Completed acquisition by Inchcape plc of European Motor Holdings plc

Affected market: Car dealerships

No. ME/2869/07

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, undertakings in lieu and decision.

The OFT's decision on reference under section 22(1) given on 26 March 2007. Full text of decision published 16 April 2007.

Please note that 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

Inchcape plc (Inchcape) is an international automotive services group, primarily active in the import, distribution and retail of new and used motor vehicles and the provision of financial services. In the UK, Inchcape is also active in the provision of fleet solutions, services and maintenance. It operates 117 franchises for a range of motor vehicle marques in the UK, including Toyota/Lexus, BMW, Mercedes-Benz, Volkswagen (VW), Jaguar and Land Rover.

European Motor Holdings plc (EMH) operates 52 motor vehicle retail franchises in the UK, representing a wide range of motor vehicle marques including Audi, BMW, VW, Bentley, Jaguar, Land Rover and Volvo. Dealerships offer sales of new and used cars, light commercial vehicles, parts, servicing and repairs.

TRANSACTION

Inchcape acquired the entire issued share capital of EMH. The transaction completed on 29 January 2007. The 40 day administrative deadline expires on 26 March 2007. The 45 day statutory deadline expires on 30 March 2007.

JURISDICTION

The aggregate Community-wide turnover of each of the parties exceeds €250 million and the parties combined aggregate worldwide turnover exceeds €5,000 million. While EMH achieves its entire turnover in the UK, Inchcape achieves 66.55 per cent of its Community-wide turnover (excluding Bulgaria and Romania ) in one Member State (the UK). Therefore, the undertakings concerned do not each achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State, as envisaged by Art. 1(2) of the EC Merger Regulation  (ECMR). The concentration therefore meets the requirements of a Community dimension pursuant to Art. 1 (2) ECMR.
 
On 21 December 2006, the parties notified this transaction requesting its referral to the UK pursuant to Art. 4(4) ECMR. On 26 January 2007 the Commission agreed to the Art. 4(4) request from which date the OFT assumed jurisdiction.

As a result of the transaction, the parties have ceased to be distinct. The UK turnover of EMH was approximately £755 million  for the financial year ending 30 February 2006. The turnover test pursuant to Section 23(1)(b) of the Enterprise Act 2002 ('the Act') is therefore satisfied. The OFT believes therefore that a relevant merger situation under Section 23(1) of the Act has been created.

THIRD PARTY VIEWS

Customers who responded were generally in agreement that independent garages did not effectively constrain authorised dealerships for the servicing of cars under the three-year warranty. The concern that the transaction would give Inchcape a national share in authorised VW dealerships of 12 to 13 per cent, is dealt with above. It has also been put to the OFT that Inchcape would, post-merger, hold a strong position in authorised VW dealerships in the North West of England. This area is covered by the local isochrone analysis under horizontal issues.

ASSESSMENT

The parties overlap in the sale, servicing and repair of new, nearly new and used cars and lcvs in the UK. However, the OFT believes that competition concerns only arise in respect of the supply of servicing for nearly new and used cars and lcvs at a local level.
 
In line with the OFT's findings in Pendragon/Reg Vardy the OFT believes that for the servicing and repair of nearly new cars (that is within the three-year warranty) independent garages do not generally provide an effective constraint on competition in the local overlap areas identified above and has therefore not included independents in the product scope.

On that basis, local areas were identified by a circle around each dealership with a radius representing the area from which approximately 80 per cent of customers from that dealership travelled for servicing. These were subject to the specific local overlap analysis set out in more detail above. The OFT has established a duty to refer in respect of the catchment area around Inchcape Oswestry and EMH Wrexham, as this area gives rise to a two to one facia reduction in the supply of servicing and repair of nearly new cars. In light of this duty, and the remedy proposed to resolve concerns, discussed below, it is not necessary in these circumstances to reach a view on any issues raised in respect of servicing of used cars in this area.

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.

However, as explained below, on the information currently available, the OFT has decided to exercise its discretion under section 73(2) of the Act to negotiate undertakings in lieu of reference.

UNDERTAKINGS IN LIEU

Where the duty to make a reference under section 22(1) of the Act applies, pursuant to section 73(2) of the Act the OFT may, instead of making such a reference, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned or any adverse effect which has or may have resulted from it or may be expected to result from it, accept from such of the parties concerned undertakings as it considers appropriate.

The OFT has therefore considered whether there might be undertakings in lieu of reference which would address the competition concerns outlined above. The OFT's Mergers Substantive Assessment Guidance states that, 'undertakings in lieu of reference are appropriate only where the competition concerns raised by the merger and the remedies proposed to address them are clear cut, and those remedies are capable of ready implementation.' (para 8.3).

Inchcape has offered an undertaking with a view to remedying the realistic prospect of a substantial lessening of competition identified as a result of the merger in the reduction of fascia from two to one within the relevant 20 mile catchment area around the Inchcape Oswestry dealership for the supply of servicing and repair of nearly new cars and lcvs. In order to solve competition concerns in this area, Inchcape has offered to divest the authorised VW dealership of either Inchcape Oswestry or EMH Wrexham.

The OFT believes that the undertaking offered is capable of clearly addressing the competition concerns arising in the local area identified above, as it covers divestment of one of the dealerships that the OFT considers necessary to fully address the adverse effect on competition arising from the merger.

Accordingly, on the information currently available, the OFT has decided to exercise its discretion under section 73(2) of the Act to negotiate undertakings in lieu of reference.

DECISION

The OFT's duty to refer the completed acquisition by Inchcape of EMH to the Competition Commission pursuant to section 22 of the Act is suspended because the OFT is considering whether to accept undertakings in lieu of reference under section 73 of the Act. However, pursuant to section 34A(3) of the Act this decision does not prevent the OFT from making a reference in the event that no such undertakings are offered or accepted.

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