Affected market: Domestic and international parcel delivery
The OFT’s decision on reference under Section 22(1) given on 7 March
2007. Full text of decision published 21 March 2007.
Please note that square brackets indicate text or figures which have
been deleted or replaced with a range at the request of the parties and
third parties for reasons of commercial confidentiality.
BET UK Limited (BET UK) is a wholly-owned subsidiary of Rentokil
Initial plc (Rentokil Initial). BET UK Limited is an investment holding
company and owns Initial City Link Limited (City Link), Rentokil
Initial's parcel delivery business. City Link offers national and
international parcel delivery services and focuses on the UK overnight
timed (express) delivery market. The annual network turnover [note 1]
of City Link in the year ended 31 December 2006 was [ ].
Target Express Holdings Limited (Target Express) provides a range of
national and international parcel delivery services for customers
throughout the UK. Its primary focus is on the UK overnight timed
delivery market. The UK turnover of Target Express in the year ended 30
April 2006 was approximately [over £70 million].
Rentokil Initial has acquired, through BET UK Limited, the entire issued
share capital of Target Express. The transaction was completed on 29
November 2006 and the statutory deadline therefore expires on 28 March
2007. The 40-working-day administrative deadline expires on 15 March
As a result of this transaction BET UK and Target Express have ceased to
be distinct. The UK turnover of Target Express exceeds £70 million, so
the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the
Act) is satisfied. The OFT therefore believes that a relevant merger
situation has been created.
FRAME OF REFERENCE
The parties have followed the same approach as the European Commission
(Commission) in previous cases [note 2] The Commission distinguished
markets for standard and express services, and domestic and international
services respectively, and these markets have tended to be considered national
in scope. The Commission decisions have distinguished four separate frames of
references for parcel delivery: domestic standard parcel delivery, domestic express parcel delivery
international standard parcel delivery, and international express parcel
delivery. The parties overlap in i) domestic express parcel delivery
services, which cover same day and next day delivery and ii)
international express parcel delivery services, which cover next day
delivery to European destinations.
Standard and express parcel delivery services
On the demand side, previous EC decisions have distinguished between
standard and express delivery services, on the basis of speed and
reliability of the delivery and value-added services. The parties and
third parties who commented on this case have agreed that the difference
in terms of price, speed of delivery and the certainty of guaranteed
delivery by a certain time continue to be relevant.
On the supply-side, the parties noted that most operators do not offer
solely a standard service, but either an express service alone or both a
standard and an express service. This has been confirmed by third
parties. One competitor estimated that it could take between six months
and two years to develop the necessary distribution network.
However, notwithstanding this lack of supply- and demand-substitution
between standard and express parcel delivery services, it is not
necessary to reach a conclusion on the product frame of reference in
this case, as no competition concerns arise, even if standard and
express parcel delivery services are considered separately.
Domestic express parcel and international express parcel delivery services
Some EC decisions [note 3] have acknowledged that
domestic and international express delivery markets could have become
integrated as some competitors and customers are adopting strategies to
supply or procure these services on a European or even global basis.
However, most Commission decisions [note 4] have emphasised that
the main features distinguishing domestic and international services
continue to persist. The OFT has not been provided with any evidence
to support departing from this approach.
On the supply-side, the parties have submitted that it would be
relatively easy for a domestic service provider to provide international
express delivery services, either through a contract with an existing
provider or a forwarding arrangement with domestic providers in other
countries. Third parties estimated that it would take at least three
years to enter the market without a partner already established in the
It is not necessary to reach a conclusion on this product frame of
reference as no competition concerns arise, even if, in light of the
limited demand- and supply-side substitution discussed above domestic
express parcel delivery services are considered as distinct from
international express parcel delivery service.
On the basis of customer perception, price differences, and the national
organisation of pick-up, delivery and marketing, the Commission's past
decisional practice [note 5] has deemed both domestic and international
express delivery services respectively as national in scope. Some
decisions [note 6] have, nonetheless, suggested that there is a current
trend towards a European or global market due to the emergence of some
global customer accounts.
The parties submitted that for international express parcel services
demand-side substitution was weak and a UK-based customer would not
generally consider, for example, a French operator without UK operations
for international services. However, they noted that some major
international operators, for example Deutsche Post and Fedex, already
have established UK businesses.
As for domestic express parcel services the parties and their main
competitors operate networks covering Great Britain and Northern Ireland
and there is no evidence to suggest that it would be appropriate to
consider regional sub-markets.
The balance of the evidence points towards a UK-wide frame of reference
for both domestic and international express parcel services. However,
this transaction does not raise any competition concerns on this
national basis. It has therefore not been necessary to conclude on the
Conclusion on frame of reference
While it is not necessary to reach a conclusion on the product frame of
reference in this case, as no competition concerns arise even taking
into account the narrowest reasonable frame of reference, the OFT has
considered the relevant frames of reference to be i) domestic express
parcel delivery services in the UK and ii) international express parcel
delivery services in the UK.
Domestic express parcel delivery services in the UK
Post-merger, the parties estimated their combined share of supply to be
about [10-20] per cent, with an increment of about [0-10] per cent.
Four competitors with a share of supply of above 10 per cent remain, two
of which hold a similar share to the new entity.
The parties submitted that competition is strong in domestic express
parcel delivery services on the basis of price levels, service levels
and ease of switching. Although contracts exist with more than [ ] per
cent of customers, the parties submitted that there are no contractual
volume requirements and that a customer is free to use an alternative
service at any time without impediment or penalty. For some larger City
Link customers, a notice period of [ ] exists in contracts. [ ]
Third party responses largely confirmed the parties' submission.
The parties submitted that they do not consider each other as closest
competitor. They submitted lost business reports showing that Target
Express lost business to at least [ ] different providers and only [
] per cent of its lost business was lost to City Link. Similarly, City
Link lost business to at least [ ] different providers. Various
internal documents show that the parties did not consider themselves to
be particularly close competitors. This was confirmed by most third
International express parcel delivery services in the UK
The parties estimate their combined share of supply in international
express services to amount to less than [0-10] per cent at the most.
Other major competitors in this field are DHL/Omega, TNT, UPS/Lynx and
ANC/Fedex. The parties submitted that international express delivery
services are characterised by many of the same features as domestic
express services with prices also expected to fall in the future due to
competition from other providers.
THIRD PARTY VIEWS
All third parties who responded have been unconcerned about this
The parties overlap in the supply of domestic and international express
parcel delivery services in the UK. Their estimated combined share of
supply in international services amounts to less than [0-10] per cent.
In domestic services, the parties achieved post-merger a combined share
of supply of about [10-20] per cent. A wide range of viable
alternative suppliers with similar or marginally lower shares of supply
will continue to exist post-merger and the parties have submitted
evidence demonstrating that the parties are not considered to be each
other's closest competitors. Third parties who have commented on this
merger have confirmed this. In addition, third party respondents did not
consider switching to be difficult and none were concerned.
Consequently, the OFT does not believe that it is or may be the case
that the merger has resulted or may be expected to result in a
substantial lessening of competition within a market or markets in the
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- The network turnover includes the turnover of the franchisees. The
parties submitted that network turnover is the true measure of external
- For example COMP/M.3155 – Deutsche Post/Securicor, COMP/M.2908 –
Deutsche Post/DHL, COMP/M.1405 – TNT Post Group/Jet Services,
COMP/M.1347 – Deutsche Post/Securicor.
- For example IV/M.1168 – DHL/Deutsche Post.
- For example IV/M.1347 – Deutsche Post/Securicor.
- For example IV/M.843 PTT Post/TNT/GD Worldwide.