Scrutiny of joint venture interests in merger control analyses
22 January 2007
On 19th July 2006 the merger between Aggregate Industries and
Foster Yeoman was notified to the European Commission. Both parties
are based in the UK and active in the supply of aggregates in the
South West of England, asphalt in the South West and South East of
England and the supply of road surfacing services in Great
Britain.
The OFT requested that the Commission refer to it the UK aspect
of the merger under Article 9 of the European Community Merger
Regulation. The Commission cleared the merger as regards those
markets beyond the UK and agreed to the OFT’s request to refer to
it the UK aspect of the merger.
The OFT’s concern centred on the parties’ supply of asphalt in
the South West and South East of England. In light of the
perishability of the product, the OFT divided these regions
according to the distance which could confidently be covered in a
two hour drive from a plant. Its main concerns were:
- the risk of coordination between the two remaining major
players in a 20 mile radius in Hertford: Aggregate Industries
and Lafarge. In particular, the merger would result in a structural
link between Aggregate Industries and Lafarge, the two main players
in Hertford which together account for a 90% market share. Prior to
the merger, in addition to owning three plants, Lafarge, held a one
third stake in capacity allocation at a plant in Hertford. The
other two thirds share in this plant was owned by Foster Yeoman and
Tarmac (Tarmac being the only other competitor in this area). As a
result of the merger between Aggregate Industries and Foster
Yeoman, Aggregate Industries would replace Foster Yeoman in the
joint venture for this plant. This would therefore create a
structural link between the two main competitors in the Hertford
area: Aggregate Industries and Lafarge. The OFT was concerned that
this link could materially increase the risk of coordination
between Aggregate Industries and Lafarge on pricing, output or
investment; and
- the high combined market share of the merging parties in a 20
mile radius in Crawley and a 30 mile radius in Theale (70 – 80% and
40 – 50% respectively), the merging parties being close competitors
and the lack of other plants in these areas.
The OFT announced on 3 January 2007 that it has accepted
undertakings from Aggregate Industries to carry out divestments
which resolve the OFT’s concerns listed above. Such
acceptance means that the transaction will not be referred to the
Competition Commission for a detailed (and lengthy)
investigation.
How this could be relevant to you?
If your company is involved in a merger you must be aware that,
beyond the scrutiny of the activities of the companies which fall
within your company’s group, the OFT will also scrutinise any joint
venture interests which your company may have. Whilst such
interests may seem a step removed from the activities of a
company’s core group, they are of no less interest to the OFT.
The above case also highlights how a small geographic region can
constitute a market for competition law purposes. In this case, the
issue which was determinative of the geographic market of the
supply of asphalt was its perishability (hence the market was a
distance which can confidently be covered within a two hour drive
from a plant).
For further information, please contact Charles Whiddington.