4th Feb 2008 15:00
Office of Fair Trading04 February 2008 16/08 4 February 2008 OFT USES REVISED 'DE MINIMIS' EXCEPTION FOR THIRD RAIL FRANCHISE MERGER The OFT has used its 'de minimis' exception in deciding not to refer the awardof the East Midlands Rail Franchise to Stagecoach plc to the CompetitionCommission (CC). This is the third case of this kind following the November 2007publication of the OFT's revised merger guidance, which raised the threshold forconsidering this exception from £400,000 to £10 million, subject to case-by-caseevaluation. Although bus and rail may not be close competitors in many UK markets, specificevidence in this case suggested that for certain journeys many passengers wouldswitch from Stagecoach bus to rail services if bus prices increased. While thisraises sufficient concerns to result in a reference to the CC, the OFT exercisedits 'de minimis' discretion not to do so by concluding that a reference would bedisproportionate - in other words, that the markets concerned are not ofsufficient importance to justify a reference. The OFT's de minimis reasoning in this decision should be read in parallel withthe OFT's undertakings in lieu decision in Berkshire newspapers, also announcedtoday. The OFT's analysis is also consistent with that of two earlier de minimiscases, focusing 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 this case was quite modest - below £3 million under any scenario. Simon Pritchard, OFT Senior Director of Mergers, said: 'Our recent track record shows we are determined to avoid disproportionatereferences. But our de minimis discretion is not a blank cheque from consumersto business. We are increasing our surveillance of merger activity, andcompleting on mergers to monopoly is at the acquirer's peril. In risky deals -big and small - there's a choice : get certainty from the OFT first, or gambleagainst the CC unscrambling your merger.' NOTES 1. De minimis guidance and early cases - The 'de minimis' exception is formallyknown as the 'markets of insufficient importance' exception to the duty to referunder the Enterprise Act 2002. In this case, like in the two previous de minimiscases involving rail franchises (see press release 180/07) the OFT did notbelieve that, as a matter of principle, clear-cut undertakings in lieu ofreference were available. It has reached the opposite conclusion in theBerkshire newspaper case (see press release 15/08).2. The reference test - The OFT has a duty to make a reference to the CC if theOFT believes that it is or may be the case that a relevant merger situation hasbeen created; and the creation of that situation has resulted, or may beexpected to result, in a substantial lessening of competition within any marketor markets in the United Kingdom for goods or services. 3. The OFT's duty to refer in this case - In this case the OFT considered thatthe concerns were realistic enough to establish a duty to refer, but did notconclude they were likely on a balance of probabilities standard (that is, above50 per cent or more likely than not). In other words, the cases met the "may bethe case" element of the test for reference but not the "is the case" test. Itis therefore far from certain to the OFT that the CC would have identifiedconcerns at the end of its inquiry. 4. Merger jurisdiction - Under the Enterprise Act 2002 a relevant mergersituation is created if two or more enterprises have ceased to be distinctenterprises; and the value of the turnover in the United Kingdom of theenterprise being taken over exceeds £70 million; or as a result of thetransaction, in relation to the supply of goods or services of any description,a 25% share of supply in the UK (or a substantial part thereof) is created orenhanced. 5. Publication - The text of these decisions will be placed on the Office ofFair Trading's web site at www.oft.gov.uk as soon as is reasonably practicable. MEDIA enquiries: 020 7211+ Corinne Gladstone 8899 Alex Hunter 8900 Jonathan Marciano 8898 Nnenna Oleforo 8993 Out of hours: mobile: 07774 134814 fax messages: 020 7211 8961 Copies of press notices: Ext. 8993 http://www.oft.gov.uk PUBLIC enquiries: 0845 7224499 [email protected] OFT reports and consumer information leaflets are available free from: OFT, PO Box 366, Hayes UB3 1XB 0800 389 3158 [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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