it’s for the merger firms to demonstrate that the merger will result in efficiencies and the CMA must be
satisfied that the evidence shows that the above criteria are met.
Parties’ and third party views
The Parties submitted that they will be able to offer HAS-Vent customers a broader product range and []. Lindab customers will be offered flat, oval and Colourduct products, not currently offered by Lindab Limited and customers in Liverpool and Eastbourne will be able to more easily access Lindab products as
Lindab does not currently have any branches in these locations. Further, the
Parties submitted that economies of scale in purchasing are anticipated, which can
be passed on to customers.378
8.77 In response to a request from us to quantify any synergies or cost/quality benefits,
Lindab submitted that it hoped that additional volume discounts from third party
suppliers will enable joint sourcing at an overall lower cost which would assist in
offering competitive prices/discounts to customers. Furthermore, Lindab stated
that HAS-Vent will have access to [].379
8.78 In response to the same request, HAS-Vent stated that a number of synergies are
envisaged, including: (i) enabling HAS Vent’s access to [], and (ii) benefits from
the purchasing of [] and economies of scale when group purchasing, which in
turn, HAS-Vent believes will enable it to offer a more competitive offering to the
market.380
8.79 On the impact of the Merger, one third party stated that the Merged Entity would
have access to preferential input prices and, in turn, this could mean lower product
prices
Our assessment
8.80 The Parties have not substantiated their efficiency claims with any evidence in
order for us to assess the impact of any efficiencies arising from the Merger,
including whether such efficiencies enhance rivalry in the market for the supply of
circular ducts and fittings, or whether they qualify as relevant customer benefits
under the Act, and are likely to be passed onto customers.
8.81 We therefore consider that the merger efficiencies submitted by Lindab would not
be timely, likely, and sufficient to mitigate or prevent an SLC from arising in the
market for the supply of circular ducts and fittings.
Conclusion on countervailing factors
8.82 Based on the assessment set out in this chapter, we conclude that there are no
countervailing factors arising from entry and/or expansion or Merger efficiencies
that could offset the anti-competitive effects of the Merger and prevent the SLCs
which we have identified from arising.
CONCLUSION
9.1 As a result of our assessment, we have concluded that:
(a) the completed acquisition by Lindab of HAS-Vent has resulted in the creation
of an RMS; and
(b) the creation of that RMS has resulted, or may be expected to result, in an
SLC in the supply of circular ducts and fittings in the local areas centred
around Nottingham and Stoke-on-Trent.
We have concluded the Parties are close competitors in areas where the location
of the Parties’ branches means that they are both competing to supply customers
within the local area. We also found that the Merged Entity’s branches in
Nottingham and Stoke-on-Trent would not be sufficiently constrained by alternative
suppliers, either individually or in aggregate, as to prevent competition concerns
from arising. …… Accordingly, we concluded that the Merger has resulted or may be expected to
result in an SLC in the supply of circular ducts and fittings in the local areas
centred around: (i) Nottingham, and (ii) Stoke-on-Trent (the SLC Areas).
REMEDIES
As set out in our Merger Remedies Guidance, the CMA prefers structural remedies, such as divestiture or prohibition, over behavioural remedies, because:
(a) structural remedies are more likely to deal with an SLC and its resulting adverse effects directly and comprehensively at source by restoring rivalry;
(b) behavioural remedies are less likely to have an effective impact on the SLC and its resulting adverse effects, and are more likely to create significant costly distortions in market outcomes; and
(c) structural remedies rarely require monitoring and enforcement once implemented.
In the Remedies Notice, we set out the following remedy options:
(a) divestiture of one of the Parties’ sites in each of the SLC Areas;
(b) in the event that remedy (a) is found not to be effective, divestiture of the entire HAS-Vent business;
(c) behavioural remedies; and
(d) any other practicable remedy that could be effective in comprehensively addressing the SLCs.392
In the Remedies Notice, we set out our initial view that a behavioural remedy was
very unlikely to be an effective remedy. Since then, neither the Parties nor third
parties that engaged with us on remedies told us that we should be considering a
behavioural remedy, and we have also not received any evidence to suggest that
we should be considering any other type of remedy.
Accordingly, we focus the remainder of this chapter on assessing the effectiveness
of the following structural remedy options:
(a) divestiture of one of the Parties’ sites in each of the SLC Areas; and
(b) divestiture of the entire HAS-Vent business.
There are three broad categories of risks that may impair the effectiveness of a
divestiture remedy:
(a) Composition risks: these are risks that the scope of the divestiture package may be too constrained or not appropriately configured to attract a suitable purchaser or may not allow a purchaser to operate as an effective competitor in the market.
(b) Purchaser risks: these are risks that a suitable purchaser is not available or that the merger parties will dispose to a weak or otherwise inappropriate purchaser.
(c) Asset risks: these are risks that the competitive capability of a divestiture package will deteriorate before completion of the divestiture, for example, through the loss of customers or key members of staff.
An effective divestiture remedy must give us sufficient confidence that these
practical risks can be properly addressed. We therefore consider the following
issues: (i) the scope of the divestiture package; and (ii) the availability and
suitability of potential purchasers. As noted above, we consider how to ensure an
effective divestiture process after our assessment of the proportionality of the
remedies which we consider to be effective.
10.24 In considering the appropriate scope for a divestiture package, we should ensure
that it
(a) is sufficiently broad in scope to address all aspects of the SLC(s) and
resulting adverse effects;
(b) would enable the eventual purchaser to operate the divested business as an
effective competitor; and
(c) is sufficiently attractive to potential purchasers.
Conclusion on the effectiveness of full divestiture of HAS-Vent
Our conclusion therefore is that the divestment of the entire HAS-Vent business would be an effective remedy which would address the SLCs which we have identified, by restoring the status quo ante….Based on the evidence provided to us and assessed above, we have concluded that the following remedies would be effective in remedying the SLCs and adverse effects that we have found:
(a) Divestiture of one of the Parties’ sites in each of the SLC Areas; and
(b) Divestiture of the entire HAS-Vent business.
Assessment of proportionality of our preferred remedies
In order to be reasonable and proportionate, the CMA will seek to select the least
costly remedy, or package of remedies, that it considers will be effective. If the
CMA is choosing between two remedies which it considers will be equally
effective, it will select the remedy that imposes the least cost or that is least
intrusive or restrictive. In addition, the CMA will seek to ensure that no remedy is
disproportionate in relation to the SLC and its adverse effects.524
10.127 In conducting this proportionality assessment, we first consider if there are any
relevant costs attached to either effective remedy, ie whether the merger has or is
expected to result in any RCBs which would be lost if either of the effective
remedy options were implemented.
Assessment of relevant customer benefits
When deciding on remedies, the CMA may have regard to the effects of remedial
action on any RCBs.525 In this section, we consider whether there are any RCBs
(within the meaning of the Act) that should be taken into account in our remedy
assessment……An effective remedy to an SLC might be considered disproportionate if it prevents
the realisation of any RCBs arising from the Merger, where these benefits
outweigh the SLC and any resulting adverse effects. Insofar as these benefits
constitute RCBs for the purposes of the Act, the statutory framework allows us to
take them into account when we decide whether any remedy is proportionate.
10.130 RCBs that will be foregone due to the implementation of a particular remedy may
be considered as costs of that remedy. The CMA may modify a remedy to ensure
retention of RCBs or it may change its remedy selection. For instance, it may
decide to implement an alternative effective remedy which retains RCBs, or it may
decide that no remedy is appropriate….. Neither the Parties, nor any third parties have identified any potential RCBs to
which we should have regard under the Act. Nor did we identify any RCBs ourselves. Consequently, we have not modified our view of the appropriate remedies in light of RCBs
The proportionality of effective remedies
10.132 In our conclusions on remedy effectiveness above, we summarised our view on
which remedies would be effective in addressing the SLCs and the resulting
adverse effects. We set out below our assessment of, and conclusions on, which
of the two remedies discussed in this chapter would constitute a proportionate
remedy.
Framework for assessment of proportionality of merger remedies
if it is choosing between equally effective remedies, the CMA will select the remedy that imposes the least cost or that is least restrictive (we call this the ‘least onerous effective remedy’). In addition, the CMA will seek to ensure
that no remedy is disproportionate in relation to the SLC and its adverse effects….To facilitate this assessment, we first consider whether there are any relevant costs associated with each effective remedy option. When considering the costs of
an effective remedy, the CMA’s considerations may include (but are not limited to):
(a) distortions in market outcomes;
(b) compliance and monitoring costs incurred by the Parties, third parties, or the CMA; and
(c) the loss of any RCBs that may arise from the Merger which are foregone as a result of the remedy.
The CMA will generally attribute less significance to the costs of a remedy that will
be incurred by the merger parties than the costs that will be imposed by a remedy
on third parties, the CMA or other monitoring agencies.529 In particular, for
completed mergers, the CMA will not normally take account of costs or losses that
will be incurred by the merger parties as a result of a divestiture remedy, as it is for
the merger parties to assess whether there is a risk that a completed merger
would be subject to an SLC finding, and the CMA would expect this risk to be
reflected in the agreed acquisition price.
Having considered the least onerous effective remedy, we then consider whether
the least onerous remedy would be proportionate to the SLC and its adverse effects. In doing so, we compare the level of harm which is likely to arise from the SLC with the relevant costs of the proposed remedy
Identification of the least onerous, effective remedy
In considering the costs of each of the effective remedies (individual site
divestment and the full divestiture of HAS-Vent), we note that neither remedy
option imposes relevant costs beyond the divestiture process itself,536 and there
would be no market distortion, no costs to third parties, no costs to the CMA or
other monitoring agencies in ensuring compliance with the remedies and no loss
of RCBs. ….Although we find that both the sale of one of the Parties’ sites in each of the SLC
Areas, and the sale of the entire HAS-Vent business are effective remedies to the
SLCs which we identified, we note that the divestiture of the entire HAS-Vent
business would be a more intrusive remedy than is necessary to remedy the SLCs
(eg the sale of one of the Parties’ sites in each of the SLC Areas). Therefore, we
conclude that the sale of one of the Parties’ sites in each of the SLC Areas is the
least onerous, effective remedy
Proportionality to the SLC and its adverse effects
The CMA will seek to ensure that no remedy is disproportionate in relation to the
SLC and its adverse effects….. In this final report we have concluded that the Merger could lead to higher prices
and reduced choice for customers of the Parties in the local areas centred around
Nottingham and Stoke-on-Trent…… We have therefore compared the extent of harm associated with the SLCs with the
relevant costs of the least onerous effective remedy, and consider that requiring
the sale of one of the Parties’ sites in each of the SLC Areas would not be
disproportionate in relation to the SLC and its adverse effects
Conclusion on proportionality
Following this assessment and given the requirement on the CMA to impose the
least costly or least restrictive remedy where two remedies are found to be equally
effective (as is the case here), our view is that the divestiture of one of the Parties’
sites in each of the SLC Areas, is an effective and a proportionate remedy to the
SLCs we have found, and is the least intrusive of the two potential effective
remedy options.
We consider 6 months to be enough time to enable Lindab to complete the divestment of one of the Parties’ sites in each of the SLC Areas. Given that Lindab has a dedicated M&A team, extensive
M&A experience and itself considers that a divestiture process for one of the
Parties’ sites in each of the SLC Areas is non-complex and straightforward to
execute, we do not discount that Lindab may be able to conclude the divestiture
process within a period of less than [] months. However, a maximum divestiture
period of [] months will provide Lindab with some flexibility given that it will also
be reliant on timely engagement by potential purchasers.
While we understand that Lindab does not intend to run the type of formal sales
process which might be expected for larger transactions (including for example,
preparation of an information memorandum, collation of data for a data room etc),
Lindab has set out some key milestones which it envisages for the sales process
for the divestment sites…….. As explained earlier in this chapter, given that different manufacturing models are
adopted by different suppliers in the market for the supply of circular ducts and
fittings, by including or excluding manufacturing assets from the scope of the
divestiture package, the Parties may limit the pool of potential purchasers. On this
basis and as concluded earlier in this chapter, Lindab should be required to market
all four potential divestment sites for sale during the divestiture process (and to
publicise the option for potential purchasers to acquire one or two sites out of the
four potential divestment sites, including on its website, to ensure sufficient
visibility and awareness of the sales process).558 Depending on the outcome of
Lindab’s assessment, potential purchasers will then be invited to submit formal
expressions of interest for their preferred sites.
We note Lindab’s suggestion outlined at paragraph 10.155(b) that one or two
candidates will be selected or a shortlist drawn up. We consider that if Lindab only
puts forward one candidate per site or for both sites, this may result in a risk to the
sales process given: (i) that candidate may not be considered a suitable purchaser
by the CMA, and/or (ii) the potential for the one candidate to drop out of the sales
process which would derail the divestiture process. In order to avoid this risk,
Lindab may need to provide high-level information on the divestment sites to more
than one purchaser in order to ensure that a suitable purchaser can be proposed
as a prospective purchaser to the CMA for its approval.
