Anticipated acquisition by DSB (through LYNE Limited in which it is intended that English Welsh & Scottish Railway Holdings will be a minority shareholder) of the InterCity East Coast Passenger rail franchise

Affected market: Passenger public rail transport

No. ME/1365/04

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 8 December

PARTIES

DSB UK Limited (DSB) is part of DSB Group which operates the Danish State railway system and is an independent public corporation which is wholly-owned by the Danish Ministry of Transport. The Group operates urban, intercity, regional and international passenger rail services within Denmark and other European countries including Sweden.  The DSB Group achieved turnover of DKK8.9 billion (approximately £835 million) for year ended 31 December 2003.

English Welsh and Scottish Railway Holdings Limited (EWS) is a UK-incorporated company.  Its activities are divided into four business units: rail freight haulage; rail industry services; rail passenger charter services; and non-freight operations.  These services are provided through the following main operating companies: (i) English Welsh & Scottish Railway Limited, (ii) Rail Express Systems Limited and (iii) English Welsh & Scottish Railway International Limited.  For the year ended 31 March 2004, EWS achieved a turnover of £516.4 million.

InterCity East Coast Passenger Rail Franchise (ICEC) currently encompasses intercity passenger rail services between London, parts of East Anglia, the East Midlands, Yorkshire, Humberside, the North East of England and Scotland.  The ICEC franchise was awarded to Great North Eastern Railway Limited (GNER) in 1996 for a period of seven years and was subsequently extended for a further period of two years to expire on 1 May 2005.  For the 52 weeks ended 4 January 2004, the current incumbent GNER had a UK turnover of £429,083,000.

TRANSACTION

DSB has set up a special purpose vehicle, LYNE Limited (LYNE), through which it intends to acquire ICEC.  Subject to approval by the Strategic Rail Authority (SRA) it is intended that EWS will acquire 29.1 per cent of shares in LYNE and DSB will acquire 70.9 per cent of shares.  DSB/EWS was one of four bidders to pre-qualify, following the consultation stage of the franchising process, for the ICEC franchise.  The deadline for delivery of the bids to the SRA is 6 December and the SRA is scheduled to award the ICEC franchise to the successful bidder in February 2005.

JURISDICTION

As a result of the transaction, DSB/EWS and the ICEC Franchise will cease to be distinct.  The award of a rail franchise constitutes an acquisition of control of an enterprise by virtue of section 66(3) of the Railways Act 1993 (as amended).  ICEC's turnover in the UK in the last financial year was in excess of £70 million, therefore, the transaction meets the turnover test in section 23 of the Enterprise Act 2002 (the Act).  The OFT believes 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.

ASSESSMENT

The EWS depots at Edinburgh and Motherwell do not provide light maintenance services to passenger trains but provide such services to freight trains.  As such, the EWS freight depots do not currently compete with the ICEC depots.  This is significant in relation to ICEC's depot located at Edinburgh.  EWS has two freight depots at Edinburgh and Motherwell which are within a viable distance to be regarded as potential substitutes.

It is plausible that EWS could convert its freight depots in Edinburgh and Motherwell to provide light maintenance services to passenger trains at some future point.  However, this would involve a significant amount of investment by EWS which is considered to be prohibitive, particularly where no existing contract exists to amortise such costs.  In any event, even if EWS were to convert its depot, there are currently a number of alternative light maintenance depots in the Glasgow area able to provide a competitive constraint on EWS and ICEC.

In conclusion, therefore, the OFT does not believe that it is or 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.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

Back to top