Completed acquisition by Aggregate Industries Limited of Foster Yeoman Limited

Affected market: Aggregates and asphalt

No. COMP-M/4298

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, undertakings in lieu and decision.

The OFT's decision on reference under section 22 given on 20 November 2006. Full text of decision published 28 November 2006.

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[note 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.

THIRD PARTY VIEWS

All asphalt customers in the South East of England who responded to the OFT, except for one, are concerned about the proposed merger. Indeed, the supply of asphalt in and around London was the source of most third party concern in regard to this merger. One customer told the OFT that the merger will pose particular problems to the south of London (Croydon and Crawley).

Customers told the OFT that they were concerned that the merger would lead to higher prices for asphalt in the London area. One was concerned that the merged entity would give preferential treatment to its own downstream activity and squeeze out small to medium sized road maintenance contractors. Another customer commented that Lafarge and Cemex do not have a substantial presence in London and so the merger has led to an effective reduction from four to three large suppliers.

Some customers were concerned about the merger in regard to the supply of aggregates in the South West (see above) but the majority were unconcerned.

ASSESSMENT

For the reasons set out above, the OFT does have competition concerns in relation to the supply of asphalt in local areas centred on three asphalt plants: Crawley; Theale; and Hertford.

The OFT believes that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

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[note 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.

In accordance with section 73 of the Act, the OFT has therefore decided to exercise its discretion to seek undertakings in lieu of a reference to the Competition Commission.

DECISION

The OFT's duty to refer the completed acquisition by AI of Foster Yeoman to the Competition Commission pursuant to section 22 of the Act is suspended because the OFT is considering whether to accept undertakings in lieu of reference under section 73 of the Act. However, pursuant to section 34A(3) of the Act this decision does not prevent the OFT from making a reference in the event of no such undertakings being offered or accepted.

NOTES

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

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