Anticipated acquisition by DS Smith plc of certain assets of BPB plc

Affected market: Collection and supply of packaging grades of waste paper

No. ME/1132/04

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 4 August 2004

PARTIES

DS Smith plc has four main divisions; paper and corrugated packaging, plastic packaging, office products wholesaling and office products manufacturing. This anticipated transaction involves the recycling division of the St Regis operation - Severnside - part of the paper and corrugated packaging division. Severnside has 14 recovered paper depots, mainly in the southern half of the UK. Severnside generated approximately £ [see note 1] in turnover in the year ended 30/4/03. 

BPB Recycling is a division of BPB plc. It collects waste paper in the UK, concentrating on the collection of packaging grades of waste paper, which are then used in the production of plasterboard lining paper (PLP) with any excess being supplied to the merchant sector. BPB recycling operates five recovered paper depots at Basildon, Leeds, Bolton, Durham, and Glasgow generating turnover of £ [see note 1] for the year ended 31/3/03.

TRANSACTION

St Regis and BPB UK Limited entered into a sale and purchase agreement on 28 May 2004 whereby St Regis agreed to purchase BPB Recycling for a consideration of £ [see note 1]. As part of the transaction Severnside has entered into a five-year contract with BPB to supply BPB's Davidson Mill with [see note 2] of packaging grades of waste paper [see note 2].

The transaction was notified to the OFT on 11 June 2004 and the administrative deadline expires on 9 August 2004. An earlier acquisition by DS Smith in the downstream market of corrugated cardboard sheet and cases is currently subject to a Competition Commission investigation. The Competition Commission is due to report by 3 November 2004.

JURISDICTION

As a result of this transaction DS Smith and the recycling business of BPB plc will cease to be distinct. The parties overlap in the collection and supply of packaging grades of waste paper and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes 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. The ECMR does not apply.

ASSESSMENT

The parties overlap in the collection of packaging grade waste from sources such as commercial businesses, retail premises and municipal contracts, and its supply to paper mills (internal and external) that use this waste in the manufacture of corrugated case materials (CCM) and plasterboard liner paper (PLP). For the purposes of this assessment, the impact of the anticipated transaction has been considered for the collection of packaging grades of waste paper, the supply of OCC/KLS to third parties and, the supply of mixed grades of waste paper to third parties.

There are a large number of competitors for the collection and supply of packaging grades of waste paper in the UK, including integrated mill groups, waste managers and independent waste paper merchants. Barriers to entry to collection and supply appear to be low and in addition there is substantial competitive constraint from the export of waste, with currently around 25-30 per cent of packaging grades of waste paper collected in the UK being exported.

The parties' estimated combined share of third party supply of OCC/KLS in the UK in 2003 amounted to 5-10 per cent (increment less than 5 per cent). For the same year the parties together supplied less than 5 per cent of the OCC/KLS sold to third parties in Europe. The combined share of supply in the UK of mixed waste to third parties as a result of this merger is 30-35 per cent (increment 10-15 per cent) [see note 3].

Concerns have been put forward, primarily by independent waste paper merchants, about their ability to compete with the merged firm. There have been unsupported allegations that Severnside retaliates against firms that bid aggressively against it for collection contracts, as well as allegations that there is some form of coordination amongst the UK mills in the price they pay for packaging grades of waste paper.

The parties have made a strong case that this merger will not lead to a reduction in competition due to the presence of various competitive constraints, and waste managers and other integrated firms have not typically raised concerns about the transaction. Complaints have originated from independent waste merchants, who are reluctant to see further consolidation amongst major payers in the industry, believing that this merger will make it harder for them to compete for collection contracts and reduce the prices they are able to obtain for the product they supply. To the extent that this benefits customers, this is not a legitimate competition concern. Also, it is not clear that any alleged difficulties experienced by these independents are merger-specific, and except for one situation (which arose from specific circumstances not resulting from the merger), third parties have not provided any evidence of the alleged practices.
 
Consequently, 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 for goods or services in the United Kingdom.

DECISION

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

NOTES

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