Anticipated acquisition by AlphaGary Limited of the Megolon business of Scapa UK Limited

Affected market: Cable sheathing and insulation

No. ME/2592/06

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 11 October 2006. Full text of decision published 17 October 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

AlphaGary Limited (AlphaGary) is a UK company and a wholly owned subsidiary of the US company, Rockwood Holdings Inc (which is controlled by Kohlberg Kravis Roberts & Co L.P., a private equity investment company). It is a plastics manufacturer specialising in high performance plastics including halogen-free sheathing and insulation for use in communication, aerospace, shipboard and other industrial wires and cables. It also manufactures other plastic products such as gasket seals, plastics for use in cars and medical instruments.

The Megolon business (Megolon) of Scapa UK Limited (Scapa) produces a range of halogen-free, fire-retardant, low smoke and fume compounds for cable sheathing and insulation. Scapa is a wholly owned subsidiary of Scapa Group plc. Over the last financial year Scapa's UK turnover attributed to the Megolon line of business was £[less than 5] million (from a worldwide turnover of around £20m).

TRANSACTION

AlphaGary intends to purchase Scapa's Megolon Division for £[ ] million. (see note 1)

The parties informally notified the proposed merger to the Office of Fair Trading (OFT) on 15 August 2006. The OFT's administrative deadline is 11 October.

JURISDICTION

As a result of this transaction AlphaGary and Megolon will cease to be distinct. The share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met in relation to the supply of halogen-free (HF) compounds for cable sheathing and insulation.

The OFT therefore believes 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

Five of the six customers who responded to the OFT's information request were unconcerned about the proposed merger. Customers told the OFT that other suppliers of HF compounds could meet their requirements. Customers generally did not see any barriers to entry facing suppliers in the EEA wishing to supply them in the UK.

One customer had concerns about the proposed merger as it currently sources all of its sheathing requirements from the parties. These concerns are addressed in the horizontal assessment section.

ASSESSMENT

The parties overlap in the manufacture and supply of HF compounds for use in cable and wire sheathing and insulation.

On the basis of the evidence available to it, the OFT considers that the geographic scope is at least EEA wide, giving the merging parties less than [25] per cent of the total supply of HF compounds for cable sheathing and around [25-35] per cent for data and communication cable sheathing. Bidding data suggest that the parties would still face strong competition from other large suppliers. There is some evidence that AlphaGary has not provided as strong a competitive constraint on Scapa as some other suppliers.

While there seems to be some barriers to entry, these barriers do not seem to be so high as to be insurmountable, and barriers to expansion are lower.

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 transaction includes the transfer of employees, plant and machinery, intellectual property rights, goodwill and the domain name.

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