Completed acquisition by the Co-operative Group (CWS) Limited of Fairways Group UK Limited

Affected market: Funeral directing services

No. ME/2421/06

The OFT's decision accepting a variation to undertakings given by the Co-operative Group (CWS) Limited to the Office of Fair Trading pursuant to section 73 and Schedule 10 of the Enterprise Act 2002, given on 1 October 2007. Full text of decision published on 5 October 2007.

PARTIES

Co-operative Group (CWS) Limited (CGL) is active in food retail, pharmacy, banking, travel agency and optical services. CGL is also active in the supply of funeral directing services through its Funeralcare business. Funeralcare is also active in the manufacture of coffins and the wholesaling of funeral accessories such as gowns, coffin liners and ornamentation. Funeralcare operated 602 funeral businesses across the UK and conducted 81,000 funerals in 2005.

Fairways Group UK Limited (Fairways) supplies funeral directing services. It had 49 funeral businesses located across southern England, principally in East Anglia, Hampshire and South West London. It conducted 5,400 funerals in 2005, generating a UK turnover of £14 million.

TRANSACTION

On 24 March 2006, CGL purchased 86 per cent of the issued share capital of Fairways, thereby acquiring de jure control of Fairways (the remaining shares are held by individual directors).

JURISDICTION

As a result of the transaction CGL and Fairways ceased to be distinct. The parties overlapped in the supply of funeral directing services in the UK. The parties' combined share of supply in a number of different areas in Southern England which (the parties submitted) together constituted a substantial part of the UK was 26 per cent. As a result, the share of supply test in section 23 of the Enterprise Act 2002 (the Act) was met. The OFT therefore believed that it is or may be the case that a relevant merger situation had been created.

BACKGROUND

By way of a decision of 19 July 2006 [pdf 145 kb] (the Decision) the OFT announced that, on the evidence available to it, the OFT believed that it is or may be the case that the merger had or may be expected to result in a substantial lessening of competition in relation to the supply of funeral services in five local areas: Southampton, New Forest, Eastleigh, Woking and Wychavon.

The OFT suspended its duty to refer the transaction to the Competition Commission under Section 22 of the Enterprise Act 2002 because it was considering whether to accept appropriate undertakings from CGL in lieu of reference.

CGL offered to give undertakings to divest a number of funeral homes in these five local areas to an approved purchaser or purchasers to remedy the concerns identified as arising from the merger.

On 29 November 2006, following a consultation process, the OFT decided to accept the proposed undertakings in lieu of reference to the Competition Commission (the Original Undertakings), as it considered that they addressed the competition concerns identified in its Decision.

Download a copy of the Original Undertakings (pdf 112 kb).

REQUEST FOR VARIATION

On 21 May 2007, CGL requested that the OFT vary the Original Undertakings, pursuant to sections 73 and 92 of the Act, in light of a change of circumstances in the local area of Wychavon which was one of the areas that were the subject of the Original Undertakings. The parties submitted that new entry into the Wychavon area removed the competition concerns identified in the OFT's Decision. The parties therefore requested that the Original Undertakings be varied to remove the obligation to divest the CGL funeral business in Wychavon (listed as Philip Tomlins, 9047, WR11 3AP in Annex 1 of the Original Undertakings).

ASSESSMENT OF THE CHANGE IN CIRCUMSTANCES

In September 2006, a new entrant commenced trading as Alexander Burn Ltd providing funeral services in the Wychavon area. The parties submit that the new entrant has considerable experience in the funerals sector, possesses significant local connections and is likely to continue to expand his business in Wychavon over the foreseeable future. This was confirmed by third parties.

Based on the evidence available, the OFT considers that this new entry is sufficient to restore the conditions of competition to that which existed prior to the merger between CGL and Fairways. In particular, not only does this new entry restore the number of competing funeral homes to three, it also results in a similar distribution of competitor shares of supply (as measured by share of funerals) to that which prevailed pre-merger.

Consequently, the OFT is satisfied that competition has been restored in the Wychavon area by virtue of new entry. Therefore, the OFT considers that divestment of the former Fairways funeral business in Wychavon is no longer necessary to achieve this restoration of competition.

THIRD PARTY VIEWS

Following a consultation process ending on 31 August 2007 pursuant to Schedule 10 of the Act the OFT did not receive any responses that raised concerns about the proposed variation to the Original Undertakings.

DECISION

The OFT hereby accepts the variation to the Original Undertakings given by CGL as, based on the evidence available, new entry has been sufficient to restore the conditions of competition to that which existed prior to the merger between CGL and Fairways.

Download a copy of the variation to the Original Undertakings (pdf 51 kb).

This variation will take effect from the date of this decision. The Original Undertakings shall continue to apply other than as amended by this variation.

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