36/12 26 April 2012
The OFT today accepted undertakings from The Carlyle Group (Carlyle) and Palamon Capital Partners LP (Palamon) in relation to their joint acquisition of Integrated Dental Holdings Limited (IDH) and Associated Dental Practices (ADP). As a result, the merger will not be referred to the Competition Commission.
The merger, which was completed on 11 May 2011, brought together the 325 dental practices operated by IDH with the 130 operated by ADP. The undertakings require Carlyle and Palamon to sell 11 dental practices which offer NHS dental treatments in areas where the OFT identified local competition concerns. The OFT also required the merger parties to find 'upfront' buyers for the practices.
In this case, as the parties provide NHS dental services to patients through contracts with Primary Care Trusts (PCTs), these contracts can only be assigned to new buyers with the agreement of the relevant PCT.
The parties have buyers in place for seven practices in: Taunton, North Petherton, Barnstaple (two practices), Yeovil, Chard and Aldershot. For these practices, the relevant PCTs have agreed to the assignment of contracts to the proposed buyers.
For the other four areas, in Ramsgate, Sandwich, Amesbury and Tidworth, the relevant PCTs have told the OFT they would wish to re-tender the contracts via an open tender process. Provision for this is set out in the undertakings (see note 2).
The OFT has consulted publicly on the undertakings, and also on the identity of the buyers in the relevant areas. The consultation did not provide any persuasive evidence to suggest that the undertakings would not constitute an effective remedy. Therefore, the OFT considers that the undertakings are appropriate to remedy the competition concerns identified in its decision of 10 June 2011.
Amelia Fletcher, OFT Chief Economist and Decision Maker in this case, said:
'This remedy provides protection for NHS dentistry patients in those local areas in which we found competition concerns arising from the merger. It therefore offers a clear cut remedy to those concerns. We have worked closely with the relevant PCTs in this case so that competition will be preserved and that NHS dental treatments will continue to be provided, both during the divestment process and during the interim period while any re-tender takes place.'
- The substantial lessening of competition identified by the OFT in these local areas related to the provision of either general or, in one case, orthodontic NHS dental treatments.
- The undertakings in lieu of a reference to the Competition Commission recognise that if a PCT were not to agree to the assignment of the NHS contract to a buyer identified by the merger parties and approved by the OFT, the merger parties would need to give notice of termination of their contract to the PCT so that the PCT could re-tender that contract. The undertakings give scope to the PCTs to delay the merger parties giving notice so that the PCT may have adequate time to arrange interim cover. Further, the undertakings give the successful bidder for the re-tendered contract the option of acquiring from the merger parties the existing practice currently delivering those NHS dental treatments.
- The reference test - the OFT has a duty to make a reference to the Competition Commission if it believes that it is or may be the case that a relevant merger situation has been created, and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
- Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
- Undertakings in lieu of reference - under section 73 of the Enterprise Act 2002 the OFT may, instead of making a reference to the Competition Commission, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned, or any adverse effect which may be expected to result from it, accept from such of the parties concerned as it considers appropriate undertakings to take such action as it considers appropriate. The OFT is required to consult publicly before accepting any such undertakings.
- Upfront buyer - the OFT will seek an upfront buyer where the risk profile of the remedy requires it, for example, where the OFT has reasonable doubts with regard to the ongoing viability of the divestment package and/or there exists only a small number of candidate purchasers. The OFT considered in this case that a necessary requirement to suspend the duty to refer and consider undertakings in lieu is that divestiture of these particular dental practices should be to a suitable purchaser approved in principle by the OFT before the OFT consulted on the undertakings. The reason for this was that there was some uncertainty over the likely number of potential suitable buyers. The OFT was conscious that it had not previously undertaken a divestment of dental practices.
- The undertakings come into effect from today.
- The full text of this decision and a copy of the agreed undertakings will appear in the mergers section of this website at a later date.