Anticipated acquisition by E.ON UK plc of the public lighting business of ABB Holdings Limited and ABB Limited.

Affected market: Street lightning services

No. ME/3582/08

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(1) given on 16 May 2008. Full text of decision published 2 June 2008.

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

PARTIES

E.ON UK plc (E.ON) is a subsidiary of E.ON AG of Germany, which is an integrated energy services provider operating in various EU countries and in the US. E.ON's activities in the UK are in the generation, distribution, trading and supply of electricity and the shipping, trading and supply of gas. E.ON is a provider of 'non-contestable' electricity connection services in the East and West Midlands areas of the UK, through its 'Central Networks' business. Central Networks East plc (CNE) is the distribution network operator (DNO) for the East Midlands and Central Networks West plc (CNW) is the DNO for the West Midlands. E.ON is also active in the provision of contestable street lighting connection, installation and maintenance services.

ABB Limited (ABB) provides a number of energy-related products, systems and services for utility and industry customers. These include its street lighting business (the Target Business). The Target Business comprises contestable street lighting connections, street lighting installation and lighting maintenance services in the East Midlands area as well as providing contestable lighting installation and maintenance services as a subcontractor under Staffordshire County Council's 25 year Private Finance Initiative (the Staffordshire PFI contract). The UK turnover of the Target Business in the year ended 31 December 2007 was [ ] million.

TRANSACTION

Under the proposed transaction, E.ON has agreed to acquire the assets and goodwill of the Target Business and a 60 per cent shareholding in Lighting for Staffordshire Holdings Limited (LFSH), which is currently owned by ABB Holdings.

LFSH is the sole shareholder of Lighting for Staffordshire Limited (LFSL), a company created for the purpose of entering into the Staffordshire PFI contract mentioned above. The Staffordshire PFI contract is a 25-year project whereby LFSL provides the finance, design, installation and maintenance of street lighting and illuminated traffic signage in Staffordshire. LFSL is responsible for carrying out an asset replacement programme for Staffordshire County Council over successive periods of five years under the Staffordshire PFI contract.

The OFT's administrative deadline for deciding whether to refer the merger to the Competition Commission is 19 May 2008.

JURISDICTION

As a result of this transaction E.ON, the Target Business and LFSH will cease to be distinct. The parties' combined share of supply of contestable electricity connection and installation services in the East Midlands and in the West Midlands is above 25 per cent and as a consequence 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

Third party comments support the analysis above. In particular, no customers raised any concerns regarding the loss of competition in the supply of contestable connections, installation and maintenance/repairs services as a result of the merger. Some concerns were expressed about the overall working of the market, but they were not merger-specific. Vertical issues were raised by one customer, who was concerned about the strengthening of E.ON as a DNO provider. However, given that the merger does not create market power in the affected market, the OFT does not consider that anticompetitive vertical effects may arise from this merger.

ASSESSMENT

E.ON and the Target Business overlap in the supply of contestable connections, installation and maintenance/repairs services. Their combined share of supply for each of these three services in Great Britain is less than [0-10] per cent. In the East Midlands and West Midlands regions, the combined share of supply for each of contestable connections and installation services is [30-40] and [25-35] per cent, respectively. For the East Midlands, the increment in market share is only [0-5] per cent, and bidding data provided by the parties for the West Midlands indicate that the parties are not particularly close competitors. For maintenance services, the combined share of supply for the West Midlands area is [10-20] per cent and, currently, only ABB carries out street lighting maintenance work in the East Midlands region. Further, no third parties raised concerns about a loss of competition caused by the merger in relation to any of the overlapping services.
 
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.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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