Completed acquisition by Govia Limited of the West Midlands passenger rail franchise

Affected market: Passenger transport services

No. ME/3319/07

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 22(1) given on 29 November 2007. Full text of decision published 10 December 2007.

PARTIES

Govia Limited ('Govia') is a joint-venture company owned by the Go-Ahead Group Plc and by Keolis (UK) Limited (a wholly owned subsidiary of Keolis SA). Go-Ahead and Keolis own 65 and 35 per cent of Govia respectively.

Go-Ahead is a UK based transport group. It operates train services through its joint ownership of Govia, which is currently running the South-Eastern Franchise and the New Southern Railway Franchise. Go-Ahead also operates bus services, primarily in urban locations such as in and around Birmingham via its wholly owned subsidiary Go West Midlands Limited ('Go West Midlands').

Keolis SA is a leading European multimodal transport operator. It is active primarily in France and also has interests in the UK rail industry,  Scandinavia, Germany and Canada.

Govia is a shell joint-venture company whose purpose is to own train operating companies ('TOC's: companies which run train companies in the UK) on behalf of its parent companies.

The West Midlands Passenger Rail Franchise (the 'WM Franchise') has been created by the UK Department for Transport ('DfT') by amalgamating parts of the Silverlink and the Central Trains passenger rail Franchises. The WM Franchise area is primarily centred around Birmingham and the London commuter market, but also includes some routes north to Liverpool.

TRANSACTION

The transaction concerns the award of the WM Franchise to London & Birmingham Railway Limited ('LBR'), a TOC owned by Govia. The franchise agreement was signed on 20 June 2007 and commenced on 11 November 2007. LBR has gained sole control over the WM Franchise.

The transaction qualifies for review under the EC Merger Regulation. However, by way of a reasoned submission filed with the European Commission on 16 August 2007, the parties have obtained agreement for the transaction to be examined in its entirety by the UK competition authorities. The European Commission announced its decision to refer the case to the OFT on 20 September 2007 on the basis that the transaction may significantly affect competition in distinct markets in the UK. The extended 45 working-day statutory deadline pursuant to section 34A of the Enterprise Act 2002 (the Act) expires on 29 November 2007.

JURISDICTION

The award of a rail franchise constitutes the acquisition of control of an enterprise by virtue of section 66(3) of the Railways act 1993. Therefore, LBR and the WM Franchise have ceased to be distinct. The parts of the Silverlink County and Central Trains Passenger Rail Franchises which form the WM Franchise have generated a turnover in excess of £70 million over the last financial year. Accordingly, a relevant merger situation has been created for the purpose of section 23 (1)(b) of the Act.

THIRD PARTY VIEWS

A number of third party comments have been sought in relation to this transaction. None of them expressed any concern. Some of them believe that the transaction will improve competition in the WM Franchise area as Go-Ahead only has a small foothold in the local bus services in comparison to National Express, who is the leading operator in the area.

ASSESSMENT

The impact of the present transaction is assessed on the basis of the provision of public transport services between specified origin/destination points.

The parties identify a single rail on rail overlapping flow on which the merged entity, they submit, will not have any price setting powers. Indeed, another operator, TfL is responsible for setting the fares and runs departures as frequent as those supplied by the merged entity. The OFT therefore believes that the transaction does not give rise to any competition concern on the rail on rail overlapping flow.

The parties also identify a number of rail on bus overlapping flows on the majority of which the leading bus operator TWM operates services at comparable or even higher frequency than the services run by the merged entity. Additionally, a number of overlapping flows are covered by routes on which the merged entity operates under tender only. Consequently, the OFT considers that the merged entity is not in a position to profitably increase bus prices or lower service levels on these flows.

Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or 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 22(1) of the Act.

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