Anticipated acquisition by Phoenix Healthcare Distribution Limited of East Anglian Pharmaceuticals Limited

Affected market: Pharmaceutical distribution

No. ME/1356/04

Please note that the full text of the decision can be downloaded by using the link on the right of this page. What follows are extracts regarding the parties, the transaction, jurisdiction, background, third party views, assessment and decision.

Square brackets indicate figures removed at the request of parties for reasons of commercial confidentiality.

The OFT's decision on reference under section 33 given on 17 December

Phoenix Healthcare Distribution Limited (Phoenix) is part of the Phoenix Group, which is active in pharmaceutical wholesaling and retailing throughout Europe.  It is owned by Phoenix Medical Supplies Limited, a non-trading company.  Phoenix is a pharmaceutical wholesaler to retail pharmacies and dispensing doctors in Great Britain.  Phoenix also operates a small chain of retail pharmacies but has no outlets in the East Anglia area. It operates its wholesaling business through a network of distribution depots located throughout Great Britain.

East Anglian Pharmaceuticals Limited (EAP) is owned by Jonathan and Gregory Briggs via a holding company, Briggs Family Holdings Limited.  The company's principal activity is the wholesale supply of pharmaceuticals to retail pharmacies, dispensing doctors and hospitals through a single distribution depot in Norwich.  EAP is not active in retail pharmacy.  In the twelve months to 29 February 2004, EAP's total UK turnover was £110.8 million.

TRANSACTION

Phoenix proposes to acquire the entire issued share capital of Briggs Family Holdings Limited and its subsidiaries for [ ].  The transaction was notified to the OFT on 22 October 2004 and the administrative deadline expires on 20 December 2004.

JURISDICTION

As a result of this transaction Phoenix and EAP will cease to be distinct.  The UK turnover of EAP exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. 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.

BACKGROUND

On 3 December 2003, the OFT referred the proposed acquisition by AAH Pharmaceuticals Limited (AAH) of EAP to the Competition Commission.  The OFT  investigation found that the merged entity would be the largest full-line wholesale supplier of ethical pharmaceuticals (Ethicals) to dispensing doctors, retail pharmacies and hospitals in East Anglia extending to parts of the East Midlands and the South East of England.  Lack of information made it difficult to assess the constraint that other full-line wholesale suppliers would offer on the behaviour of the merged entity in relation to the supply of Ethicals to dispensing doctors and retail pharmacies. Adverse effects (reduction in the level of discounts paid to customers; and/or other less favourable terms of supply; and/or a general reduction in service levels) were expected to arise in the supply of Ethicals to hospitals.  The parties decided not to proceed with the merger.  Therefore, the reference was laid aside.

THIRD PARTY VIEWS

Competitors to the parties raised concerns about the acquisition, suggesting that for certain customers in certain areas, the merger would severely reduce customer choice.  A number of customers who were contacted currently use EAP and Phoenix as main and back up full-liners.  While a number of these customers were concerned over their potential reduction in choice, many were not and expressed the view that adequate competition would remain in the area post-merger.

ASSESSMENT

In the East Anglia region, the merged entity will be the second largest full-line wholesale supplier of Ethicals pharmaceuticals.  At this regional level, the merger will effectively reduce the number of competing full liners from four to three.  In addition, in terms of their geographic coverage and respective customer bases (namely, a focus on dispensing doctors) the parties could be considered close alternatives.

It might be the case that, in certain circumstances, short-liners will be able to provide some constraint on the parties.  However, competition to the parties is expected to come from other full-liners operating in the region, namely AAH and Unichem.  In assessing the extent of this constraint, the OFT notes that both AAH and Unichem currently offer a service to tied chains and supermarkets (and independent customers) throughout the East Anglia region and can be considered well placed to compete for additional custom in the region.  The OFT also considers there is nothing specific about dispensing doctors as customers, which would prevent these competitors from servicing their needs.  Added to this is the fact that overall Phoenix currently offers a limited constraint on the activities of EAP.

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 in the United Kingdom.

DECISION

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

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