Anticipated acquisition by FirstGroup plc of Truronian Limited

Affected market: Local bus services in Cornwall

No. ME/3533/08

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 28 March 2008. Full text of decision published on 11 April 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

First Devon and Cornwall Limited (First) is a wholly owned subsidiary of FirstGroup plc, a publicly owned company listed on the London Stock Exchange. FirstGroup plc operates public transport businesses in the UK and US.

Truronian Limited (Truronian) operates commercial and tendered bus services and other related transport services in central Cornwall. Truronian is a private limited company. Truronian's turnover in the financial year ending 30 September 2006 was £7.83 million.

TRANSACTION

First will purchase the entire issued share capital of Truronian. The parties notified the transaction to the OFT by way of a Merger Notice on 13 February 2008. The OFT's extended statutory deadline for deciding whether to refer the transaction to the Competition Commission (CC) is 28 March 2008.

JURISDICTION

As a result of this transaction First and Truronian will cease to be distinct.

The parties overlap in the supply of commercial and tendered local bus services in Cornwall, which the OFT considers to be a substantial part of the UK. The parties' combined share of supply of commercial and of tendered local bus services in this area exceeds 25 per cent. Therefore, 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 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 received three written responses to its questionnaires on the transaction, one from Cornwall CC and two from associations of bus users. The OFT also contacted Cornwall CC and a number of the parties' competitors by telephone. The majority of third parties expressed little or no concerns with the proposed transaction. In relation to tendered services in particular, Cornwall CC did not consider that the transaction raised any major issues. Any concerns that were expressed by third parties have been addressed above.

ASSESSMENT

First and Truronian overlap in the operation of commercial and tendered bus services in Cornwall. In addition, First also runs the Great Western passenger rail franchise. In line with previous cases, the OFT has in its examination of the merger distinguished between tendered bus services in Cornwall and individual flows in commercial services.

In relation to tendered services, there are currently 20 bus operators active in this area, in addition to First and Truronian. A total of 10 different operators (including First and Truronian) won at least one contract in the four rounds of tenders organised by Cornwall CC between 2005 and 2007. Data relating to these tenders show that the parties competed against each other in only [ ] out of 48 tenders. In [ ] of these [ ] tenders, the parties faced competition from at least one other operator. Their combined success rate in tenders where they both participated was high, [ ]. In the other [ ] tenders, the parties were the only bidders. On the basis of this bidding data, the OFT cannot exclude that the transaction raises competition concerns in relation to tendered bus services.

The parties overlap in the provision of commercial services on six flows. On four of the six flows the parties face no competition from other operators at present. On all four of these flows, the OFT found that the overlap is limited to short sections of a route or involves only a small proportion of the total number of passengers on the entire route (less than 10 per cent of the total number of passengers on the route in each case). On two of the four flows, the OFT also found evidence that the parties are not particularly close substitutes, because of the differences in frequencies between their respective services. On the two remaining overlap flows (where the parties face competition from Western Greyhound, Hopleys Coaches and Summercourt), the evidence before the OFT showed that the parties may be only competing against each other to a limited extent, because of differences in the frequency of the services provided. However, the fact that the parties may be close competitors on some flows, including some flows where they face no alternative operator, means that the OFT cannot confidently rule out completely the possibility of competition concerns arising.

In relation to the overlaps between First's commercial and Truronian's tendered services, the OFT received robust evidence that the parties are not effective competitors on most of the flows and that the overlap in each case represents only a short section of a longer route. However, there remains a residual number of overlaps where the parties may be close competitors and therefore the OFT has not been able to exclude completely the possibility of potential competition concerns arising.

The OFT considered whether the prospects and incentives for entry or expansion are sufficient to address any residual concerns relating to the overlaps between the parties' commercial services and certain overlaps between First's commercial and Truronian's tendered services.

The evidence before the OFT showed that there are no major barriers to entry and expansion in relation to the provision of local bus services in Cornwall. The OFT found evidence of several instances of entry and expansion of services in the recent past, some in direct competition with First, as well as evidence of likely potential entry in the near future. Moreover, the OFT found no credible evidence of First deterring entry or expansion in Cornwall through predatory or retaliatory practice in the past. The OFT considers that these findings on ease of entry and expansion are sufficient to address any competition concerns arising from the reduction in the number of bidders for tendered services, from the two-to-one commercial service overlaps and from the overlaps between First's commercial and Truronian's tendered services.

In relation to the overlaps between First's rail and Truronian's local bus services, the OFT was able to conclude on the basis of the evidence available that no competition concerns arise. Customers would not regard these modes of transport as being effective competition in relation to the overlaps identified.

The vast majority of third parties expressed little or no concerns about the proposed merger.

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.

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