Anticipated acquisition by Balfour Beatty plc of Birse Group plc

Affected market: Construction

No. ME/2525/06

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, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 1 September 2006. Full text of decision published 11 September 2006.

PARTIES

Balfour Beatty plc (Balfour Beatty) is primarily a civil and specialist engineering and construction company which offers building, building management, rail engineering and other engineering services to the transport, energy and water sectors across Europe and North America. Its worldwide turnover in 2005 was £4.9 billion, its EU turnover was around £4 billion and its UK turnover was £3.7 billion.

Birse Group plc (Birse) is a provider of civil engineering, building and plant hire services to the public and private sectors in the UK including to the road, rail and water sectors. Its worldwide turnover in the year to April 2005 was £340 million.

TRANSACTION

Balfour Beatty proposes to acquire the entire issued share capital of Birse. On 8 August Balfour Beatty announced that it had received enough valid acceptances by Birse shareholders to do this. The transaction to subject to the City Code on Takeovers and Mergers.

The Office of Fair Trading's (OFT) administrative deadline for consideration of this transaction is 4 September 2006.

JURISDICTION

As a result of the proposed merger, the parties will cease to be distinct. The turnover threshold set out in section 23 of the Enterprise Act 2002 (the Act) is exceeded. (see note 1)

The OFT therefore considers that it is or may be the case that arrangements are in progress or in contemplation which if carried into effect will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

No customer in any segment which commented to the OFT had any concerns about the proposed merger.

Only two competitors had concerns. One, a rail contractor told the OFT that the merger would reduce the number of potential contractors it could use. However, other respondents said that there are several other firms, both regionally and nationally, that compete with the merging parties so a number of competing contractors will remain after the merger.

A second competitor raised concerns relating to the foreclosure of supply of casing vibrators for hire. Casing vibrators are used in conjunction with crawler cranes, principally by piling contractors. As supply is limited in the UK the third party was concerned that following the acquisition Stent Foundations, a piling business unit owned by Balfour Beatty, would get control or preferential use of Birse's casing vibrators, foreclosing supply to other customers. However, this third party also told the OFT that it seldom uses Birse for the hire of crawler cranes and with regard to casing vibrators it mostly hires these from one of two suppliers (not Birse). The OFT does not consider that the merged entity would have sufficient power in the hiring of casing vibrators to embark on a foreclosure strategy.

ASSESSMENT

Civil engineering in the UK is large and fragmented. Although the merged entity will create one of the largest civil engineering firms in the UK, its share of supply will be small – whether measured on a national, regional, contract size or type of customer basis. After the merger a number of large competitors will remain to give customers choice in all segments and to ensure effective competition.

For both new builds and plant hire services, the parties combined shares of supply are very small (on all measures) and do not raise competition concerns.

No vertical concerns arise from the merger.

No customers were concerned about the merger and only two competitors raised concerns, which have been addressed above.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

NOTES

1. The parties' turnover exceeds the threshold levels set out in the European Commission Merger Regulation (Council Regulation (EC) No 139/2004). However, since each party earns more than two-thirds of its turnover in the UK the transaction does not fall within the jurisdiction of the European Commission.

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