Anticipated acquisition by Wienerberger Finance BV of Baggeridge Brick plc

Affected market: Clay bricks

No. ME/2603/06

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 11 December 2006. Full text of decision published 19 December 2006.

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

PARTIES

Wienerberger Finance Service BV (Wienerberger) is a wholly owned subsidiary of Wienerberger AG, a publicly quoted company listed on the Vienna Stock Exchange. Wienerberger is a major international brick maker.

Baggeridge Brick plc (Baggeridge) is a brick maker based in the English Midlands. Baggeridge's turnover during the last accounting year amounted to £50.7 million.

TRANSACTION

Wienerberger is proposing the acquisition of legal control of Baggeridge. The anticipated merger was notified to the OFT on 18 August 2006. The administrative target date for a decision was 8 November 2006.

JURISDICTION

As a result of this transaction, Wienerberger and Baggeridge will cease to be distinct. The parties overlap in the manufacture and supply of clay bricks. The share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met with respect to the parties' combined share of [25-35] per cent of the supply of soft mud bricks in the UK. 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

The OFT sent out questionnaires to 32 third parties.

The majority of respondents did not raise any competition concerns. A minority expressed the view that the transaction would enable the merged entity to compete more vigorously with Hanson and Ibstock. Conversely, another minority raised issues regarding the reduction in competition. Some noted that the transaction inhibiting their ability to negotiate whilst others alluded to possible coordination.

ASSESSMENT

The activities of the parties overlap in respect of the manufacture and supply in Great Britain (GB) of clay bricks.

Non-coordinated effects

The parties' combined GB share of supply is between 20 and 30 per cent, depending on brick type (increment less than [5-15] per cent). The OFT considers that Hanson and Ibstock – whose GB shares of supply are broadly similar to the combined shares of Wienerberger and Baggeridge are capable of posing a sufficient post merger competitive constraint. Both competitors support the parties' submission that excess capacity is available. Comments indicate that switching is generally feasible.

There are two regional overlap areas: the Midlands and West Sussex where there are, respectively, a total of 19 and 11 competing production sites.

Barriers to entry are high and some third parties raised concerns regarding lack of choice and reduction in negotiating opportunity. Comments indicate switching between the larger national players has generally been feasible although hindered in some instances by site location relative to production plant, transport costs and brick type required. Some third parties submit that the transaction will be pro-competitive as it will enable the merged group to compete more vigorously with Ibstock and Hanson.

Taking due account of the above elements, 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 due to non-coordinated effects, either nationally or regionally.

Coordinated effects

Whilst the parties' arguments as to the pro-competitive rationale behind the transaction do have a good deal of merit, for the reasons set out above, the OFT concludes at first phase that competition concerns arise as a result of post-merger tacit coordination on price.

Although the merger may also increase the likelihood of explicit coordination (in particular on price) the position is not clear cut and the OFT does not consider that it is necessary to determine this issue in light of its conclusions in relation to tacit coordination.

Consequently, the OFT believes that it is or may be the case that the merger may be expected to result in a substantial lessening of competition due to coordinated effects within a market or markets in the United Kingdom.

DECISION

This merger will therefore be referred to the Competition Commission under section 33(1) of the Act.

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