Completed acquisition by the Davis Service Group plc of Co-Operative Cleaners Limited

No. ME/1094/03

A report under section 125(4) of the Fair Trading Act 1973 on the advice of the Office of Fair Trading, given on 6 June 2003, to the Secretary of State for Trade and Industry under section 76 of the Act

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts from the advice regarding the jurisdiction, the parties, and the conclusion.

JURISDICTION

The merger satisfies the share of supply test of the FTA for the supply of textile maintenance services (i.e. laundry services) to the healthcare sector in Great Britain. The ECMR does not apply.

THE PARTIES

The Davis Service Group plc (Davis) is active in textile maintenance and site services. Its UK textile maintenance business is carried out by its wholly owned subsidiary, the Sunlight Service Group (Sunlight). In the year ended 31 December 2001, Davis reported pre-tax profits of £70.6m on turnover of £514.4m and gross assets of £502m. Co-operative Cleaners Limited, known as Society Linen (Society), provides textile maintenance services in most parts of England with [over 50 per cent] (see note 1) of turnover accounted for by the healthcare sector. In the year ended 26 January 2002, it reported an operating deficit of £337,000 on turnover of £11.5m and gross assets of £10m. The owners of Society took the decision to dispose of the business and sought bids through an open bid process. Davis made the highest bid of [ ] (see note 2).

CONCLUSION

At the national level, the combined share and increment for the supply of laundry services to the healthcare sector arising from the merger are not particularly significant.  In some NHS regions, the combined share is high but these regions are unlikely to be representative of the geographic scope of competition for contracts.  We have carefully examined the bidding history for healthcare contracts provided by Sunlight. The available evidence suggests that, pre-merger, Society represented a weak constraint on Sunlight in the significant majority of tenders and that there are other bidders for healthcare contracts that competed with Sunlight even in those NHS regions where combined shares are high.

The evidence on supply-side constraints (ie, supply-side substitution, barriers to entry, and expansion) is mixed. On the one hand some third parties suggest non-healthcare laundries are unable or unwilling to switch to healthcare work.  On the other hand, there are actual examples of healthcare and non-healthcare work being done on the same site and examples of where a laundry has switched from supplying non-healthcare to healthcare customers suggesting that such barriers are not insurmountable.  Conflicting views on whether expansion by healthcare laundries is prevented by capacity constraints have also been put forward.  The strength of buyer power is unclear.  Within the NHS it is seen as low but arguably this is something which NHS Trusts as the main customers could seek to address.  While we acknowledge the consistency of third party concerns regarding the reduction in the number of bidders, and while it is possible that the merger will lead to some reduction of competition in the short-term in a minority of contracts, on balance we do not consider that this merger, in itself, will result in a substantial lessening of competition.

We therefore conclude and recommend that you do not refer this merger to the CC.

NOTES

1. Figure changed to a range at the request of the parties for reasons of confidentiality.
2. Figure deleted at the request of the parties for reasons of confidentiality.

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