Anticipated acquisition of Exeter and Devon Airport Ltd by Macquarie Airports Ltd and Ferrovial Aeropuertos SA

Affected market: Air transport

No. ME/1899-05

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, undertakings in lieu and decision.

The OFT's decision on reference under section 33(1) given on 11 October 2005. Full text of decision published 20 October 2005.

Please note that square brackets indicate figures or text excised at parties' request on the grounds of confidential business secret.

PARTIES

Macquarie Airports Limited (MAG) is a global private equity fund with investments in airports and associated infrastructure. MAG is advised by Macquarie Investment Management (UK) Limited (MIMUK), a wholly-owned subsidiary of Macquarie Bank Limited. Macquarie Bank Limited and its subsidiaries are referred to as the Macquarie Group. In the EU, Macquarie Group companies jointly control the Rome Airports (Ciampino and Fiumicino) and Brussels Airport. They also hold indirect shares of 24.1 per cent and 11.3 per cent in Birmingham International Airport and Copenhagen Airport, respectively. MAG and Ferrovial Aeropuertos SA, through South West Airports Ltd, control Bristol International Airport (BIA) jointly on a 50/50 basis. [  ] (see note 1)

Ferrovial Aeropuertos SA (FASA) is a company incorporated in Spain which is  active in the management of airport infrastructure concessions. Apart from its joint control of BIA, FASA has investments in three other airports: Sydney Airport, Belfast City Airport (100 per cent), and Antofagasta Airport in Chile. FASA's worldwide turnover is €7,268 million (approximately £4,904.02 million), and its Community-wide turnover is £6,828.6 million (approximately £4,608.54 million) of which €1,440.7 million (approximately £972.278 million) was attributable to the UK.

South West Airports Limited (SWAL) is a limited liability company incorporated in England and Wales. SWAL is the acquisition vehicle jointly owned by MAG and FASA. It is the parent companies' intention that SWAL will own EDAL as a sister company to Bristol, with separate management.

Devon County Council (DCC) is a public body with responsibility for local government in Devon. Exeter and Devon Airport Ltd (EDAL) is a wholly-owned subsidiary of DCC responsible for the management and operation of Exeter International Airport (EIA). EDAL's UK turnover is €16.60 million (approximately £11.2013 million).

TRANSACTION

The proposed transaction concerns the anticipated acquisition by MAG and FASA, via SWAL, of a controlling interest in EDAL from DCC, which will retain a [   ] per cent stake.

The case was referred to the OFT under Article 9 of the EC Merger Regulation (ECMR). A satisfactory submission was received by the OFT on 15 August 2005. The OFT's administrative deadline for dealing with this case is 11 October 2005. In accordance with Article 9(6) ECMR, the relevant statutory deadline expires on 17 October 2005.

JURISDICTION

The transaction met the threshold for investigation under the ECMR and was notified to the EC Commission (Commission) on 28 June 2005. The OFT subsequently requested referral of the case in accordance with Article 9(2)(a) of the ECMR, as on the basis of a preliminary assessment, the OFT could not rule out potential competition concerns in relation to the provision of airport infrastructure services in the South West of England. The Commission granted referral of the case on 8 August 2005.

As a result of this transaction, SWAL and EDAL will cease to be distinct. EDAL and BIA supply over 25 per cent of airport infrastructure services in the South West of England, thus meeting the share of supply test in section 23(1) of the Enterprise Act 2002 (the Act). Therefore, arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

ASSESSMENT

The transaction at issue would combine Bristol and Exeter International Airports under common ownership. Although geographically close, the parties and third parties, notably customers, differ substantially on whether they are close competitors, and on the extent to which buyer power with reference to other airports (notably the London airports and others in the SW region) would neutralise any merger-related incentive on the combined entity's part to impose less favourable terms on airline customers at one or both of Bristol or Exeter airports.

For reasons discussed in more detail above, and on the basis of the available evidence, the OFT regards the concerns expressed by customers as credible, primarily in light of the available evidence, albeit limited, of preferences of airline passengers in the SW. As such, the OFT accordingly believes there is a realistic prospect of a substantial lessening of competition.

UNDERTAKINGS IN LIEU

Having concluded that the transaction should be referred to the CC, the OFT has considered whether there might be undertakings in lieu (UIL) of reference, pursuant to section 73 of the Act, which would address the concerns outlined above.

SWAL has offered a set of behavioural undertakings in relation to the theories of harm brought to its attention by the OFT. These are based on [  ]. Furthermore, information would be provided annually to the OFT relating to deals and charges and other support offered to airlines.

In order to accept UIL, the OFT must be confident that the competition concerns identified can be resolved by means of undertakings without the need for further investigation. The acceptance of UIL is appropriate only where both the concerns and the remedies proposed to address them are clear cut. The OFT therefore concludes that this is not an appropriate case to accept UIL.

DECISION

This merger will therefore be referred to the Competition Commission under section 33(1) of the Act.

NOTES

1. Turnover data.

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