Completed acquisition by Aggregate Industries Limited of Foster Yeoman Limited

Affected market: Aggregates and asphalt

No. COMP-M/4298

The OFT's decision on reference under section 22 given on 22 December 2006. Full text of decision published 3 January 2007.

Please note that the square brackets indicate figures or text which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES

Aggregate Industries Limited (AI), a wholly-owned subsidiary of Holcim Limited based in the UK, is an aggregates, construction and building materials group. It produces and supplies aggregates, asphalt, concrete products, and supplies road surfacing services. In the UK it has 80 aggregate sites ('quarries'), 58 asphalt plants and 83 ready-mix concrete plants.

Foster Yeoman Limited (Foster Yeoman) is a UK company that produces and supplies aggregates and asphalt, and supplies road surfacing services. It has two aggregates sites (one in the South West of England and one in Scotland), six wholly-owned asphalt plants and has an interest in two other asphalt plants (in Harlow and Northfleet) by virtue of joint ventures. Foster Yeoman's UK turnover for 2005–06 was around £210 million.

TRANSACTION

The transaction qualified for examination by the European Commission (the Commission) under the EC Merger Regulation (ECMR) and the parties filed their submission to the Commission on 19 July 2006[1]. On 8 August the Office of Fair Trading (OFT) requested, under Article 9 ECMR, that the Commission transfer the UK aspects of the transaction to it for investigation. On 6 September the Commission decided to grant the OFT's request.

AI acquired the entire issued share capital of Foster Yeoman on 7 September 2006.

The OFT sought initial undertakings from AI to hold the AI and Foster Yeoman businesses separate pending the OFT's consideration of the transaction. The OFT accepted the initial undertakings on 16 October pursuant to section 71 of the Enterprise Act 2002 (the Act).

The statutory deadline for a decision in the case under the ECMR is 20 November.

JURISDICTION

As a result of this transaction AI and Foster Yeoman have ceased to be distinct. The UK turnover of Foster Yeoman exceeds £70 million, so the turnover test in section 23(1)(b) of the Act is satisfied.

The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

BACKGROUND

By way of a decision (pdf 286 kb) of 20 November 2006 (the Decision) the OFT announced that, on the evidence available to it, the OFT believed that it may be the case that the merger may be expected to result in a substantial lessening of competition in relation to the supply of asphalt in local areas centred on three asphalt plants in the South East of England: Crawley; Theale; and Hertford.

The OFT therefore suspended its duty to refer the transaction to the Competition Commission under Section 22 of the Enterprise Act 2002 because it was considering whether to accept appropriate undertakings from AI in lieu of reference.

UNDERTAKINGS IN LIEU

Where the duty to make a reference under section 22(1) of the Act applies, pursuant to section 73(2) of the Act the OFT may, instead of making such a reference, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned or any adverse effect which has or may have resulted from it or may be expected to result from it, accept from such of the parties concerned undertakings as it considers appropriate.

The OFT has therefore considered whether there might be undertakings in lieu of reference which would address the competition concerns outlined above. Undertakings in lieu of reference are appropriate only where the competition concerns raised by the merger and the remedies proposed to address them are clear cut, and those remedies are capable of ready implementation.

AI has indicated to the OFT that it is willing to divest a range of asphalt plants to address the competition concerns identified by the OFT in the three local areas at paragraph 102 of this decision. Namely, AI has proposed to divest:

• the asphalt plant at Croydon in order to remedy the competition concern in the Crawley area
• one of the two co-located asphalt plants at Theale in order to remedy the competition concerns in the Theale area, and
• its share holding of the Harlow Coated Stone joint venture in order to remedy the coordinated effects competition concern in the Hertford area[2].

The OFT considers these proposed divestments to be sufficiently clear cut and are able to be implemented readily enough to remedy the substantial lessening of competition identified.

In relation to the coordinated effects concerns in the Hertford area, AI has offered to divest the shareholding in the joint venture it has acquired via Foster Yeoman. This clearly removes the structural link created by the merger and the concerns, outlined above, associated with it.

However, AI has also informed the OFT that [ ]. The OFT therefore needed to consider at this stage whether this divestment is sufficiently clear-cut in line with its undertakings in lieu standard in published guidance. [ ].

The parties supplied the joint venture agreement and other documents relating to the Harlow Coated Stone joint venture. [ ]. Accordingly, any residual concerns about the proposed divestment remedy in light of [ ] are removed. While the merger also removes Foster Yeoman as a small (around [ ] kT by volume) independent presence in the area, this effect is not considered by the OFT to have a material impact on competition and therefore it is not necessary that the divestment remedy address this point.

On 6 December 2006 the OFT published the proposed undertakings inviting the views of interested parties as to whether the proposed undertakings would be appropriate to remedy, mitigate or prevent the competition concern identified. The OFT did not receive any responses to this invitation to comment.

DECISION

The OFT decided on 20 November 2006 that the merger would be referred to the Competition Commission (CC) pursuant to section 22 of the Act if AI failed to give suitable undertakings pursuant to section 73 of the Act to address the competition concerns identified in the decision or any adverse effect which has or may have resulted from them, or may be expected to result from them. The OFT has decided to accept the proposed undertakings (pdf 88 kb) offered by AI in lieu of reference to the CC, as they address all of the competition concerns identified in the decision.

This merger will therefore not be referred to the CC and the proposed undertakings which have been signed by AI will come into effect from 22 December 2006.

NOTES

1. Council Regulation (EC) No 139/2004 (The EC Merger Regulation).
2. [ ].

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