OFT closed case: Completed acquisition by Blue (GP) Ltd of J Sainsbury Developments Ltd.
Affected market: Property development
The OFT's Decision on reference under section 22 of the Enterprise Act 2002 given on 11 March 2004
Blue (GP) Ltd (Blue) is a limited partnership owned 49.5 per cent by Gresham Property Partners LP and 49.5 per cent by a property fund managed by Deutsche Property Asset Management Ltd and 1 per cent by Catalyst. Blue was formed specifically to acquire JSD.
J Sainsbury Developments Ltd (JSD) is a property development company owned by J Sainsbury Plc which acquired, developed, let, managed and disposed of various retail parks in the UK. JSD's UK turnover for year ended 29 March 2003 was £114 million.
Blue acquired JSD on 27 November 2003.
The transaction was notified on 17 December 2003. The statutory deadline is 26 March 2004 and the administrative deadline falls after this date.
As a result of this transaction Blue and JSD have ceased to be distinct. The UK turnover of JSD exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. A relevant merger situation has been created.
Blue has been set up to earn returns on development of and investment in land. JSD before its merger with Blue developed new stores for Sainsburys which sometimes included other retail developments which were either sold or rented. It would appear therefore that the parties potentially compete in acquiring land for development and in the sale or rental of developed land in the form of retail parks.
The aim of developing retail parks is to generate returns on the value of the land bought. Competition for the acquisition of land appears to be broadly based with many investment funds and limited partnerships competing to develop a portfolio of properties and there do not appear to be any barriers for investment funds currently not investing in property in switching to this.
Regarding the rental of property in the UK, the parties overlap in two categories of building: retail and industrial. For industrial buildings it is likely that they compete on a wider scale within the UK rather than in particular localities.
Due to the lack of competition concerns however a frame of reference is defined, it has not been necessary to reach a conclusion on this issue.
The parties have estimated that current property development in the UK from the Investment Property Database, which may not cover all investment property, totals £102.8 billion. The parties combined assets represent less than 1 per cent of this total, which illustrates the relative scale of the parties in this sector.
Blue has acquired from JSD fourteen properties. From information received from the parties there is an overlap of broad building type (retail, industrial and office) in Birmingham and London. Given that these are both major cities in the UK and noting the size and number of developments owned, the parties have a very small share in these areas and so the merger is unlikely to raise any competition issues.
There are numerous companies involved in property development including Land Securities; Capital & Regional; Hammersons; British Land plc; Pillar Property; Morley Fund Management; etc. Barriers to entry appear small such that both large and small investors may represent a significant constraint.
This merger does not appear to raise any vertical concerns.
The merger qualifies on the turnover test of the Act. Due to the lack of competition concerns arising from the merger, no firm conclusion has needed to be reached regarding frames of reference.
The transaction represents a small proportion of the overall property development market. The overlap occurs within two locations and is not significant enough to raise competition issues.
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 United Kingdom.
This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.