62/09 28 May 2009
The OFT has referred the acquisition of Preston Bus Limited by Stagecoach Bus Holdings Limited to the Competition Commission.
Both Stagecoach and Preston Bus provide local bus services in Preston and, as a result of this acquisition, Stagecoach has become the predominant provider of commercial bus services in this area.
Given the absence of any evidence of likely entry in the short to medium term by other bus operators, the OFT was concerned that this could result in higher prices or decreased service quality to local bus users.
The OFT was made aware that Preston Bus was in significant financial difficulties prior to its sale, and carefully considered whether it could be characterised as a 'failing firm'. However, while it is possible that Preston Bus may have failed and gone into administration had it not been sold, the OFT was not confident that all the failing firm conditions were met to the standard required for a first phase investigation. Specifically, it considered that there could have been a more competitive alternative to the merger: given the interest in Preston Bus expressed by other bidders, the OFT could not rule out that Preston Bus' assets could have been used by another operator to enter the market and compete against Stagecoach.
Amelia Fletcher, OFT Senior Director of Mergers, said:
'Stagecoach and Preston Bus were very close competitors, as demonstrated by the so-called 'bus wars' that took place in Preston prior to the acquisition. This merger has removed competition between them and the OFT is concerned that this may have a negative impact on price and service levels for bus users.'
1. Failing firm - The OFT's approach to assessing an exiting (including failing) firm defence was recently articulated in the 'Restatement of OFT's position regarding acquisitions of 'failing firms'
that it will clear a transaction based on 'failing firm' claims only where it has sufficient compelling evidence that (a) absent the merger, the target business would have inevitably exited with no serious prospect of re-organisation, and (b) there was no realistic and substantially less anti-competitive alternative to the merger.
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 a relevant merger situation has been created, and the creation of that situation has resulted or 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. Own-initiative merger inquiries - while the majority of mergers reviewed by the OFT arise from voluntary notification by the parties, the OFT's own-initiative inquiry programme has led to remedial action by the OFT or CC in 20 cases under the Enterprise Act 2002 regime. In some of these cases, it is always possible that the parties would have voluntarily notified the OFT of their merger at a later date. The OFT has a dedicated Mergers Intelligence officer responsible for monitoring non-notified merger activity and liaising with other competition authorities. That person can be contacted confidentially at email@example.com
if any interested party wishes to make the OFT aware of a merger that it considers might potentially be anti-competitive.
4. 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 United Kingdom 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.
5. The full text of this decision will appear in the mergers section