38/12    11 May 2012

The OFT is considering undertakings offered by Edmundson Electrical Limited (EEL) to sell a branch in each of four local areas in England and Scotland to remedy competition concerns raised by its completed acquisition of Electric Center (EC), formerly part of the Wolseley Group.

EEL and EC are two of the largest electrical wholesalers in the UK having a national network of branches. EEL has a chain of 249 branches and EC has 83 branches.

The OFT concluded that the merger would not give rise to competition concerns at a national or regional level because sufficient competitors would remain in the market.

However, having considered a large volume of evidence, including the results of a local survey carried out by the parties, the OFT has concluded that the transaction raised competition concerns in four local areas in England and Scotland. This was because there were few remaining electrical wholesalers in these local areas that the OFT was confident had the capability to compete strongly against the parties, and the OFT was concerned that customers might therefore see an increase in prices or a deterioration in service as a result of the merger.

In order to meet the OFT's concerns, EEL has offered undertakings to divest either the EEL or the EC branch in each of the four affected local areas to a suitable purchaser (or purchasers) approved by the OFT to restore pre-merger competition levels.

Ali Nikpay, OFT Senior Director and Decision Maker in this case, said:

'Whilst we concluded that the merger raised no competition issues on a national or regional basis, we were concerned that customers in some local areas could lose out as a result of reduced competition. We are therefore considering branch sales offered by the parties to resolve these issues.'

NOTES

1. 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.
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. Undertakings in lieu of reference - under section 73 of the Enterprise Act 2002 the OFT may, instead of making a reference to the Competition Commission, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned, or any adverse effect which may be expected to result from it, accept from such of the parties concerned as it considers appropriate undertakings to take such action as it considers appropriate.
4. Undertakings in lieu of reference are appropriate only where the remedies proposed to address any competition concerns raised by the merger are clear cut. Furthermore, those remedies must be capable of ready implementation.
5. Up-front buyer requirement - the OFT considered in this case that a necessary precursor to accepting undertakings in lieu is that the divestiture should be agreed up-front to a suitable buyer approved by the OFT. This means that the OFT consults publicly on the suitability of the proposed buyer, as well as all other aspects of the draft undertakings, during the public consultation period.
6. The text of this decision will be placed in the mergers section soon as is reasonably practicable.