  features  a  wide  range  of  predominantly
branded  products  which  the  consumer  can  collect
and  pay  for  at  an  Argos  store.  Argos  will  carry
among  its  products  a  specialised  assortment  of
toys.  Argos  will  start  operations  on  a  relatively
is  unlikely  to  compete  at  a
small  scale.  It 
significant  level  in  the  short  to  medium  term.
There  are  no  indications  that  other  retailers  from
neighbouring  countries  will  enter  the  market.

(ix) C o n c l u s i o n

(108) For  the  reasons  set  out  above,  the  view  of  the
Commission  is  that  the  operation  leads  to  the

VII. FAILING  COMPANY  DEFENCE

(109) Toys  ‘R’  Us  has  argued  that  its  Dutch  operations
are not financially viable without the support of a
local  partner  and  has  put  forward  the  ‘failing
company  defence’.  It  has  stated  that  Toys  ‘R’  Us
will  close  its  operation  in  the  Netherlands  if  the
transaction  is  not  permitted.  In  its  initial  reaction
Toys  ‘R’  Us  said  that  the  market  share  of  Toys
‘R’ Us would inevitably go to Blokker; later it said
that Blokker will pick up most of the Toys ‘R’ Us
share. It is also claimed that there is no alternative
solution  which  is  less  anti-competitive.

(110) The  Commission  has  decided  in  earlier  cases (15)
that  a  merger  is  generally  not  regarded  as  leading
to a deterioration in the competitive structure if it
is clear that the acquired undertaking would in the
near  future  be  forced  out  of  the  market,  the
acquiring undertaking would take over the market
share  of  the  acquired  undertaking  if  the  latter
were  forced  out  of  the  market,  and  that  there  is
no  less  anti-competitive  alternative  purchaser  in
the  market.  The  burden  of  proof  in  this  respect  is
on  the  parties  themselves.

(111) The  ‘failing  company’  doctrine  as  developed  in
these  cases  and  confirmed  by  Advocate-General
Tesauro (16)  is  based  on  the  lack  of  causality
between  the  concentration  and  the  creation  or
strengthening  of  a  dominant  position.  This  means
that it is the disappearance of the failing company,
the
which 
concentration 
the
concentration  itself,  which  creates  or  strengthens
the  dominant  position.

is  unavoidable  whether  or  not 
not 

place, 

takes 

and 

(112) This  lack  of  causality  between  the  operation  and
its  effects  on  the  market  has  not  been  established
in  this  case.  It  has  not  been  established  that  the
whole  of  the  market  share  of  Toys  ‘R’  Us  would

(15) Commission  Decision  94/449/EC  in  Case  IV/M.308  —  Kali
&  Salz  Mdk  Treuhand  (OJ  L  186,  21.7.1994,  p.  38,
paragraph  71);  Commission  Decision  97/610/EC  in  Case
IV/M.774  Saint-Gobain/Wacker-Chemie/NOM  (OJ  L  247,
10.9.1997,  p.  1,  paragraph  247).

(16) Opinion  of  Advocate-General  Tesauro  of  6  February  1997
in Joined Cases C-68/94 and C-30/95 France v. Commission
[1998]  ECR  I,  p.  1375,  paragraph  49  et  seq.

L 316/16

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go to Blokker. Furthermore, it is not only the gain
in  market  share  but  also  the  potential  of  Toys
‘R’ Us as part of the Blokker group which leads to
the  deterioration  of  the  competitive  situation.
Therefore, 
is  the
it  cannot  be  said  that 
disappearance of the Toys ‘R’ Us operations which
would  lead  to  the  same  results  as  the  merger,  the
deterioration  of  the  competitive  situation.

it 

(113) Furthermore,  Toys  ‘R’  Us  hash  not  shown  that
there  was  no  less  anti-competitive  purchaser.  The
claim  of  Toys  ‘R’  Us  that  only  the  Blokker  group
met its requirement of having sufficient knowledge
of  the  Dutch  toy  retail  market  and  the  necessary
infrastructure  is  not  in  itself  an  argument  that
there  were  no  other  potential  buyers.  On  the
contrary,  it  rather  supports  the  assessment  that
Toys  ‘R’  Us  selected  the  strongest  player  on  the
its  description  of  other  potential
market.  In 
buyers.  Toys  ‘R’  Us  said  that  it  rejected  those
parties  which  had  no  specific  knowledge  of  the
market  conditions  in  the  Benelux  or  operators
which  were  potential  competitors 
in  other
Member  States.

VIII. OVERALL  CONCLUSION

(114) For  the  above  reasons  the  Commission  concludes
that  the  acquisition  by  Blokker  of  the  Dutch
operations  of  Toys  ‘R’  Us  strengthens  a  dominant
position  on  the  market  for  specialised  toy  retail
outlets  in  the  Netherlands,  as  a  result  of  which
effective  competition  is  significantly  impeded  in
the  Netherlands.

IX. APPLICATION  OF  ARTICLE  8(4)  OF  THE
MERGER  REGULATION

(115) Article  8(4)  states  that,  where  a  concentration  has
already  been  implemented,  the  Commission  may,
in  a  decision  pursuant  to  Article  8(3),  require  the
undertakings  or  assets  brought  together  to  be
separated  or  any  other  action  that  may  be
appropriate  to  restore  conditions  of  effective
competition.

(116) The  Commission  takes  note  of  a  supplementary
agreement [. . .]. In the statement of objections the
Commission 
supplementary
agreement  and  stated  that  conditions  of  effective
competition could be restored by ordering Blokker
to  terminate  all  agreements  which  implement  the
Letter  Agreement  of  24  December  1996.

referred 

that 

to 

(117) On  4  June  1997  Blokker  and  Toys  ‘R’  Us
submitted  to  the  Commission  undertakings  by
which  they  sought  to  resolve  the  competition
concerns  raised  in  this  case.  The  parties  requested
the  Commission, 
those
undertakings,  to  grant  a  clearance  decision  under
Article 
the  Merger  Regulation.
Subsequently  those  measures  were  clarified  and
supplemented  in  a  certain  number  of  respects.

light  of 

8(2) 

the 

of 

in 

(118)

It  is  noted  that  Blokker  has  been  operating  the
Toys  ‘R’  Us  business  since  3  February  1997.  As
such,  therefore,  the  concentration  has  been  fully
implemented  since  that  date.  [. . .].

(119) For  the  reason  the  Commission  considers 
to  maintain 

it
appropriate 
the  decision  under
the  Merger  Regulation  and
Article  8(3)  of 
considers  the  parties’  proposals  as  a  means  of
divestiture  to  be  seen  in  the  light  of  Article  8(4),
rather  than  under  Article  8(2),  of  the  Merger
Regulation.

(120)

In  summary 
Blokker  and  Toys  ‘R’  Us  include  the  following.

the  undertakings  submitted  by

(121) Blokker  undertakes  to  transfer  to 

its  wholly
owned  subsidiary  Speelhoorn  BV  (Speelhoorn):  (i)
all  of  Blokker’s  rights  and  obligations  pursuant  to
the  Franchise  Agreement;  (ii)  all  of  Blokker’s
rights  and  obligations  pursuant  to  the  Marketing
Subsidy Agreement; and (iii) all the assets acquired
by  Blokker  pursuant  to  the  Asset  Purchase
Agreement.

(122) Blokker  unertakes  as  soon  as  practical  after  the
notification  of  this  decision,  to  begin  negotiations
with  interested  third  parties  with  a  view  to
transferring  at  least  60 %  of  the  share  capital
of  Speelhoorn 
independent
undertaking  not  connected  with  either  Blokker  or
Toys  ‘R’  Us,  which  is  capable  of  maintaining  the
Dutch Toys ‘R’ Us on the market and fulfilling the
social  commitment  made  by  Blokker.  The  choice
of  such  an  independent  third  party  will  be  subject
to  the  Commision’s  reasonable  approval.

to  a  viable  and 

(123) Blokker  undertakes  not  to  retain  a  minority
shareholding  in  Speelhoorn  that  exceeds  20 %.
Blokker  undertakes  to  transfer  to  Toys  ‘R’  Us  a
minority  shareholding  corresponding  to  its  own
shareholding.  Blokker  and  Toys  ‘R’  Us  will  both
be  entitled  to  a  maximum  of  one  seat  on  the
board  of  Speelhoorn  which  will  comprise  five
members.  Furthermore,  Blokker  and  Toys  ‘R’  Us
will not be granted any special rights beyond those
shareholders.
typically  provided 

to  minority 

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Blokker  undertakes  that  it  will  not  interfere  with
Speelhoorn’s  freedom  to  determine  independently
its  commercial  policy.

(124) Prior  to  the  completion  of  the  transfer  of  a
majority  shareholding  in  Speelhoorn  to  a  third
party, Blokker will ensure that Speelhoorn and the
Dutch  Toys  ‘R’  Us  stores  are  managed  as  distinct
and 
their  own
management accounts. Durint this period, Blokker
will  ensure  the  continued  viability  and  market
value  of  those  stores  and  will  provide  sufficient
financial  resources  to  this  end  in  the  ordinary
course  of  business.

saleable  undertakings  with 

(131)

(125)

[. . .].

(126)

[. . .].

(127)

[. . .].

(128) The  parties  have  subsequently  clarified  and
supplemented these measures as follows. The third
party  will  be  an 
independent  undertaking
unconnected  to  the  Blokker  group,  which  is  able
to  maintain  and  develop  the  Toys  ‘R’  Us  business
as  an  active  competitive  force  on  the  market.
Blokker  will  end  its  presence  on  the  management
board of Speelhoorn after [. . .] years following the
transfer  of  a  majority  shareholding  to  a  third
the
[. . .].  Blokker  will  provide 
party. 
Commission  on  a  monthly  basis  written  reports
concerning  the  relevant  developments  in  its  or  the
banker’s negotiations with third parties concerning
in
transfer  of  a  majority  shareholding 
the 
Speelhoorn.

to 

Assessment  and  measures  pursuant  to  Article  8(4)
of  the  Merger  Regulation

(129)

In  the  Commission’s  view,  the  total  package  of
measures  agreed  by  the  parties  will  restore
conditions  of  effective  competition  on  the  market.
As such, therefore, the package of measures can be
accepted  as  an  alternative  order  for  divestiture
under  Article  8(4)  as  compared  with  an  order  to
undo  the  deal  immediately,  as  set  out  in  the
statement  of  objections.

independent 

(130) The  Commission  acknowledges  that  the  transfer
of  up  to  80 %  of  the  share  capital  of  Speelhoorn
(up  to  20 %  to  Toys  ‘R’  Us  and  the  remainder  to
an 
the
opportunity  for  an  independent  undertaking  to
acquire  a  substantial  interest  in  the  Toys  ‘R’  Us
business  and,  should  that  undertaking  wish  to  do
so, 
the  whole  share  capital  of
Speelhoorn  immediately  or  after  a  certain  period

third  party)  provides 

to  acquire 

of  time.  In  the  Commission’s  view,  an  essential
element to restore effective competition is that the
purchaser  of  a  majority  share  must  be  an
independent  undertaking  unconnected 
the
Blokker  group  which  is  able  to  maintain  and
develop  the  Toys  ‘R’  Us  business  as  an  active
competitive  force  on  the  market.

to 

the 

In  addition,  the  Commission  must  be  put  in  a
position  to  evaluate  whether  a  chosen  purchaser
satisfies 
requirements.
abovementioned 
Therefore, it is necessary for Blokker to obtain the
approval of the Commission before entering into a
binding  agreement  with  such  a  third  party.  In  a
request for approval, evidence that the third party
satisfies the abovementioned requirements must be
produced  in  order  to  put  the  Commission  in  a
position  to  assess  the  choice  of  third  party.  If  the
Commission  does  not  either  formally  indicate  its
disagreement with the choice of the third party or
require  further  evidence  that  the  third  party
satisfies  the  abovementioned  requirements,  within
two  weeks  after  submission  of  the  request,  the
transfer  of  the  share  capital  to  a  third  party
should  be  free  to  proceed.

(132) The Commission further acknowledges that, in the
light  of  the  specific  circumstances  of  the  case,  in
particular  the  poor  performance  of  the  Toys
‘R’  Us  business  in  the  Netherlands  since  its
establishment  in  1993,  there  may  be  difficulties  in
attracting  a  third  party  to  purchase  the  whole  of
the  Toys  ‘R’  Us  business.  For  this  reason,  the
Commission considers that the continued presence
of  Blokker  in  the  form  of  a  20 %  minority
in  combination  with  the  active
shareholding 
presence  of  Blokker  on  the  management  board  of
Speelhoorn  can,  at  least  for  a  certain  period  of
time,  serve  both  to  demonstrate  the  confidence  of
Blokker in the future viability of the company and
to guarantee the development of the company into
a  viable  business  within  this  period.  However,  in
the  light  of  the  specific  circumstances  of  this
case,  the  Commission  considers  that  Blokker’s
representation  on  the  board  should  not  only  be
reduced  but,  after  a  certain  period  of  time,  in  this
case 
the
shareholding 
third  party,  eliminated
completely.

[. . .]  years  after 
to 

transfer  of 

the 

the 

(133)

In  reaching  this  conclusion,  the  Commission  takes
into  account  the  following  specific  circumstances
of  the  case.  The  management  board  of  a  small
retail  company  such  as  Speelhoorn  will  by  its
nature  be  composed  of  a  small  number  of
representatives  which  are  closely  involved  in  the
commercial  policy  of  the  company.  Although
interfere  with
Blokker  undertakes  not 
Speelhoorn’s  freedom  to  determine  independently
its  commercial  policy,  the  presence  of  Blokker  on
the board will still give it access to information on

to 

L 316/18

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25.11.98

the commercial decisions which it could use for its
own  competitive  strategy  and  also  in  relation  to
the  competitive  strategy  of  the  Toys  ‘R’  Us
business  operated  by  Speelhoorn.  This  possibility
is to be evaluated especially in the light of the fact
that,  for  a  certain  period  of  time,  Blokker  will
have  been  operating  the  Toys  ‘R’  Us  business  on
its own and that, even after the implementation of
the  divestiture  asset  out  in  the  proposals,  Blokker
has a dominant position on the market. Therefore
the  Commission  considers  it  necessary  in  order  to
ensure that effective competition is restored on the
market,  that  Blokker’s  active  presence  on  the
management  board  should  be  eliminated  once  the
viability of the company is established. This can be
achieved  by  ordering  Blokker  to  end  its  presence
on  the  management  board  [. . .]  years  after  the
transfer  of  a  majority  shareholding  in  Speelhoorn
to  a  third  party.

(134) The  active  presence  of  Blokker  in  Speelhoorn  can
also  be  ended  by  giving  the  third  party  the
opportunity,  should  it  wish  to  do  so,  to  purchase
the  share  capital  of  Speelhoorn  held  by  Blokker.
[. . .].

(135) The  Commission  considers 

it  necessary  and
appropriate  that  Blokker  should  provide  to  the
Commission  on  a  monthly  basis  written  reports
concerning  the  relevant  developments  in  its  or  the
banker’s negotiations with third parties concerning
the 
in
transfer  of  a  majority  shareholding 
Speelhoorn.

(136) The  Commission  underlines  that  the  parties  are
free, at any stage during the period set out above,
to  terminate  the  agreements  provided  for  in  the
Letter  Agreement  of  24  December  1996  with  the
aim  of  transferring  all  rights,  obligations  and
assets acquired by Blokker back to Toys ‘R’ Us. In
addition,  Blokker  is  not  obliged  to  terminate  any
employment  agreements,

HAS  ADOPTED  THIS  DECISION:

Article  1

The  concentration  by  which  Blokker  Holding  BV
acquires  the  Dutch  operations  of  Toys  ‘R’  Us  Inc.  is
declared incompatible with the common market and with
the  functioning  of  the  EEA  Agreement.

Article  2

Blokker  is  ordered:

(a)

transfer 

to 
obligations 

the 
to 

following  assets, 
its  wholly  owned 

rights  and
subsidiary

(b)

(c)

(d)

(e)

Speelhoorn  BV:  (i)  all  of  Blokker’s  rights  and
obligations  pursuant  to  the  Franchise  Agreement
dated  3  February  1997,  between  Blokker  and  Toys
‘R’  Us,  (ii)  all  of  Blokker’s  rights  and  obligations
pursuant  to  the  Marketing  Subsidy  Agreement  of
3  February  1997  between  Blokker  and  Toys  ‘R’  Us;
and  (iii)  all  the  assets  acquired  by  Blokker  pursuant
to the Asset Purchase Agreement of 3 February 1997
between Blokker and Toys ‘R’ Us. This transfer must
be 
implemented  as  soon  as  practical  after  the
notification  to  Blokker  of  this  Decision  and  in  any
event no later than the date on which Blokker enters
into  a  binding  letter  of  intent  with  a  third  party  on
the  sale  of  a  majority  shareholding  in  Speelhoorn
BV;

to  divest  itself  of  at  least  80 %  of  the  total  share
capital of Speelhoorn BV in the following way. Up to
20 %  of  the  total  share  capital  of  Speelhoorn  BV
shall be transferred to Toys ‘R’ Us. At least 60 %  of
the  total  share  capital  of  Speelhoorn  BV  shall  be
transferred  to  a  third  party.  The  third  party  shall  be
given  the  possibility  to  purchase  the  total  share
capital of Speelhoorn BV or at least the 80 % held by
Blokker.  The  third  party  must  be  an  independent
undertaking  unconnected  to  the  Blokker  group  and
must be able to maintain and develop Speelhoorn BV
as a viable and active competitive force in the market
for  specialised  toy  retailing.  Blokker  may  hold  one
seat on the management board of Speelhoorn BV on
condition that the third party has at least three seats
and Toys ‘R’ Us has one seat. Blokker may hold the
seat  no  longer  than  for  a  period  of  [. . .]  years,
following the transfer of a majority shareholding to a
third  party  [. . .];

to  appoint  a  banker  with  recognised  experience  in
the sale of undertakings to act on its behalf to sell a
majority shareholding in Speelhoorn BV, if it has not
entered into a binding letter of intent on the sale of a
majority  shareholding  in  Speelhoorn  BV  by  [. . .];

to  provide  to  the  Commission  written  reports  on  a
monthly  basis  concerning  the  relevant  developments
in  its  or  the  banker’s  negotiations  with  third  parties
concerning the transfer of a majority shareholding in
Speelhoorn  BV;

to  obtain  the  approval  of  the  Commission  before
entering  into  a  binding  letter  of  intent  with  such  a
third  party.  In  a  request  for  approval,  evidence  that
the  third  party  satisfies  the  requirements  set  out  in
(b)  must  be  produced 
the
Commission  in  a  position  to  assess  the  choice  of  a
third  party.  If  the  Commission  does  not  either
formally  indicate  its  disagreement  with  the  choice  of
the  third  party  or  require  further  evidence  that  the
third  party  satisfies  the  requirements  set  out  in  (b)
within  two  weeks  after  submission  of  the  request,

in  order 

to  put 

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the transfer of the share capital to a third party shall
be  free  to  proceed.

Article  3

In  the  event  that  Blokker  fails  to  enter  into  a  binding
letter  of  intent  with  a  third  party  before  [. . .]  in  the
manner set out in Article 2, Blokker is ordered to transfer
all rights, obligations and assets acquired pursuant to the
Letter  Agreement  of  24  December  1996  to  Toys  ‘R’  Us
[. . .].  Blokker 
terminate  any
employment  agreements.

is  not  obliged 

to 

Article  4

This  Decision  is  addressed  to:

Blokker  Holding  BV
Van  der  Madeweg  13
The  Netherlands  1099  BS  Amsterdam

Done  at  Brussels,  26  June  1997.

For  the  Commission

Karel  VAN  MIERT

Menber  of  the  Commission