Anticipated acquisition by CRH plc of Ancon Limited UK

Affected market: Anchoring products for use in construction

No. ME/3563/08

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 30 April 2008. Full text of decision published 15 May 2008.

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

PARTIES

CRH plc (CRH) is headquartered in the Republic of Ireland and is the holding company for a number of subsidiaries involved in the production and distribution of a wide range of building materials and products, including cement, aggregates, asphalt, agricultural and chemical chalk, pre-cast concrete (including flooring, pavement tiles and roofing), ventilation products and drainage pipes. It also manufactures and distributes anchoring products for building support and affixing construction elements to each other. The relevant CRH subsidiary companies for this case are Forsite Limited (Forsite) and Halfen (UK) Limited (Halfen), the latter of which trades under the brand names of Halfen, Deha, Frimeda and Kwikastrip.

Ancon Limited UK (Ancon) is a part of the Ancon Group of companies and is a wholly owned subsidiary of Tyco International Group Limited. Ancon manufactures and supplies a variety of anchoring, restraint and fixing products for use in the construction industry. Its UK turnover in 2007 was around £38 million.

TRANSACTION

A Sale and Purchase Agreement was signed on 27 February 2008 for the acquisition by CRH of the entire issued share capital of the Ancon Group of companies which includes companies located in Australia, Austria, Germany, Switzerland, the United Arab Emirates and the UK. The agreed consideration was £88 million (subject to adjustments). This decision only relates to the UK aspects of the deal – that is, the acquisition of Ancon.

The transaction was also notified to competition authorities in the Republic of Ireland, Germany and Austria. Clearance has been received in each of these jurisdictions.

JURISDICTION

As a result of this transaction CRH and Ancon will cease to be distinct. The parties overlap in the supply of various anchoring products for use in the construction industry and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met in relation to the supply of several construction accessory products. [see note 1]
 
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 undertook extensive questioning of third parties in this case, approaching over fifty customers and competitors combined through a written questionnaire or by telephone.

All four competitors that responded were concerned by the high market shares the company would have post-merger. However, of the ten customer responses, the majority were unconcerned, indicating a range of alternative suppliers. Of those that were concerned, one mentioned a loss of business if the merged entity decided not to use third parties distributors (such as builders' merchants). However, the evidence before the OFT indicates that other suppliers in each of the product categories will remain after the merger. Also, the parties have different routes to market with the bulk of CRH's products being supplied directly to construction firms. Therefore, the merger effect in terms of its impact on distributors will be relatively small.

Another customer was concerned about the loss of customer choice following the merger. However, as reflected above, the OFT believes that a sufficient number of competitors will remain in all product categories.

ASSESSMENT

The parties overlap in the manufacture and supply of 14 individual reinforced and non-reinforced anchoring products for use in the construction industry. Given insufficient evidence to aggregate the products into broader product groups the OFT has taken a cautious approach and assessed the merger at the narrower level of the supply of each product separately.

For eight of these 14 products (listed in paragraph 60 above) competition concerns arising from the proposed merger were dismissed on the basis that the parties together hold a small share of supply and/or the increment from the proposed merger is small.

For the remaining six products, shares of supply are higher. However, in the supply of bar couplers the parties will become only the third largest supplier following the merger. In brickwork support, windposts, cast-in channels and re-bend reinforcement significant competitors, none of whom have indicated capacity constrains, will continue to provide an effective competitive constraint; in each case this constraint, measured by share of supply, is stronger than the increment associated with the merger. In the supply of masonry restraint channels, for which the parties' share of supply is significantly higher, the increment is notably low and significant competitors remain post-merger to provide sufficient choice for customers.

Given the competitive tendering process that characterises industry supply, the share of supply data highlights that significant competitors will remain to bid against the parties after the merger in the supply of the products. Furthermore, bidding data submitted by the parties indicate that they have bid against each other on only a limited number of occasions and therefore have not been particularly close competitors.

There is some evidence of recent entry into the industry for most of the six remaining overlapping product groups. Third party competitors have told the OFT that they are not capacity constrained and could increase production in the response to customer demand after the merger. There is also some evidence, although not conclusive, of countervailing buyer power, with customers negotiating significant discounts. Although the evidence suggests that barriers to entry are probably low and that some customers do have countervailing buyer power, the OFT has not found it necessary to conclude on entry or buyer power given the lack of substantive competition concerns.

The OFT has obtained no evidence to suggest that the proposed merger would create or strengthen coordinated behaviour in the industry.

While concerns were raised by all competitors, few customers raised concerns. In view of the fact that these concerns are either non-merger specific or relate to horizontal or vertical concerns precluded by the OFT's analysis, 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 33(1) of the Act.

NOTE

1. Those meeting the share of supply test include brickwork support systems, wall ties, masonry restraint channels, windposts, cast-in channels, re-bend reinforcements, shear dowels and balcony connection systems.

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