Anticipated acquisition by Whitbread plc of the Premier Lodge business from Spirit Group Holdings Limited.

Affected market: Hotels

No. ME/1649/04

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 and the assessment.

The OFT's decision on reference under section 33 given on 11 May 2004

PARTIES

Whitbread plc ('Whitbread') is active in three principal areas of the leisure industry: hotels, restaurants and health & fitness. It owns and operates 'Travel Inn', a chain of 298 branded hotels in the UK. Premier Lodge, the target business currently owned by Spirit Group Holding Ltd ('Spirit'), is itself a chain of 134 branded hotels in the UK.

TRANSACTION

Spirit launched a bidding process to sell Premier Lodge on 27 February 2004. Whitbread has formally entered this process and is one of several competing bidders. It has sought to obtain regulatory clearance of the proposed transaction in advance of the final outcome of this process.

A complete merger submission was notified to the OFT on 15 March 2004; the administrative target date for a decision in this case is therefore 12 May 2004.

JURISDICTION

As a result of the proposed transaction, Whitbread and the Premier Lodge businesses would cease to be distinct. Whitbread has confirmed that Premier Lodge's UK turnover exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 ('the Act') is satisfied. In addition, the parties overlap in the supply of branded budget hotels, and the share of supply test in section 23 of the Act is met. If the proposed transaction is completed, a relevant merger situation will therefore be created.

ASSESSMENT

The transaction qualifies on the turnover and the share of supply tests of the Act. The relevant frame of reference is considered to be no narrower than branded budget and mid-range star rated hotels. B&Bs, guesthouses, other star rated and unclassified hotels may also provide additional pricing constraint.
 
The parties will provide over 25 per cent of branded budget accommodation in 46 of the 47 local areas of overlap. However, the weight of the evidence indicates that alternative establishments, particularly mid-range star-rated hotels, will provide an effective constraint on the merged entity in all these areas. Furthermore, while entry barriers exist in this sector, they do not appear to be insurmountable since there is evidence of recent entry and planned expansion.

At the national level, the merged entity's share of supply of branded budget accommodation is in excess of 40 per cent. However, this does not give an accurate representation of the parties' market position since at least mid-range star-rated hotels are considered to provide an effective constraint. Taking these hotels into account, the merged entity's combined share of supply is less than 10 per cent and does not give rise to concerns.

The majority of third parties did not raise any competition concerns. Three companies interested in the bidding process raised concerns about barriers to entry and potential price increases, and these issues have been discussed under horizontal issues and barriers to entry.

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.

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

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