Anticipated acquisition by Carillion plc of Mowlem plc

Affected market: Construction and facilities management services

No. ME/2165/05

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 given on 24 January 2005. Full text published 6 February 2005.

Please note that square brackets indicate information excised, or exact figures replaced by a range, at the parties' request for reasons of commercial confidentiality.

PARTIES

Carillion plc (Carillion) is a provider of construction and various building-related maintenance and facilities management (FM) services. It is active in a wide range of areas within the UK including the construction and FM of commercial buildings, hospitals, and road and rail infrastructure. It also provides FM services related to mechanical and electrical maintenance. Carillion's UK turnover for the year ending 31 December 2004 was approximately £1,600 million.

Mowlem plc (Mowlem) is a provider of construction, FM and civil engineering services. Mowlem's construction and FM activities include commercial buildings, rail and road infrastructure, water and other utilities, and government owned buildings. Mowlem also provides a number of individual FM services such as mechanical and electrical maintenance, cleaning and security. For the year ending 31 December 2004, Mowlem's UK turnover was £1,538 million.

Mowlem's subsidiary, Edgar Allen Limited (Edgar Allen), supplies track components to the rail construction industry. Carillion has announced that if its merger with Mowlem is successfully completed, Balfour Beatty plc, a competing construction firm, will acquire Edgar Allen from Carillion.
 
TRANSACTION

The proposed merger is a recommended public offer for the whole of the issued and to be issued share capital of Mowlem, to be paid for in cash and Carillion shares. Based on values at the time the parties' announced the proposed merger, the transaction is worth approximately £313 million.  The merger is expected to be completed in March 2006, although it is conditional upon being cleared by competition authorities.

The statutory deadline for consideration of this transaction expired on 24 January.

JURISDICTION

As a result of this transaction Carillion and Mowlem will cease to be distinct enterprises. As the turnover of Mowlem is greater than £70 million, the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. It does not meet the thresholds for notification under the EC Merger Regulation. 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 third party was opposed to the proposed merger. For both construction and FM services, customers felt that there would be enough choice and competition after the merger to ensure that there would not be any competition concerns.

A number of FM services customers commented to the OFT that they would consider switching some or all of their FM requirements in-house if prices were to rise substantially.

ASSESSMENT

For construction services, the parties' combined share of supply is small (whichever measure is used). Further, there are a number of other construction firms which are larger or of a similar size to the combined size of Carillion and Mowlem. These firms include Balfour Beatty, Bovis Lend Lease, Laing O'Rourke and Costain. All had a share of supply of less then 10 per cent (based on 2004 data). In addition, there are many construction firms with shares of supply of less than 2 per cent (the parties considered that there were around 1,200 UK construction firms in total).

Construction customers are unconcerned about the proposed merger.

Therefore, based on the lack of concentration in the construction industry and third party responses, it is considered that after the merger there will be sufficient competitive constraints acting on the merged entity. This is the case regardless of whether construction is segmented into categories of type of work or into industry sectors.

For FM services, it is also the case that the parties' combined share of supply is small. The evidence suggests that there will be a number of FM services suppliers of a similar size or larger than Carillion and Mowlem combined providing a competitive constraint on the merged entity.

Some customers told the OFT that it would be possible and financially feasible to bring their FM requirements in-house as a response to a price rise of around 5-10 per cent. Therefore, it seems that there is at least the possibility that the threat of in-house provision provides a competitive constraint on FM suppliers.

In addition, it is not considered that there are any portfolio power concerns as a result of this transaction. Furthermore, the merger will present no change in the parties' ability or incentive to use Edgar Allen to foreclose competition in rail construction and maintenance. A vertical issue does not seem to arise in regard to FM services.

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.

Back to top