51/12    21 June 2012

The OFT today referred the anticipated acquisition of the political intelligence division of DeHavilland by Dods Group PLC (Dods) to the Competition Commission.

The evidence before the OFT suggests that, as a result of this merger, Dods will not face sufficient competitive constraints and this could result in higher prices or less quality for UK customers procuring political intelligence services.

Political intelligence companies monitor and track political issues on behalf of customers. A wide range of companies, public and voluntary sector organisations, as well as communications and public affairs consultancies, rely on the provision of regular, accurate and timely political intelligence.

The OFT's investigation found that the merger parties are the two largest dedicated suppliers of these services and that close competition between them is a very important tool for UK customers to benefit from competitive prices and valued services. The merger parties' competitors are smaller in size, scale and scope. These findings were informed by the OFT's market investigation and an extensive customer survey submitted by the merger parties.

As a result, it is the OFT's view that removing such significant rivalry between the merger parties might substantially lessen competition and lead to higher prices, a decline in the quality of those services or both.

Given its concerns, the OFT therefore considers it appropriate for the Competition Commission to undertake a further investigation into this matter.

The OFT further considered whether the case should not be referred to the Competition Commission on the basis that the markets were of insufficient importance, but did not find that the deal met the relevant criteria for such an exception.

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

'This merger would bring together by far the two largest players in the UK market. The evidence also suggests that DeHavilland and Dods are each other's closest rivals. Based on the information before us we do not believe that this loss of competition would be compensated through expansion by smaller rivals, entry by new players or customers switching to self-supply. As such, we consider it appropriate to refer the merger to the Competition Commission for further investigation.'

NOTES

1. The Reference Test: the OFT has a duty to make a reference to the Competition Commission (CC) if the OFT believes that it is or may be the case that arrangements are in progress or contemplation which, if carried into effect, will result in the creation of a relevant merger situation; 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 CC is expected to report by 5 December 2012. It 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.
4. Under sections 22(2)(a) and 33(2)(a) of the Enterprise Act 2002, the OFT may exercise its discretion not to refer a merger to the CC if it believes that the market(s) to which the duty to refer applies is/are not of sufficient importance to justify a reference. In deciding whether or not to apply the 'de minimis' exception, the OFT will exercise its discretion, taking into account of the facts of each individual case and its circumstances. In its assessment, the OFT takes into account a range of financial and non-financial factors. These are explained and discussed in the OFT's Mergers- Exceptions to the duty to refer and undertakings in lieu of reference guidance, December 2010, OFT1122. 
5. The full text of this decision will appear in the mergers section at a later date.