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Completed joint venture between Stagecoach Bus Holdings Limited and Braddell plc in relation to Megabus.com, Motorvator and Scottish Citylink brands

Affected market: Intercity coach services

No. ME/2034/05

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, background, jurisdiction, assessment and decision.

The OFT's decision on reference under section 33(1) given on 15 March 2006. Full text of decision published 19 April 2006.

Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties or third parties for reasons of commercial confidentiality.

PARTIES

Stagecoach Group plc (Stagecoach) is an international transportation group with operations in the UK, USA, Canada and New Zealand (see note 1). It is a UK listed company. Stagecoach's UK bus division – Stagecoach Bus Holdings Limited (Stagecoach Bus) – comprises 17 regional companies that provide local and regional bus transport services. In 2003, Stagecoach launched megabus.com, offering 'long distance' intercity coach services. It acquired the Motorvator coach service brand, operating between Glasgow and Edinburgh, in 2004. 

Stagecoach is also active in the rail sector, and it currently operates two wholly-owned franchises – South West Trains and Island Line. It also operates the Sheffield Supertram system. In addition, Stagecoach holds a 49 per cent interest in Virgin Rail Group Holdings Limited, which operates the Virgin Cross Country and West Coast Mainline rail franchises. In its submission Stagecoach asserts that it does not have operational control over these franchises.

Comfort DelGro Corporation Limited (Comfort DelGro) is a Singapore based transport company, with operations in Singapore, China, the UK, Ireland, Australia, Vietnam and Malaysia. It is the ultimate parent company of Metroline (which operates bus and coach services in London) and is the owner of a number of subsidiaries which operate Computer Cab in London, Comcab in Scotland and GEM High Enterprises (a taxi company) in Aberdeen. Prior to the joint venture, Comfort DelGro was the sole owner of Scottish CityLink Coaches Limited (SCCL) through its wholly owned subsidiary, Braddell plc (Braddell).  SCCL operated the Scottish CityLink (CityLink) business.

CityLink provides coach services, operating a network of routes throughout Scotland (some of which are technically registered as bus services). CityLink does not supply the vehicles/drivers itself but generally sub-contracts these operations to a variety of coach operators in Scotland. CityLink does, however, set the timetable and fares and provides customer service managers in key locations. The one exception to this business model (of which we are aware) is the Inverness to Thurso (via Brora) service which is operated by a franchisee that set the fares and timetable for that service.

TRANSACTION

On 12 September 2005, Stagecoach transferred certain rights to provide intercity coach services in or into Scotland under the megabus and Motorvator brands (the Transferred Brands, see note 2) to SCCL (the Joint Venture). In return, Stagecoach acquired a 35 per cent holding in SCCL (the Joint Venture) through its wholly owned subsidiary, Stagecoach Bus (see note 3). SCCL appointed Stagecoach as sub-contractor to provide the services under the Transferred Brands.

In addition to the services within the Joint Venture, Stagecoach Bus provides bus/coach services in Scotland outside of the Joint Venture (the Stagecoach Retained Business). The Stagecoach Retained Business operates local and inter-urban bus services that overlap with CityLink services (see note 4), that are now part of the Joint Venture.

An important factor in our competitive analysis is the management control of the Joint Venture. Under the terms of the Management Agreement between the Joint Venture and Stagecoach, the day to day management is delegated to Stagecoach Bus, but the Joint Venture is otherwise managed on the direction of the Board. In particular, Stagecoach Bus has the authority to set fares and pricing structures, as well as the frequency of services.

The extended statutory deadline is 16 March 2006.
 
BACKGROUND

On 14 December 2005, Stagecoach acquired all the shares of Traction Group Limited which has a subsidiary (Strathtay Scottish Omnibuses Limited) which provides bus services in Scotland (the Traction acquisition). The OFT is currently considering the effects of that transaction on competition as part of a separate investigation. This decision does not consider the competitive impact of the Traction acquisition.

JURISDICTION

This transaction gives rise to one or more merger situations in that Stagecoach has acquired the ability materially to influence the policy of CityLink, and Braddell has acquired, through CityLink, a controlling interest in the rights to operate Motorvator and certain megabus services previously controlled by Stagecoach.

For each merger situation, the parties overlap in the supply of intercity coach services in Scotland. While the OFT has no precise share figures, the parties are the two major suppliers of scheduled long distance coach services in Scotland.  The OFT believes that the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met and, therefore, it is or may be the case that one or more relevant merger situations have been created.

ASSESSMENT

The transaction combines most of Scotland's intercity coach operations and the parties to the Joint Venture were each others' closest competitors.

The transaction appears to have led to a substantial loss of actual competition between the parties on all flows where the services of megabus/Motorvator and CityLink overlap. The parties maintain that the constraints imposed by other forms of transport, particularly rail services, and the threat of new entry and expansion, would be sufficient to allay any concerns. Nonetheless, the substantial evidence obtained in this investigation strongly indicates that rail services and the prospect of entry have not constrained substantial price increases and reductions in frequencies in the past, and will not do so in future. In particular, entry and expansion does not appear to be sufficient in timeliness, likeliness and scope to defeat or to constrain the parties' setting of competitive parameters closely. Furthermore, it is implausible that the transaction will increase rivalry with train operators sufficiently to offset the harm to coach customers identified.

The transaction also gives rise to overlaps between the Stagecoach Retained Business and the Joint Venture which might lead to a reduction in competition on certain flows. However, given the conclusions on the overlaps within the Joint Venture it has not been necessary to conclude on the significance of the loss of competition from this aspect of the transaction.

Consequently, the OFT believes that it is or may be the case that the merger or mergers resulting from the transaction have resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom. The parties made no offer of undertakings in lieu of reference.

DECISION

The mergers will therefore be referred to the Competition Commission under section 22(1) of the Act.

NOTES

1. Stagecoach wishes to clarify that it sold its New Zealand business in the autumn of 2005.

2. Namely the services: 900 (Motorvator) Edinburgh – Glasgow and return; M9 (megabus) Aberdeen – Glasgow (vis Dundee and Perth) and return; M90 (megabus) Inverness – Edinburgh (via Perth) and return; and M11 (megabus) Glasgow – London (via Manchester) and return.

3. The remaining 65 per cent is retained by Braddell.

4. Primarily in the Fife area and North east Scotland between and including the Aberdeen and Inverness areas.


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