OFT closed case: Anticipated acquisition by Cooperative Group Limited of Mcintosh Funeral Directors.
Affected market: Funeral undertaking services
The OFT’s decision on reference under section 33(1) given on 5 April 2006. Full text of decision published 20 April 2006.
Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.
Cooperative Group Limited (CWS) is a retailer of grocery products but is also active in funeral undertaking. McIntosh Funeral Directors (McIntosh) is a sole trader active in funeral undertaking located in Kaimhill Road, Aberdeen, AB10 7LJ, Scotland.
CWS proposes to wholly acquire the McIntosh business. The transaction was notified on 24 February 2006 and an administrative deadline of 25 April 2006 applies.
Pursuant to an investigation conducted by the Monopolies and Mergers Commission (MMC) into the acquisition by CWS of the funeral undertaking business of House of Fraser, CWS gave undertakings to the Secretary of State on 27 November 1987 to notify the OFT of any further proposed acquisitions of funeral undertaking businesses in Scotland. CWS has complied with its obligations under the 1987 undertakings in respect of this transaction.
As a result of this transaction CWS and McIntosh will cease to be distinct. The parties overlap in the supply of funeral undertaking services and achieve a share of supply of [greater than 25] per cent in Scotland. As a result, the share of supply test in section 23 of the Enterprise Act is met. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.
The parties overlap in the supply of funeral undertaking services. When preparing its analysis, CWS assumed that the number of funerals conducted was the same as the number of deaths. This is consistent with the MMC report into the acquisition by CWS of the funeral undertaking business of House of Fraser (the House of Fraser Report).
In the House of Fraser Report, the MMC considered that competition occurred at a local level, where a normal radius of operation was between five and ten miles (see [Note 1]). This was further supported by the MMC report in the SCI/Plantsbrook (see [Note 2) merger and more recently by the Competition Appeals Tribunal (CAT) in the Burgess Funerals Competition Act 1998 case (see [note 3]). On the basis of these past precedents the local aspects of the merger can be examined as follows: i) using Aberdeen city council boundaries; ii) using catchment areas around the two existing CWS ‘Funeral Care’ branches which represent 80 per cent of their business.
No evidence was received during the course of the OFT’s investigation which would suggest a departure from the above approach.
CWS has two Funeral Care branches in Aberdeen. The Rose Street branch is located centrally, two miles away from the McIntosh (or Target) branch (approximately four minutes drivetime). The Old Meldrum Road branch is nearly six miles away from the Target branch (approximately 11 minutes drivetime) and is further away from the centre of Aberdeen than the other funeral homes present.
CWS provided share of supply data in relation to Aberdeen City Council boundaries which was consistent with the delineations used by the MMC and the CAT in previous cases. On this basis, as a result of the acquisition, the parties combined share of supply in funeral undertakings in Aberdeen would be [15-25] per cent (increment [less than 10] per cent).
There are several other funeral homes in Aberdeen, including Dignity (five branches, see [Note 4]); Victoria Funeral Home (one branch); Mark B Shaw (one branch); Brian Smith Funeral Services (one branch); and Aberdeen Funeral Directors. Based on the share of supply information submitted by the CWS, Dignity would appear to be by far the largest provider in Aberdeen ([45-55] per cent), followed by CWS and then Aberdeen Funeral Directors ([15-25] per cent).
CWS also provided share of supply data using catchment areas around the two existing CWS branches which represent 80 per cent of CWS’ business in this area: the Old Meldrum Road branch; and the Rose Street branch. In the case of the Rose Street branch, which generates an area only slightly displaced from the City Council boundary, the parties’ combined share of supply would amount to [15-25] per cent. If the catchment area was centred on the Old Meldrum Road branch, [the Target branch is absent from the catchment area].
CWS has not provided market shares using the catchment area around the Target branch. It is possible that doing so might result in a higher combined market share for CWS as McIntosh is located further out of the city centre and thus further from the cluster of competing funeral homes. However, on the basis that the catchment area around McIntosh would be at least a four mile radius (consistent with previous MMC inquiries), all six competitors would be included in the market share analysis and the combined CWS share is likely to be similar to the one calculated by CWS for the Rose Street branch.
In the House of Fraser Report, the MMC concluded that price competition between providers of funeral services in Scotland was limited and therefore, another aspect of competition – choice – becomes important. CWS provided evidence that within the Aberdeen City Council boundary, the fascia count would reduce from seven to six and, as a result, there would remain sufficient choice of funeral undertakers in Aberdeen following the acquisition.
Based on the evidence outlined above, it would appear that a number of competitors will be present post-merger, including the number one provider Dignity. As a result, it would appear that sufficient competition and choice will remain to constrain the merged entity following the merger, such that no competition concerns arise.
BARRIERS TO ENTRY AND EXPANSION
The House of Fraser Report concluded that barriers to entry may be low. Funeral businesses can be operated from many premises and sunk costs appear very low. However, the MMC did suggest that it may be difficult for new funeral businesses to gain a significant share of supply, as this would have to be at the expense of established firms. There is no evidence to suggest the situation has changed significantly to date.
THIRD PARTY VIEWS
Third parties did not raise any concerns about this merger, noting that the parties were not particularly large and a number of alternative providers would remain post-merger.
The parties overlap in the supply of funeral undertaking services in Aberdeen. Consistent with past precedents, the competition was examined at the local level using: i) the Aberdeen City Council boundaries; and ii) the catchment areas around the two existing CWS Funeral Care branches which represents 80 per cent of their business in this area.
Post-merger the parties will account for approximately [15-25] per cent (increment [less than 10] per cent) of the supply of funeral undertaking services within the Aberdeen City Council boundaries. Within the two CWS Funeral Care branches catchment areas the parties combined share of supply is [15-25] per cent (Rose Street) and [15-25] per cent (Old Meldrum Road) respectively. In terms of choice, following the merger the number of funeral providers based on a fascia count will reduce from seven to six. Overall, it would appear that a number of funeral service providers will remain post-merger to constrain the parties, including the number one player in the area, Dignity, which is substantially bigger than the merged entity.
Consequently, the OFT does not believe that it is or may be the case that the merger 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 33(1) of the Act.
- MMC, 1987, A report on the acquisition by the Co-operative Wholesale Society Limited of the Scottish funerals business of House of Fraser PLC, Cm229, paragraph 8.8.
- MMC, 1995, Service Corporation International (SCI) of Plantsbrook Group PLC: A report on the merger situation, Cm 2880.
- Case No:1044/2/1/04, M.E. Burgess, J.J. Burgess and S.J. Burgess vs Office of Fair Trading and W. Austin and Sons, the Harwood Park Crematorium and the Consumer's Association, 2005.
- In Aberdeen Dignity operates under the trading names of Gordon and Watson (four branches) and MacIntosh and Steven (one branch).