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OFT considers divestment in aggregates merger

23/09    2 March 2009

The OFT is considering an offer of divestment by Aggregate Industries Limited (AI) to remedy competition concerns raised by its completed acquisition of Atlantic Aggregates Limited (Atlantic).

The OFT has found that the merger creates the realistic prospect of a substantial lessening of competition in the supply of secondary aggregates in an area around the Gunheath quarry in Cornwall, in which the newly-merged firm would have accounted for the majority of output. Evidence indicated that neither potential new entry or expansion by existing secondary aggregates producers, nor the competitive constraint from producers of primary aggregates was sufficient to alleviate competition concerns.

AI has offered to dispose of Atlantic's secondary aggregates business operating from Imerys' Gunheath site, from which Atlantic sources the bulk of its secondary aggregates. Given that the proposed remedy effectively involves transferring the benefit of Atlantic's existing contractual arrangements with Imerys in Gunheath and is therefore less straightforward than the sale of an entire business, the OFT is insisting on agreeing an up-front buyer in this case.

Amelia Fletcher, OFT Senior Director for Mergers said: 'There is a growing demand for secondary aggregates because of their lower price compared to primary aggregates, as well as their environmental credentials.

'The OFT is looking for a remedy that will restore pre-merger competition for the supply of secondary aggregates in the areas of Cornwall and West Devon.'

If the divestment is not accepted, then a referral to the Competition Commission will be necessary.

NOTES

1. Atlantic produced secondary aggregates from two sites: Gunheath in Cornwall, and Lee Moor in Devon. AI is a UK supplier of aggregates to the construction and building sector.

2. Aggregates are used in the construction industry, including to manufacture ready-mixed concrete and asphalt; secondary aggregates are those derived as a by-product of waste or recycled materials.

3. 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 has resulted or may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services. 

4. 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 has or may have resulted from it or 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.

5. Up-front buyer requirement - the OFT considered in this case that a necessary requirement to suspend the duty to refer and consider undertakings is that divestment should be to suitable buyer approved upfront by the OFT before the OFT accepts the undertakings in lieu. This means that the OFT will consult publicly on the suitability of the proposed buyer, as well as all other aspects of the draft undertakings, during the public consultation period.

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