7/09    29 January 2009

The OFT has decided not to refer the anticipated acquisition of Lochard Limited by Spectris plc to the Competition Commission.
 
Spectris (through its subsidiary Brüel and Kjær) and Lochard are providers of noise management services to airports in the UK, which involves the monitoring, control and mitigation of noise from aircraft.

The OFT found that the merger would potentially result in a substantial lessening of competition, as it would combine two of the three leading providers of airport noise management services in the UK. However, given the size of the market and the likely relatively limited impact of the merger, the OFT has exercised its 'de minimis' discretion, which allows the OFT not to refer a merger to the Competition Commission where the value of the relevant market in the UK is of insufficient importance to justify a reference. In doing so, the OFT relied in particular on the following two considerations:

• The total size of the market for the provision of airport noise systems and maintenance in the UK is less than £1million per annum. The OFT considered whether to include hosting and operation services in its market size calculation because while historically these additional services have typically been provided in-house by airport operators, Lochard has recently started providing these services to its largest UK customer. Adding the value of these services, however, would only increase the total market size to approximately £1.4 million. The OFT also considered whether to take possible future growth in this area into account. However, even if the hosting and operation services market were to grow as much as ten per cent over the next few years, the size of the total market would still remain less than £2m.
• The durability of any potential harm is likely to be limited by entry into the market by competitors. The existence of relatively low barriers to entry and expansion are demonstrated by the rapid expansion of Topsonic, the other large provider in the UK, which only entered the market in 2003. While the OFT was not able to point to any specific future entry that was sufficient to avoid the duty to refer, it considered that there were a number of players who were credible future entrants into the UK.

Amelia Fletcher, OFT Senior Director of Mergers, said:

'This planned acquisition brings together two of the leading providers of airport noise management services. The OFT will typically not exercise its 'de minimis' discretion in a '3 to 2' merger where entry prospects in the short to medium term are negligible, even in a relatively small market. The situation in this case is different given that, as well as a small market, the durability of any potential harm would likely be limited by future entry. As a result, this led us to the conclusion that it would be appropriate for the OFT to exercise its discretion not to refer.'

NOTES

1. The 'de minimis' exception is formally known as the 'markets of insufficient importance' exception to the duty to refer under the Enterprise Act 2002.

2. The Reference Test - the OFT has a duty to make a reference to the Competition Commission if the OFT 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, and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

3. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises, and the value of the turnover in the UK of the enterprise being taken over exceeds £70 million, or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
 
4. The full text of this decision will appear in the mergers section.