Anticipated acquisition by Elster Group GMBH of the water meter and boundary box businesses of Severn Trent Metering Services Limited

Affected market: Residential water meters and water meter reading technology

No. ME/4069/09

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, jurisidction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 29 April 2009. Full text of decision published 28 May 2009.

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

PARTIES

Elster Group Gmbh (Elster) is a CVC Capital Partners portfolio company and is primarily focused on the manufacture and supply of integrated metering and utilisation solutions for the gas, electricity and water industries. In the UK, Elster is active in the design, manufacture and sale of water meters, electricity meters, gas meters and gas utilisation. The Group's UK turnover in 2008 was [  ] million, [  ] million of which was derived from water metering.

Severn Trent Metering Services (STMS) is a subsidiary of Severn Trent plc. STMS specialises in water technology and its core business is the design, manufacture and supply of residential water meters and boundary boxes to water utility customers. Elster is proposing to acquire the water meter and boundary box assets of Severn Trent Metering Services (Target Assets). The UK turnover of the Target Assets in the financial year ended 31 March 2008 was [  ] million.

TRANSACTION

On 4 March 2009 Elster announced its proposed acquisition of the Target Assets by an Asset Purchase Agreement concluded between Elster Meter Limited (EML), a wholly-owned subsidiary of Elster Holdings UK Limited (and ultimately Elster) and Severn Trent Services, a member of Severn Trent plc on 27 February 2009. The OFT received a satisfactory submission by the parties on 2 March 2009 and the administrative deadline is 29 April 2009.

JURISDICTION

As a result of this transaction Elster and the Target Assets will cease to be distinct within the meaning of section 26(1) of the Enterprise Act 2002 (the Act). The share of supply test in section 23 of the Act is met as the parties' combined share in the supply of residential water meters in the UK exceeds 25 per cent. 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 views have been discussed above where appropriate. Third parties largely confirmed the account of the market expressed by the parties in the submission. No third party customers or competitors expressed concern about the transaction, with the exception of [  ].

ASSESSMENT

The parties overlap in the supply of water meters and AMR technology in the UK.

For the purposes of its assessment, the OFT analysed the merger on the basis of the supply of water meters and, separately on automated meter reading ("AMR") technology in the UK. In doing so, the OFT considered the specific concerns of [  ]. The OFT did not find it necessary to conclude on the scope of the relevant product and geographic markets since the outcome of its competition assessment does not vary according to the market definitions used.

The merger will reduce the number of market participants supplying water meters and AMR technology from six to five. The OFT is satisfied that the merger will not result in any unilateral effects in respect of the supply of water meters as the increment in market shares is very small and the evidence suggests that the parties are not each others' closest competitors. In respect of AMR technology, the OFT has found that this is still a developing market in the UK and that since all current water meter competitors have developed AMR technology (as well as additional competitors that can provide AMR radio frequency technology going forward) there will be no unilateral effects arising out of the merger.

In respect of [  ] the OFT considered that even though there could be some impact on competition, this would not be substantial in both time and scope. However, the OFT did not need to reach a definitive conclusion on this issue as - even if the duty to refer were triggered - the OFT would apply its discretion under section 33(2)(a) not to refer the merger to the Competition Commission given the very small size of the affected market in this instance.

The OFT's market investigation did not generally reveal any concerns in respect of the merger from water utility companies, with the exception of [  ].

In light of the above, 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 pursuant to section 33(1) of the Act.

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