Completed acquisition by Compagnie Générale de Geophysique (CGG) of Veritas DGC Inc

Affected market: Geophysical/seismic services

No. ME/2745/06

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 22 given on 6 February 2007. Full text of decision published 13 February 2007.

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

Compagnie Générale de Géophysique (CGG) is an international company headquartered in France, active in the supply of a broad range of geophysical information and services to the oil and gas industry. It is also a global manufacturer and supplier of geophysical equipment through its wholly-owned subsidiary, Sercel Inc (Sercel).

Veritas DGC Inc (Veritas) is an international company headquartered in the US, also active as a provider of geophysical information and services to oil and gas companies worldwide (although not active in the manufacture or supply of geophysical equipment). In the year ended 31 December 2005, Veritas' UK turnover was approximately £24 million.

TRANSACTION

The parties entered into an agreement on 4 September 2006, whereby CGG would acquire Veritas in a part cash, part stock transaction. The deal completed on 12 January 2007. The extended administrative deadline is 6 February 2007 and the statutory deadline is 11 May 2007.
 
JURISDICTION

As a result of this transaction CGG and Veritas have ceased to be distinct. The parties overlap in the supply of geophysical (also known as seismic) services and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met as post-merger CGG supplies more than a quarter of all seismic data processing services in the UK . The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

Aside from the vertical issues discussed above, third parties were mostly unconcerned by this transaction. The OFT received a small number of concerns from third parties opining that there would be a reduced choice in the number of seismic service bidders available for contracts which might lead to higher prices and fewer technical options. These are addressed above.

ASSESSMENT

The parties overlap principally in the supply of seismic data acquisition and processing services. CGG is also active in the manufacture and supply of seismic data acquisition equipment through its subsidiary, Sercel.

At the narrowest level of product scope, the OFT considers that seismic data acquisition can be further segmented depending on whether it takes place on-shore or off-shore and also according to the type of data that is acquired (2D or 3D/4D) but that the relevant geographic frame of reference is likely to be global for each segment. Seismic data processing is considered to be an independent product frame of reference but evidence on its relevant geographic scope has been mixed suggesting it may be regional. However, the OFT has not considered it necessary to conclude on exact product or geographic scopes in relation to its assessment of this transaction as the competitive analysis is unchanged whatever definitions are used.

The OFT has focused its analysis on marine seismic data acquisition services as the parties do not overlap in Europe for land seismic data acquisition and there are a number of other large players at the global level. The 2D and 3D/4D marine seismic data acquisition global sectors can be characterised as competitive, as can the supply of seismic data processing services globally, in the North Sea Area and in the UK. In all cases, there are a number of other equally sized suppliers, as well as a fringe of smaller players, to which customers could switch in the event of a price rise by the merged entity. Furthermore, customers, who are typically large sophisticated oil and gas companies with the incentive and resources to ensure that supply remains competitive, may possess a degree of buyer power and regularly switch suppliers. Taken in conjunction with a general absence of third party concerns, the OFT believes that the loss of any competitive constraint on the horizontal level as a result of this transaction will not be significant.

Two third parties were concerned that the merger may result in an incentive for the merged entity to wholly or partially restrict third party access to its seismic data acquisition equipment, in particular, marine equipment, air guns and streamer cables. The OFT therefore found it necessary to consider this issue further to determine whether the merger had created or increased both the ability and the incentive of CGG to undertake a foreclosure strategy. On the basis of evidence provided to the OFT by the parties and third parties (including internal documents, or an absence thereof, and profit margin estimates), the OFT believes that although CGG may already have had some pre-merger ability to foreclose supply (already being a vertically integrated supplier with a degree of market power upstream), no incentive for foreclosure is created or strengthened by the merger. In conclusion, based on the evidence provided to it, the OFT does not have a positive belief objectively justified by relevant facts that the merger will substantially affect competition through a risk of vertical foreclosure.

Consequently, the OFT does not believe 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 not be referred to the Competition Commission under section 22(1) of the Act.

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