Newsroom

OFT uses revised 'de minimis' exception to clear two rail franchise mergers

180/07    20 December 2007

The OFT today announced its use of the de minimis exception in deciding not to refer to the Competition Commission (CC) the award of the Intercity East Coast rail franchise (ICEC) to National Express Group and the award of the Cross Country rail franchise to Arriva plc.

In each case, the OFT has decided that, in principle, it was under a duty to refer but also exercised its statutory discretion not to do so, by concluding that the markets concerned are not of sufficient importance to justify a reference to the CC.

These cases mark the first use of the de minimis exception following the publication of revised guidance, which raised the threshold for considering this exception from £400,000 to £10 million, subject to case-by-case evaluation and caveats explained in that guidance (see press release 156/07). The analysis underlining the OFT's decision focuses on:

• the peculiar issues raised by rail franchises awards
• the lack of impact on deterrence if the exception were used
• the conclusion that the OFT's concerns were more marginal than in many other reference cases, and
• the fact that the relevant turnover in each case was very modest.

Simon Pritchard, Senior Director of Mergers, said:

'These decisions would not have been possible without our revised guidance. While caught by the duty to refer, the risks to competition in each case fall considerably below a more likely than not probability, and the issues are of very limited potential scale. Overall, this means the relatively remote potential benefits of further inquiry would be disproportionate to the certain costs involved. We therefore judged it appropriate to spare the public - and in turn the parties - the costs of two CC references.'

NOTES

1. In respect of the ICEC franchise, the OFT considered it appropriate to focus only on the coach revenue associated with these overlap markets, which is below £1 million in aggregate. In the Cross Country franchise, the total size of only the flow raising concerns (Cardiff to Gloucester) is only just above £1 million.

2. In both cases the OFT considered that the concerns were realistic enough to establish a duty to refer, but did not conclude they were likely on a balance of probabilities standard (that is, above 50 per cent or more likely than not). In other words, the cases met the 'may be the case' element of the test for reference but not the 'is the case' test. It is therefore far from certain to the OFT that the CC would have identified concerns at the end of its inquiry.

3. The Reference Test - the OFT has a duty to make a reference to the CC 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.

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 the Arriva plc decision and the National Express Group decision will appear in the mergers section.

Back to:2007