Completed acquisition by BAE Systems plc of a 28.95% stake in Alvis plc

Affected market: Defence equipment

No. ME/1391/03

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 22 given on 21 November 2003.

PARTIES

BAE SYSTEMS plc (BAE SYSTEMS) is active in the development, production and support of advanced defence and aerospace systems in the air, at sea and on land.

Alvis plc (Alvis) designs and manufactures defence and other specialised vehicles and systems for military applications. In 2002 Alvis acquired Vickers Defence Systems. In the year to 31 December 2002 Alvis had a UK turnover of £46 million.

TRANSACTION

In 1998 Alvis acquired GKN's armoured vehicles division as a result of which GKN took a 28.95 per cent shareholding in Alvis.  BAE SYSTEMS have now acquired this shareholding. The transaction completed on 2 September 2003.

The transaction was notified by BAE SYSTEMS on 25 September 2003.  The 40 working day deadline expires on 24 November and the statutory deadline 1 January.

JURISDICTION

As a result of this transaction, BAE SYSTEMS and Alvis have ceased to be distinct by virtue of section 26 of the Enterprise Act 2002 (the Act), since, in the OFT's view, the 28.95 per cent shareholding acquired confers on BAE SYSTEMS the ability materially to influence the policy of Alvis. The parties overlap in the supply of prime contractor services for the design, manufacture and supply of armoured vehicles and associated systems.  The share of supply test in section 23 of the Act appears likely to be met.  Thus a relevant merger situation has been created.

ASSESSMENT

BAE SYSTEMS has acquired a 28.95 per cent shareholding in Alvis which the OFT believes will confer on BAE SYSTEMS the ability materially to influence the policy of Alvis for the purposes of section 26 of the Act.  The transaction qualifies on the share of supply test under EA02 and therefore a relevant merger situation has been created. The relevant frames of reference are: the global supply of prime contractor services and; the global supply of associated weapon systems.

Post-merger the parties' behaviour is likely to continue to be constrained by: the competitive tendering process; the degree of international competition; the existence of spare capacity in the market; the effect of the 2000 undertakings given by BAE SYSTEMS; and the countervailing buyer power of the MoD.

The OFT does not believe, therefore, that it is or may be the case that the creation of the relevant merger situation has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom for goods or services.

DECISION

This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

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