100/12    29 October

The OFT today referred the completed acquisition by Groupe Eurotunnel S.A. (Eurotunnel) of certain assets of former ferry operator, SeaFrance S.A. (SeaFrance) to the Competition Commission for further investigation, due to concerns the merger could substantially reduce competition in the provision of cross channel transport services.

Eurotunnel provides rail transport services to both passengers and freight customers across the narrowest section of the English Channel via the Channel Tunnel. Prior to its liquidation in January 2012, SeaFrance provided ferry services to both passengers and freight customers across the same section of the English Channel between Dover and Calais.

After SeaFrance went into liquidation, Eurotunnel acquired a collection of its assets, including three vessels. In August 2012, Eurotunnel recommenced operations of these ex-SeaFrance vessels, operated primarily by former employees of Seafrance, on the Dover to Calais route, under a new brand called 'MyFerryLink'.

The OFT recognises that the new service provides benefits to passengers by replacing capacity on the Dover to Calais route which was lost when SeaFrance went into liquidation. However, there is some evidence that an alternative buyer would have acquired the business, had Eurotunnel not done so, and the OFT was concerned about the loss of competition as compared with this plausible scenario.

The evidence gathered by the OFT indicates that, prior to SeaFrance's liquidation, it was a close competitor to Eurotunnel. Although some competitors remain after the merger, the evidence available to the OFT indicates that only P&O will provide a strong competitive constraint to Eurotunnel for some customers.

For both passenger and freight customers, the OFT is concerned that prices may increase as a result of this deal. Given the realistic prospect of this merger resulting in a substantial lessening of competition, the OFT considers it appropriate to refer the merger to the Competition Commission for an in-depth review.

Amelia Fletcher, OFT Chief Economist and Decision Maker in this case said:

'Having efficient and cost-effective transport links between the UK and Continental Europe for passengers and business customers is clearly important. We are concerned that the merger could further strengthen Eurotunnel's position in the market for cross channel transport and prices could go up as a result. As such, we believe it is appropriate that the Competition Commission reviews this merger in detail to ensure that the interests of consumers and industry are protected.'

The Competition Commission is expected to report by 14 April 2013.

NOTES 

1. The Reference Test - in the case of completed mergers, 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. 
2. 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.
3. The OFT's Jurisdictional and Procedural guidance provides that an enterprise may comprise any number of components, most commonly including the employees working in the business and the assets and records needed to carry on the business, together with the benefit of existing contracts and/or goodwill. In this case the OFT considers that the assets acquired by Eurotunnel amounted to an enterprise given the importance of the physical assets purchased to the operation of a ferry business, the goodwill associated with those assets (which had not dissipated despite the cessation of trading), and the fact that the same employees would be running the vessels as under SeaFrance.
4. The Competition Commission may extend the 24-week period within which it is required to publish its report by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period. The current date by which the Competition Commission is expected to report is 14 April 2013.
5. The text of these decisions will be placed in the Mergers' section of this web site as soon as is reasonably practicable.