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Why Lloyds believes Sainsbury's buyout won't harm patients

Law firm disagrees with watchdog's concerns that deal will lead to decreased opening hours and that the two businesses are not really rivals

Lloydspharmacy’s lawyers have argued that the company’s buyout of Sainsbury’s pharmacy business will not lead to patients being “adversely affected”.

Linklaters LLP, writing on behalf of Lloydspharmacy parent company Celesio and Sainsbury’s, told the Competition and Markets Authority (CMA) that it had not “sufficiently articulated” its “vague concerns” about how patients would be affected by the buyout of the supermarket giant’s 281 pharmacies.

The CMA advised Lloyds in April to sell pharmacies in 13 areas across England and Wales, where patients would experience a “substantial lessening of choice” if the deal went ahead.

In its response, submitted in May and published by the watchdog last week, Linklaters argued against this option, and claimed there is “no valid evidence” for the CMA’s concern that Lloyds would reduce the hours at certain stores once the deal went through.

Here are the four key reasons why the lawyers did not agree with the CMA’s suggestions:

1. Patients will not be adversely affected

Linklaters argued that the CMA’s provisional findings do not adequately explain how patients will be “materially worse off” by the deal. 

The watchdog had only referred “specifically” to concerns about a reduction in opening hours, the law firm claimed. “[The CMA] does not explain what adverse effects are likely to flow from the loss of rivalry between Lloyds and Sainsbury’s in any local area.”

2. Opening hours won’t be affected… probably

The law firm also rejected the CMA’s “theory” that certain Lloyds branches would reduce their hours and “pick up diverted business at the nearby Sainsbury’s”.

Even if Lloyds did “reduce its opening hours as contemplated”, the only “adverse effect” would be that “those few customers who may want to use a Lloydspharmacy... would have to travel slightly further”, it added.

3. Sainsbury’s and Lloyds are not rivals 

The lawyers stressed that the “overwhelming weight of evidence” suggests that Lloyds and Sainsbury’s are not rivals. This means that their merger will not worsen the quality of service they provide, because neither company directly pushes the other to improve, they said.

While Linklaters admitted the two pharmacy businesses do compete “to some extent”, it is not enough that either are “materially influenced and shaped” by “competitive pressure” from the other, the law firm said.

4. The CMA has defined “proximity” incorrectly 

The law firm also queried how the CMA had picked the 13 areas where it believes patient choice will be reduced by the deal. The watchdog had “confused geographic proximity with economic closeness of competition”, Linklaters argued. 

The distance between two pharmacies on its own does not justify the CMA’s concerns that there would be less incentive for them to compete on service quality if the deal was to go ahead, the lawyers added.

Even if the CMA does find evidence to suggest that the planned takeover could result in a lessening of competition, the effects would not be “sufficiently material” to require Lloyds to sell any of its branches, the lawyers concluded.

The CMA’s final ruling will be published in August

 


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