Construction merger faces in-depth investigation
Breedon’s anticipated acquisition of Hope faces being referred for an in-depth investigation by the CMA.
Both companies - Breedon Aggregates Limited (Breedon) and Hope Construction Materials Limited (Hope) - produce and supply aggregates and ready-mixed concrete (RMX). Aggregates are used in the construction of roads, buildings, bridges and other infrastructure - as well as in the production of RMX, concrete products and asphalt. RMX is concrete which is produced in a freshly mixed and unhardened state ready for use on site.
The 2 companies are major competitors in RMX and operate over 200 RMX sites across England, Wales and Scotland. The Competition and Markets Authority (CMA) has found that the transaction gives rise to competition concerns in relation to 27 RMX sites, meaning that customers might face higher prices as a result of the merger in the local areas surrounding these sites.
The CMA’s initial investigation has however ruled out any competition concerns over the production and supply of aggregates and in relation to the potential for the merging companies to restrict the supply of aggregates or cement (as inputs for other products) to rival suppliers.
The merger will therefore be referred for an in-depth phase 2 investigation by an independent group of CMA panel members unless Breedon is able to offer undertakings which address the competition concerns (see notes for editors).
Sheldon Mills, CMA Senior Director of Mergers, and decision-maker in the initial investigation, said:
Ready-mixed concrete is an essential product for a wide range of construction projects of all sizes in the public and private sectors. The vast majority of the merger raises no concerns but there are a number of areas where the companies compete strongly with each other for customers and the concern is that the loss of such rivalry could lead to price rises for customers. The businesses may now resolve these concerns or face a detailed investigation.
Notes for editors
- The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.
- Breedon produces and supplies aggregates, asphalt, RMX and concrete blocks in the UK and Hope produces and supplies cement, RMX, and aggregates in UK. Breedon’s completed acquisition of certain assets of Aggregate Industries UK Limited was previously investigated by the Office of Fair Trading and Competition Commission.
- The Reference Test: under the Enterprise Act 2002 (the Act) the CMA has a duty to make a reference to phase 2 if the CMA believes that it is or may be the case that a relevant merger situation has been created, or arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; 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.
- Under the Act a relevant merger situation is created if 2 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 (‘the turnover test’) or as a result of the transaction, in relation to the supply of goods or services of any description, a 25% share of supply in the United Kingdom (or a substantial part thereof) is created or enhanced (‘the share of supply test’).
- The CMA’s duty to refer the merger for a phase 2 investigation under the Act is not exercised whilst the CMA is considering whether to accept undertakings (if offered) in lieu of a reference. Breedon have until Tuesday 19 April 2016 to offer undertakings to the CMA that might be accepted by the CMA. If no undertakings are offered and accepted, then the CMA will refer the merger.
- All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision-makers on phase 2 inquiries. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
- The full text of this decision will be placed on the merger case page as soon as is reasonably practicable.
- Enquiries should be directed to Siobhan Allen (siobhan.allen@cma.gsi.gov.uk, 020 3738 6798).
- For information on the CMA see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.