Anticipated acquisition by Carillion plc of Alfred McAlpine plc

Affected market: Construction, facilities management services, fleet car hire services, Carillion plc, Alfred McAlpine plc

No. ME/3457/07

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 and decision.

The OFT's decision on reference under section 33(1) given on 8 February 2008. Full text of decision published on 19 February 2008.

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

PARTIES

Carillion plc (Carillion) is a provider of construction and various building-related maintenance and facilities management (FM) services. It is active in a wide range of areas within the UK including the construction and FM of commercial and defence buildings, hospitals, and road and rail infrastructure. It also provides a fleet car hire (FCH) and management service. For the year ending 31 December 2006 Carillion's UK turnover was approximately £2.8 billion.

Alfred McAlpine plc (McAlpine) is a provider of construction, FM and civil engineering services. McAlpine's construction and FM activities include commercial buildings, rail and road infrastructure, water and other utilities, and government-owned buildings. McAlpine also provides maintenance and renewal services to the utilities sector and a number of IT services. Moreover, McAlpine provides fleet car hire and management services in the UK and supplies slate for aggregates, roofing and architectural products. For the year ending 31 December 2006, McAlpine's turnover in the UK was over £1 billion.

TRANSACTION

On 10 December 2007 Carillion and McAlpine announced that they had reached agreement on the terms of a recommended proposal whereby Carillion would acquire the entire share capital of McAlpine. McAlpine's shareholders voted in favour of this arrangement on 21 January 2008. The total consideration for the acquisition will be around £570 million.

Carillion notified the Office of Fair Trading (OFT) of this merger on 21 December 2007 and the OFT's administrative target date to announce a decision is 20 February 2008.

JURISDICTION

The EC Merger Regulation (Regulation 139/04; ECMR) does not apply because each party achieves more than two-thirds of its EC-wide turnover in the UK, thus meeting the two-thirds rule in Article 1(3) ECMR.

As a result of this transaction Carillion and McAlpine will cease to be distinct. The UK turnover of McAlpine exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied.

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

No third parties raised competition concerns with the OFT about this merger.

In respect of construction services, customers generally told the OFT that there was sufficient choice within the marketplace for them to select a competitive provider of construction services.

In relation to FM services, some customers said that they award contracts via a competitive tender and enjoy a degree of countervailing buyer power.

In relation to FCH services, customers told the OFT that the marketplace was competitive. Customers and competitors named a number of credible, in some cases much larger, rivals including Lex, ALD, Lloyds, Arval and Lombard.

ASSESSMENT

The parties overlap in a wide range of construction activities. The OFT has not found it necessary to conclude on the scope of the product market in this case since the outcome of its competition assessment does not vary according to the product market definition used.

Regardless of how construction activities are measured, after the merger Carillion's share of supply will, with two exceptions, be low. In the North East and East Midlands, Carillion's share of infrastructure work post-merger will be relatively significant ([25-35] per cent and [15-25] per cent respectively) but bidding information submitted by the parties indicate that Carillion and McAlpine have not been particularly close competitors, including in these two regions of the country. The OFT therefore considers that any loss of competition arising from this merger will not be substantial. Nor does the OFT consider that the merger will create or strengthen coordinated behaviour within the industry.

Customers are unconcerned about the impact of this merger on construction services, and sufficient choice will remain from large, established construction firms like Balfour Beatty, Skanska, Bovis Lend Lease, Laing O'Rourke and Sir Robert McAlpine to offset any loss of competition arising from this merger.

After the merger, Carillion will not account for a high share of supply in FM services. Bidding information from the parties indicate that they have not been close competitors and customers are unconcerned. After the merger a considerable number of rivals will remain to offer customers choice and act as a competitive constraint on Carillion.

The parties presented to the OFT a ranking of the top 20 FCH contract hire companies in the UK (by fleet size). Neither of the parties featured in this list, and after the merger Carillion will have a fleet of around 17,500 cars (Lex, the market leader, has a fleet size of about 260,000 cars) and will account for less than [0-5] per cent of total supply.

The parties also submitted that the large majority (around 80-90 per cent) of their fleets are used for internal purposes.

The parties were not aware of any instance in which they competed against each other for the same customer contract.

In light of the above, 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 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.

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