Completed acquisition by Bucher Industries AG of Johnston Sweepers Limited

Affected market: Street sweeping equipment

No. ME/1563/05

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, assessment and decision.

The OFT's decision on reference under section 22(1) given on 6 April 2005. Full text of decision published 22 April 2005.

Please note square brackets indicate information replaced by a range at the request of the parties for reasons of commercial confidentiality

PARTIES

Bucher Industries AG (Bucher), a company incorporated in Switzerland, is principally active in the manufacture of agricultural and industrial machines, including sweepers used in the provision of road cleaning and maintenance services. Johnston Sweepers Limited (Johnston) is a UK company active in the production of a comprehensive range of outdoor surface cleansing equipment, including sweepers, street-washers and litter collection vehicles.

TRANSACTION

Bucher has acquired the entire issued share capital of Johnston (see note 1). The proposed transaction was notified to the OFT in the form of a Merger Notice dated 18 February 2005. The extended statutory deadline was 5 April 2005. However, on 31 March 2005 Bucher notified the OFT that it had completed the acquisition of Johnston on that date.

JURISDICTION

As a result of this transaction, Bucher and Johnston have ceased to be distinct. Johnston's UK turnover does not satisfy the turnover test in section 23(1)(b) of the Enterprise Act 2002. However, the parties' overlap in the supply in the UK of truck-mounted sweepers and the merger would lead to a combined share of supply of [50-65] per cent – an increment of 1.4 per cent. The share of supply test in section 23 of the Act is consequently met. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

ASSESSMENT

The parties overlap in the supply of sweepers: principally vehicular (see note 2) machines used in street-cleansing. Sweepers are categorised according to size, capacity etc. into four main segments: sub-compact, compact, mid-size and truck-mounted.

Johnston's UK shares of supply indicate that it enjoys market power over its customers, at least in the supply of mid-size and truck-mounted sweepers. [Remainder of paragraph deleted at notifying party's request].

Bucher has been present with varying success in the UK for 13 of the past 15 years; between 1998-2001 accounting for some 10-15 per cent of the UK market. The termination of its contract with its UK distributor in 2003 culminated in its departure as an active supplier in the UK. However it has maintained a UK servicing agent through which it has continued to make marginal sales.

Internal documents produced by Bucher clearly indicate its intention [extract redacted at notifying party's request]. Johnston's internal documents [extract redacted at notifying party's request].

The OFT believes therefore that Bucher is exercising a competitive constraint on Johnston. Bucher's stated intention of re-entering the UK market in the supply of sub-compact, compact, mid-size and truck-mounted sweepers is credible given that it is the leading player in Europe; has a strong brand; and has had past success within the UK. It is reasonable to expect that Bucher would have the incentive and resources to achieve market entry and so become a much more effective competitor to Johnston in the near future. Other firms not already active in the UK, are not comparable challengers to Johnston's market power in the UK. Consequently, there is a realistic prospect that the proposed merger would give rise to a reduction in the potential for increased competition within the UK in the near future, particularly in the supply of truck-mounted sweepers.

The majority of customers are unconcerned by the merger although some did have reservations regarding the general competitiveness of the market and also as to the impact of the proposed merger on Johnston's product range. However, these customers would be unaware of Bucher's intentions of re-entering the UK market and the potential for an increase in competition and choice that would result.

In sum, the proposed merger would combine the market leader in the UK with its biggest EU competitor and – as evidenced by Bucher's and Johnston's own internal documentation – a potential competitor in the UK in the near future. It is unclear as to (a) whether current competitors in the UK could either compensate for the loss of potential constraint from Bucher or pose sufficient on-going competitive challenges to Bucher/Johnston post-merger and (b) whether any other potential entrants to the UK could provide effective competitive constraint on the merged entity. 

It is difficult to quantify the loss of potential competition which would result from the transaction in the supply of compact and mid-size sweepers.  However, the OFT believes that the combined loss of actual and potential competition which would result from the transaction in the supply of truck-mounted sweepers in the UK is substantial.

Consequently, the OFT believes that it is or may be the case that the merger has resulted or 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 be referred to the Competition Commission under section 22(1) of the Act.

NOTES

1. This excludes Johnston's North American subsidiaries in Canada (Johnson Madvac inc) and in the US (Johnston Sweeper Company). Both these subsidiaries have been subsumed into the Johnston Group through a contract entered into prior to Bucher's agreement to purchase Johnston Sweepers.

2. The exception being the smallest 'sub-compact' category of sweeper which is guided by a human operator on foot.

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