Completed acquisition by the CdMG Group of companies of Ferryways NV and Searoad Stevedores NV

Affected market: Short-sea unitised freight shipping

No. ME/3145/07

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 22(1) given on 24 January 2008. Full text of decision published on 8 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

The CdMG group of companies (CdMG) is controlled by [         ] the Cobelfret group of companies (Cobelfret Group). Cobelfret Group is active in the supply of short-sea unitised freight shipping, including new car transportation, on Anglo-Continental routes. It is also owns or has interests in a number of port facilities both in the UK and on the Continent.

Given the connection between CdMG and the Cobelfret Group, the OFT will treat the companies as associated persons for the purposes of considering this transaction [see note 1].  For the purposes of assessing the relevant market and for the competitive assessment, the term 'Cobelfret' has been used to collectively describe both CdMG and the Cobelfret Group.

Ferryways NV (Ferryways) was active in the supply of short-sea unitised freight shipping. Ferryways' turnover in the UK was approximately £6 million in the last financial year. Searoad Stevedores NV (Searoad) provided stevedore services in Ostend. Searoad had no turnover in the UK. Prior to the transaction, both parties were part of the same group of companies.

TRANSACTION

On 1 June 2007, two special purposes companies, LineCo NV and TerminalCo NV (the Acquiring Companies) purchased Ferryways and Searoad respectively (the Target Business). The Acquiring Companies are both wholly owned subsidiaries of CdMG [see note 2]. 

The parties notified the transaction to the OFT on 28 June 2007 in response to an OFT enquiry letter. The extended statutory deadline is 24 January 2008.

JURISDICTION

As a result of this transaction CdMG and the Target Business have ceased to be distinct. Prior to the transaction the parties overlapped in the supply of short sea unitised freight shipping between ports in the Humber and continental Europe, with a combined share of approximately 30 per cent, meaning the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

A number of third parties suggested that the Target Business was not financially secure prior to the merger, although few third parties could point to actual evidence to illustrate this. Until the OFT obtained an independent Ernst & Young report, completed in November 2007, it was difficult to obtain an independent picture of the financial position of the Target Business prior to the acquisition.

ASSESSMENT

This merger combines two companies active in the supply of short-sea unitised freight shipping between the UK and European ports. However, immediately upon acquiring the Target Business, Cobelfret discovered a number of financial irregularities in the accounts of the business. This set off a chain of events that led to the Target Business quickly ceasing to carry on business.

The OFT considered whether, given these events, it was appropriate to depart from the prevailing conditions of competition as the counterfactual for the competitive assessment, and assess the transaction on the basis that the Target Business would have stopped trading irrespective of its acquisition by Cobelfret. As a matter of policy, the OFT sought a high level of supporting evidence to support this departure from its presumptive counterfactual as it does in all cases involving claims that the merger is not the cause of any lessening of competition.

The OFT examined the allegations made by Cobelfret as to the irregularities in the accounts of the Target Business. While independent third party evidence was initially difficult to obtain, a post-merger independent due diligence report confirmed that there were a number of material financial irregularities within the Target Business. Based on this evidence, the OFT found that the Target Business would have ceased trading irrespective of its acquisition by Cobelfret.

Given sufficient compelling evidence on the chain of events following the transaction, and in particular the loss of loan facilities, port access arrangement, ship charters, and ultimately customers, the OFT also concluded that any effect on competition arising following the merger would have arisen under any reasonable scenario in the absence of the merger, given the financial circumstances of the Target Business and the events subsequent to the merger. As such, the failing firm defence is made out in this case.

Consequently, 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.

NOTES

1. Section 127, Enterprise Act 2002.
2. As part of a separate transaction, RoRoCo NV, part of the CdMG group of companies, purchased certain ships chartered by Ferryways.

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