Anticipated acquisition by Atlas Copco Kolfor Limited of the air compressor rental business of Aggreko plc

Affected market: Rental of air compressors

No. ME/3983-08

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 18 February 2009. Full text of decision published 27 February 2009.

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

Atlas Copco Kolfor Limited (Atlas), based in Dundee, is a wholly owned subsidiary of Atlas Copco AB, an international industrial group headquartered in Stockholm, Sweden. Atlas manufactures specialist machinery, including air compressors, generators and power supplies for sale or rent.

Aggreko plc (Aggreko), listed on the London Stock Exchange, is a global operator exclusively in the rental of power generation, temperature control and air compression services and equipment.

TRANSACTION

The proposed transaction consists in the transfer to Atlas of employees and assets, including fleet, spares, inventory and goodwill, that comprise Aggreko's air compressor rental operations in the UK (the Target business). The parties notified the transaction on 15 December 2008, the administrative target date for the OFT's decision is 18 February 2009.

JURISDICTION

As a result of this proposed transaction, Atlas and the Target business would cease to be distinct. According to the parties' estimates, their combined share of the UK supply on rental terms of a specific category of air compressor, oil-free air compressors, amounts to around [30-40] per cent.  On this basis, 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

All of the customers who spoke to the OFT were unconcerned by the merger.

One competitor raised a concern that the merger would create a substantially larger Atlas with the potential to dominate and eventually to extend into that competitor's core market. The market share data and number of alternative suppliers discussed above do not corroborate this view.

ASSESSMENT

The parties overlap in the rental of air compressors that provide pneumatic energy for various types of mechanical processes in industries such as manufacturing, construction, drilling and lifting.

The evidence available to the OFT indicates that there is not appropriate to reach any conclusion on the precise delineation of the relevant product and geographic frames of reference. For the purposes of its assessment therefore, the OFT's analysis focuses on the rental supply of air compressors within the UK.

Based on the parties' calculations for the year 2007, Atlas' share of the supply of overall air compressor rental segment will increase by around [5-10] per cent amount to around [10-20] per cent by value (based on revenue from rental contracts) and by around [0-5] per to around a total of [5-10] cent by volume (based on the number of air compressors in the parties' and their competitors' fleets).

In terms of scale, the merged entity will be the fourth largest player by value (behind Speedy, Coates Offshore and Airpac) and the fifth largest by volume - the number of air compressor units in its fleet amounting one tenth of the total number in Speedy's fleet.

On the basis of the above indications that the merged entity will be constrained going forward by a significant number of larger competitors, the OFT considers that the merger will not give rise to a significant lessening of competition at the horizontal level.

The available evidence also indicates that there is no scope for the merger to have adverse vertical effects as a result of foreclosure of the supply to competing rental companies of air-compressors manufactured by Atlas.

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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