Affected market: Ferry services
Please note that the full text of the decision can be downloaded by using the link on the right.
What follows are extracts regarding the parties, the transaction, jurisdiction, assessment and decision.
The OFT's decision on reference under section 33 given on 7 December
Please note square brackets indicate exact figure replaced by a range at the parties' request.
Brittany Ferries (Bretagne-Angleterre-Irlande S.A. (BAI)) operates a fleet of seven ferries between France and the UK and Ireland respectively, and between the UK and Spain. BAI's 2003 turnover was approximately €325 million (£227 million).
P&O Ferries (P&O) is a unit of the Peninsular and Oriental Steam Navigation Company (P&O Group). P&O operates ferries in the North Sea and English Channel between UK and Continental ports and in the Irish Sea. The P&O Group is also active in the operation of ports worldwide and has cold logistics and property development divisions. In 2003, the P&O Group had a turnover of approximately £4,138 million of which £1,081 million was in ferry services.
On 28 September 2004, P&O announced its intention to close three of its Portsmouth-based ferry routes serving the French ports of Le Havre, Caen and Cherbourg respectively (see note 1). In respect of its overall cross-Channel ferry operations, P&O's intention is to remain active on the so-called 'Short French Sea' (specifically, its Dover to Calais route) while withdrawing entirely from the 'Western Channel' with effect from 2005 – with the exception of its Portsmouth to Bilbao route (see note 2).
On the same day, BAI signed a Memorandum of Understanding with P&O for the acquisition of an assets package comprising P&O's Portsmouth - Le Havre route, including two multipurpose ferry vessels, associated port berths, infrastructure, staff and a non-compete clause (the MOU). The turnover associated with these assets was [ ] (see note 3) in the 2003 financial year.
The effective date of notification was 13 October 2004 when a satisfactory submission was received. The 40 working day administrative deadline is 7 December 2004.
The OFT takes the view that the assets package subject to the MOU is an enterprise within the meaning of section 129 of the Enterprise Act 2002 (the Act) and that the share of supply test in section 23 of the Act is met in relation to the supply of ferry services on the Western Channel to freight and tourist customers respectively.
The OFT believes, therefore, that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation for the purposes of section 33(1)(a) of the Act.
The proposed transfer of P&O's assets on its Portsmouth-Le Havre route to BAI arises in the context of P&O's publicly announced withdrawal from ferry routes in the Western Channel between UK and France. BAI, whose operations are confined to the Western Channel, will represent over 70 per cent of post-merger supply on such routes, both in the tourist and freight sectors.
This case poses two key questions. First, could BAI exercise market power once P&O's exit and sale to BAI has taken place (or would it be constrained from doing so)? Second, if so, would such an outcome have arisen in any event – i.e. even absent the merger?
As to the first question, the OFT has examined evidence on the degree to which constraints – including Short French Sea operations, LCAs, and entry into or expansion within the Western Channel by rival ferry operators – would offset any potential competition concerns. The weight of evidence available suggests that such constraints are indeed relevant to the analysis; but it does not support the belief that such constraints would be timely, likely and sufficient in scope to discipline BAI's post-merger competitive conduct. Accordingly, the merger may in the OFT's view raise potential competition concerns.
As to the second question, the OFT has concluded that the typical benchmark against which merger effects are assessed – prevailing conditions of competition – is inappropriate here, because P&O has provided sufficient compelling evidence that it will exit the Western Channel regardless of the proposed merger. Given BAI's position, the question therefore is whether there may be a less anti-competitive alternative to the proposed merger. The OFT has not been able to conclude that there is no realistic prospect of an alternative buyer whose purchase of the assets would represent an outcome significantly better for competition than a sale to BAI. Accordingly, it may be the case that substantial lessening of competition may be expected to result from the merger.
Consequently, the OFT believes that it may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
This merger will therefore be referred to the Competition Commission under section 33(1) of the Act.
1. P&O press release of 28 September 2004 entitled Ferries: Outcome of Review.
2. The ferry industry refers to the principal sea routes between the UK and France via the Dover Straits as the 'Short French Sea' (e.g. Dover to Calais, Dunkirk or Boulogne) and to the longer cross-Channel routes further west as the 'Western Channel'. Western Channel ports include Portsmouth, Southampton, Poole and Plymouth (UK) and Le Havre, Radicatel, Caen, Cherbourg, St. Malo and Roscoff (France).
3. Information excised at the parties' request.