Affected market: Bus and rail passenger transport
Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, conclusion and decision.
The OFT's decision on reference under section 33 of the Enterprise Act given on 30 September 2003
First Group plc (First) operates three train operating companies (TOCs) in the UK: First Great Western, First Great Eastern (FGE) and First North Western. First is also the largest bus operator in the UK and operates bus services in the South East and East Anglia via First Essex (FE) and First Eastern Counties (FEC). First failed to make the shortlist for the Greater Anglia franchise which is due to be awarded by the Strategic Rail Authority (SRA) in April 2004, but is shortlisted for the Northern Rail franchise. In the year to end March 2003, First reported a turnover of £2.3 billion of which approximately £1.7 billion was generated in the UK.
GB Railways Group plc (GB Rail) operates one rail freight franchise (GB Railfreight) and two TOCs (Anglia Railways and Hull Trains). GB Rail has been shortlisted by the SRA for the Greater Anglia and Northern Rail franchises. In the year to end March 2003, GB Rail reported a preliminary turnover of £92.1 million – all of which was generated in the UK.
First intends to acquire 100 per cent of the issued share capital of GB Rail by way of a public offer. The transaction was announced on 16 July 2003. 50 per cent of the consideration is conditional on GB Rail successfully tendering for the following franchises: Greater Anglia, Northern Rail, and Wales and the Borders. Arriva has been selected as preferred bidder for the Wales and the Borders franchise, hence this aspect of the consideration falls away. The transaction was notified as an informal submission on 5 August 2003 (see note 1). The administrative deadline for a decision is 30 September 2003.
As a result of this transaction First and GB Rail will cease to be distinct. The UK turnover of GB Rail exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. A relevant merger situation will be created.
This merger is intended to occur ahead of the SRA's remapping exercise to form the combined Greater Anglia franchise for which GB Rail (but not First) is shortlisted. Although the merger will result in a loss of competition on the London-Ipswich rail route before the new franchise comes into effect in April 2004, the interim period is considered to be too short to enable the merged entity to increase fares or reduce service levels. Furthermore, this merger is not considered to have a significant competitive impact on bidding for future franchises in the national context.
From the evidence available in relation to the point-to-point overlaps between the parties' bus and rail services, it appears unlikely that the merger would give rise to significant competition concerns in the event that GB Rail won the combined Greater Anglia franchise. With the possible exception of the Norwich to Great Yarmouth route, the differing characteristics of bus and rail transport are such that, in the area in question, the competitive constraints between bus and rail are unlikely to be strong. Moreover, the revenue generated from the overlap routes is relatively small in relation to the whole, and for rail there is an [incremental revenue sharing agreement with the SRA] (see note 2). Third party enquiries showed little concern in relation to bus/rail competition.
For these reasons, the OFT does not believe that it is or may be the case that the creation of the relevant merger situation may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom for goods or services.
1. The parties wish to point out that the transaction was declared unconditional in all respects on 14 August 2003.
2. The parties have pointed out that GB Railways operates Anglia effectively under a management contract with the SRA and that the revenue sharing agreement is more accurately described as a profit sharing agreement.