Completed acquisition by Spire Healthcare Limited of Classic Hospitals Group Limited

Affected market: Private hospitals

No. ME/3610/08

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 18 June 2008. Full text of decision published 1 July 2008.

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

PARTIES

Fox Healthcare Acquisitions Limited (Fox) is a special purpose acquisition vehicle that is part of Cinven Group Limited (Cinven), a private equity business. Cinven controls Spire Healthcare Limited (Spire), a provider of acute hospital services in the UK to both the public and private sectors. Spire operates 26 acute care hospitals spread throughout the UK. Cinven acquired Spire from BUPA in August 2007.

Classic Hospitals Group Limited (Classic) also provides private medical services, with ten hospitals in England and North Wales. Nine of these hospitals were acquired from BUPA in July 2005. Classic's UK turnover in the financial year ended 31 December 2006 was £78.8 million.

TRANSACTION

The transaction concerns the acquisition of Classic by Cinven. The transaction completed on 18 March 2008. Initial undertakings were accepted by the OFT on 25 March. The statutory deadline for the OFT to make a decision on reference to the Competition Commission (CC) is 17 July 2008, and the administrative deadline is 18 June 2008.

JURISDICTION

As a result of this transaction Cinven and Classic have ceased to be distinct. The UK turnover of Classic exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (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

A number of third parties responded to the OFT's requests for information, the majority of whom were unconcerned about the merger. One competitor raised concerns that were not competition-related. Two PMI providers were concerned about the impact of the merger on a national and local level. On a national level, as discussed above, the merger does not raise competition concerns in view of the limited increment in market share and in the proportion of solus hospital in relation to Spire's full hospital portfolio. On a local level, concerns have been dealt with in the assessment of each local area above.

ASSESSMENT

The transaction concerns the acquisition of Classic by Fox, a company under the same control as Spire, and the consequent amalgamation of their portfolio of hospitals. In line with the CC's BUPA/CHG Report and the recent OFT decision on GHG/Nuffield, the relevant product market is the supply of private medical services provided by private acute hospitals and NHS private patient units. However, the OFT considers that different fascia and different hospitals within the relevant product market, while effective competitors, might pose different degrees of competitive constraint and took this into account in the local market analysis. The effects of the transaction were assessed at national, local and regional levels. For the local market analysis, 30-minute drive time isochrones were considered, but the OFT also considered the competitive constraint posed by PMS providers located in neighbouring areas, and to the extent possible weighted the competitive threat posed by a hospital according to its catchment area.

On a national level, the merger does not raise any competition concerns in view of the small increment ([0-5] per cent) and limited combined market shares ([15-25] to [15-25] per cent). At a regional level, the highest combined market share is [25-35] per cent (increment [10-20] per cent) in the North West/North Wales area. However, the OFT does not have any evidence that negotiations take place, nor that parameters of competition are set, on a regional level.

The OFT carefully assessed the impact of the merger in all ten local areas, and, based on a range of evidence, concluded that sufficient competition remains post-merger in all of them such that in no area could the merger be said to create a realistic prospect of a substantial lessening of competition. In some local areas the OFT also found that there was limited competition between the parties pre-merger.

Although the evidence available suggests that barriers to entry are high and that countervailing buyer power is not sufficient to deter a market participant from exercising market power, it was not necessary to conclude on these issues given that the merger does not raise competition concerns.

Consequently, the OFT does not believe 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.

DECISION

This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

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