Anticipated acquisition by West Midlands Travel Limited of the joint venture shares of Laing Infrastructure Holdings Limited and Ansaldo Transporti Sistemi Ferroviari SpA in Altram LRT Limited

Affected market: Tram services

No. ME/2012/05

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 2 March 2006. Full text published 5 April 2006.

PARTIES

Altram LRT Limited (Altram) is a joint venture (JV) between West Midlands Travel Limited, Ansaldo Transporti Sistemi Ferroviari SpA (Ansaldo) and Laing Infrastructure Holdings Ltd (Laing) (the JV partners). It operates the Midland Metro (the Metro) which currently comprises a tram service between Wolverhampton and Birmingham (Line 1) under a 23 year concession (the Concession Agreement) granted by the West Midlands Passenger Transport Executive, known as Centro.

West Midlands Travel Limited, trading as Travel West Midlands (TWM), is a wholly-owned subsidiary of National Express Group plc (NEG). It operates buses throughout the West Midlands and has a one-third shareholding in Altram. TWM is NEG's principal bus operation in the UK with around 1,750 vehicles and an estimated 83 per cent share of bus travel in the West Midlands.

NEG also operates eight rail franchises, including Central Trains which runs rail services throughout the Midlands. Central Trains' services comprise a hub and spoke urban network centred on Birmingham, and is run by NEG on a cost-plus basis to a specification laid down by Centro (see note 1).

NEG also operates an extensive network of coach services throughout Great Britain. In the Midlands Metro Line 1 area this includes services between Wolverhampton and Birmingham.

TRANSACTION

The transaction involves TWM increasing its stake in Altram from 33.3 to 100 per cent by purchasing the shareholdings of both the other JV partners. Loans of £350,000 each made by Laing and Ansaldo will be waived (see note 2). The transaction is conditional on the renegotiation with Centro of the Concession Agreement.

Altram has been loss-making and TWM submits that it cannot continue, in the long run, to fund all of these losses. Although the JV partners expect Altram to remain loss-making under TWM ownership, TWM is pursuing this transaction anticipating that these losses can be reduced by a significant amount per annum as a result of:

• the ability to claim tax relief on all the losses rather than only on one-third
• its intention to dispense with Altram's consultant
• removal of need to employ independent lawyers who currently carry out company secretarial and compliance functions.

TWM does not expect to be able to materially reduce the losses beyond the extent mentioned above unless and until the Metro network is expanded (see note 3).  If expansion goes ahead Centro and TWM intend (but with no contractual commitment) that for the first three years of integrated operation, TWM will operate the expanded Metro network. Thereafter the operation of the entire network will be subject to a re-tendering process (see note 4). Under the Concession Agreement, Centro is able to terminate the franchise for the purposes of expansion at any time.

JURISDICTION

On completion of this transaction, NEG will operate Central Trains, Altram, National Express coaches and TWM bus services. Post merger NEG will have a share of supply greater than 25 per cent in the provision of local public transport services in the West Midlands. NEG would move from having de facto control to legal control of Altram as a result of this transaction. The OFT therefore believes that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation under section 23 of the Enterprise Act (the Act).

ASSESSMENT

All three JV partners and Centro have provided the OFT with extensive documentary evidence to support their submission that the transaction will have no material impact on competition. The evidence available has demonstrated that TWM has had effective control of Altram since 2001 and the OFT believes that the chances of this position changing in the future are too remote to be credible.

Both Laing and Ansaldo have confirmed that TWM has been in sole operational control of the business since 2001. Notwithstanding the existence of legal rights of veto on numerous primarily non-operational issues, Ansaldo and Laing have confirmed that they have not exercised their rights under the JV since 2001 and have no interest or incentive in doing so in the future. They have also confirmed that their continued presence as shareholders has merely been to manage their exit from the venture in a way that would minimise losses. They are both of the view that the change in legal control is merely a formalisation of the already existing commercial reality. Centro, the public body responsible for passengers' interests in the relevant area, supports this view and also considers that the transaction will be in the interests of passengers.

In the particular circumstances of this transaction, the OFT considers that, despite the change in shareholding from 33.3 per cent to 100 per cent, the large volume of evidence received demonstrates that the transaction will not materially change the ability, or incentive, of NEG or TWM to change any parameters of competition in relation to any tram, rail, coach or bus service on the overlapping flows, as TWM already acts as if it were the sole shareholder in Altram.

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. Altram wishes to clarify that only Central Trains' services within the West Midlands are run on a cost-plus basis by NEG on behalf of Centro.

2. Altram wishes to clarify that the loans of £350,000 were made by Laing and Ansaldo to Altram.

3. Under the arrangement between TWM and Centro, TWM will co-operate on the planning, preparation and integration of the proposed Lines 2 and 3 extensions and their testing commissioning and operation. If construction goes ahead it is unlikely to be operating before 2011. In any event, these arrangements are independent of those relating to Line 1.

4. Centro wishes to clarify that its procurement strategy for the expansion is subject to DfT approval.

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