Anticipated acquisition by Polypipe Building Products Limited of Verplas Limited

Affected market: Rigid ducting for ventilation systems

No. ME/3014/07

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 comments, assessment and decision.

The OFT's decision on reference under section 33(1) given on 11 July 2007. Full text of decision published 23 August 2007.

Please note that items in square brackets have been redacted at the parties request for reasons of commercial confidentiality

PARTIES

Polypipe Building Products Limited (Polypipe) is a manufacturer of plastic piping, ventilation and sanitary systems used in the house building industry in the UK and continental Europe.

Verplas Limited (Verplas) is a manufacturer of ducting, modular ventilation systems, and accessories, used mainly in the house building industry in the UK. In the financial year ended June 2005, Verplas' turnover amounted to approximately £[3-6]m.

TRANSACTION

Polypipe proposes to acquire the entire issued share capital of Verplas. The parties filed an informal merger submission on 30 April 2007. The administrative target date for the OFT's decision is 11 July 2007.

JURISDICTION

As a result of this transaction, Polypipe and Verplas would cease to be distinct. The parties' combined UK share of the supply of domestic ducting products exceeds 25 per cent and consequently 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

Almost all third party customers that purchased mainly or exclusively flexible ducting from the parties were unconcerned by the merger as they were already using other sources or were confident that they could find other sources in the event of a price increase.

Many, although not all, customers of rigid ducting were concerned. However most of the concerned customers are also the parties' competitors who had reservations with regard to reliance on a direct competitor for their supplies of rigid ducting.

ASSESSMENT

The parties overlap in the manufacture and supply of domestic ventilation products. Neither of the parties is active in installation, servicing, after-sales or any other service.

The OFT's only concerns relate to the manufacture and supply of rigid ducting products. For rigid domestic ducting the appropriate candidate geographic market is no wider than the UK due to significant transport costs relative to the value of the product and a lack of any evidence of substantial imports pre-merger. The merger represents a reduction in the number of UK-based manufacturers from three to two. Import costs are significant and barriers to entry exist. Apart from Verplas, which entered substantially in 2002 on the back of earlier small scale entry in 1997, there is no evidence of entry into rigid domestic duct manufacturing in the UK in the past ten years.

Third parties told us that the parties were either close or very close competitors. Overall the evidence suggests that the merger may lead to non-coordinated effects, creating a clear risk that prices could increase post merger. Nonetheless, the OFT also invites the Competition Commission to consider further whether coordinated effects is ultimately a more compelling theory on the facts of this case.

Although it may be the case that a new entrant could replace the competition lost from Verplas, the OFT does not have sufficient evidence to be confident that entry will be timely, likely and sufficient in response to a post-merger price increase.

Consequently, the OFT believes 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.

DECISION

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

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