Affected market: Public transport
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, third party views, assessment and decision.
The OFT's decision on reference under section 33 given on 27 May 2005. Full text of decision published 8 June 2005.
First West Yorkshire Limited (First) is part of First Group plc which operates transport services across the UK, including bus operations in and around Leeds using a fleet of over 450 vehicles and three local depots.
Black Prince Buses Limited (Black Prince) has around 40 vehicles which it operates from its depot in Morley, about eight miles from the centre of Leeds. Its turnover in the year to 31 March 2004 was £2.8m.
First proposes to acquire for £[ ] (see note 1) the operating licences, tendered contracts, staff contracts and goodwill of Black Prince but not the associated vehicles. Black Prince's depot is being sold to a third party.
The administrative deadline is 18 June.
As a result of this transaction First and Black Prince will cease to be distinct. The parties overlap in the supply of bus services in Leeds 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.
THIRD PARTY VIEWS
Other bus operators and customers of both commercial and tender services expressed concern about the merger. Most regarded the parties as competitors. No third party saw any likelihood of entry in the area in question, nor expressed any serious interest in acquiring Black Prince.
First intends to acquire Black Prince, a family-owned independent bus operator and the only bus competitor to First on a substantial number of routes in Leeds. The transaction raises substantial initial competition concerns due to the high (83 per cent) combined share of supply in Leeds, the degree of route overlap on which the parties are the only two bus operators, third party concerns, and little prospect for entry as a constraint.
The key question posed by this case is causation: would the anti-competitive post-merger outcome suggested by the above factors have arisen in any event, even absent the merger?
After careful analysis, the OFT has concluded that the typical benchmark against which merger effects are assessed – prevailing conditions of competition – is inappropriate in this case, because Black Prince has provided sufficient compelling evidence that it will cease independent operation regardless of the proposed merger. Given First's position in Leeds, the question therefore is whether there may be a less anti-competitive alternative to the proposed merger. A high evidentiary standard has been applied to this question, but Black Prince has, exceptionally, been able to meet this standard due to the cogency and overall consistency of evidence it has provided. Therefore, the OFT is satisfied that there is no realistic prospect of an alternative buyer nor of any other outcome better for competition and passengers in Leeds than a sale to First. As such, the counterfactual against which the merger must be judged in this case is a scenario in which the competitive threat from Black Prince will be lost in any event. Accordingly, the merger itself cannot be regarded as the cause of any anti-competitive outcome.
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.