Proposed acquisition by Jarvis plc of Fastline Group Limited

No. JARV01

Review of undertakings in lieu of reference to the Monopolies and Mergers Commission to address competition concerns arising from the proposed acquisition by Jarvis Plc of Fastline Group Limited

In this submission the OFT advises under section 75(J) of the Fair Trading Act 1973 (the FTA) on the above review of undertakings.  We recommend that you should release Jarvis plc (Jarvis) from these undertakings.

TIMING

Routine.

TRANSPARENCY

We propose to publish this advice following the announcement of your decision.

On 30 September 1997, the then Director General of Fair Trading advised the then Secretary of State for Trade and Industry that the proposed acquisition by Jarvis of Fastline Group Limited (Fastline) (the Merger) should be referred to the Monopolies and Mergers Commission (now the Competition Commission) unless Jarvis gave suitable undertakings to address the competition concern arising from the Merger. 

The Merger resulted in Jarvis owning over half of the plain line tampers, switch and crossing tampers and ballast regulators in the UK.  Access to this railway equipment was necessary for infrastructure maintenance contractors (IMCs) - of which Jarvis was one - wishing to compete for infrastructure maintenance contracts.  The competition concern was that, in the short to medium term, IMCs seeking to compete against Jarvis for these contracts might not have adequate access to such equipment.

On 12 February 1998, on the advice of the Director General of Fair Trading, the Secretary of State for Trade and Industry accepted from Jarvis undertakings in lieu of reference to address the above competition concern (the Undertakings).

The main provisions of the Undertakings required Jarvis to set up a separate company for the hire of a specified list of plain line tampers, switch and crossing tampers and ballast regulators to be operated on an arm's length, non-discriminatory basis.

POST UNDERTAKINGS ACTION

Network Rail is responsible for ensuring the maintenance of the railway infrastructure in Great Britain.  In the past, it has contracted with seven IMCs to ensure that this work is carried out.  On 24 October 2003, Network Rail announced that it was terminating its infrastructure maintenance contracts with all IMCs and would be conducting all railway maintenance work in-house.  Network Rail expects that this will be achieved by August this year.  As a result, the IMCs are in the process of transferring their railway maintenance staff to Network Rail.  The transfer of Jarvis's staff was completed on 31 March this year.
 
As Network Rail does not intend to outsource maintenance contracts, there will no longer be any competition for such contracts.  This removes the competition concern which led to the Undertakings being sought.  Network Rail will continue to need to hire from third parties the railway equipment necessary to carry out infrastructure maintenance work itself.  However, information provided by Jarvis indicates that since 1998 use of its plain line tampers, switch and crossing tampers and ballast regulators in the UK has decreased from 50-60 per cent (see note 1) to 25-35 per cent (see note 1).   Third party comments received by the OFT confirm this and also suggest that since 1998 the supply of these machines has become more competitive, as the number of suppliers has increased.  Moreover, neither Network Rail nor the Office of the Rail Regulator has raised any objections to releasing Jarvis from the Undertakings.   

Given the change in circumstances in the market since the Merger, notably that there will no longer be any competition for infrastructure maintenance contracts, the Undertakings are no longer required.

CONCLUSION

The OFT therefore concludes and recommends that you should formally, under Section 75(J) of the FTA, release Jarvis from the Undertakings given on 12 February 1998.

NOTES

1. Exact figure replaced by a range at Jarvis' request.

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