Affected market: IT reselling to business customers
The OFT's Decision on reference under section 33 given on 6 August
Please note that square brackets indicate figures which have been
deleted or replaced with a range at the request of the parties for
reasons of commercial confidentiality.
Dixons Group plc (Dixons) is a diversified electrical retailer operating
in the UK and other European countries. Dixons trades in the UK through
its wholly-owned subsidiary DSG Retail Limited (DSGR) and through The
Link Stores Limited (60 per cent owned). In the UK, DSGR operates under
the brands of Dixons, Currys, PC World, PC Service Call, Mastercare,
Partmaster Direct and PC World Business (PCWB). PCWB is a direct
reseller of IT products (together with related after-sale services) to
business customers in the UK.
Micro Warehouse Limited (Micro Warehouse UK) operates as a direct
reseller of IT products to business customers in the UK (via the
internet and telephone). Micro Warehouse UK's business specific product
portfolio includes hardware, software, IT consumables (such as ink
cartridges) and to a lesser extent, simple after-sale services. In the
year ending 31 December 2003, the UK turnover of Micro Warehouse UK was
On 27 May 2004 Dixons, via DSGR, acquired the entire issued share
capital of Micro Warehouse UK from Gores Services LLC for a
consideration of approximately $[ ] million (£[ ] million).
The parties notified the transaction on 10 June 2004 and the
administrative deadline is 6 August 2004.
As a result of this transaction Dixons and Micro Warehouse UK have
ceased to be distinct. The UK turnover of Micro Warehouse UK 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 it is or
may be the case that a relevant merger situation has been created.
The parties overlap in the supply of IT products to business customers.
PCWB's largest product line, business hardware, accounts for
approximately [ ] per cent of its total turnover. PCWB sales to
private customers are estimated at less than [0-10] per cent and it
does not currently operate any retail outlets but makes use of a small
allocated space within PC World's retail outlets. Other than through
PCWB, Dixons makes few sales to business customers.
Micro Warehouse UK's largest product line, business hardware, accounts
for approximately [ ] per cent of its turnover. It does not operate
any retail outlets. Sales to private customers account for less than
[0-10] per cent of Micro Warehouse UK's sales.
Dixons submits that the parties operate in a market for the sale of IT
goods to business customers. It argues that there is limited demand side
substitutability and no supply side substitutability between business
customers and private customers for the following reasons:
- Business specific product characteristics. Business PCs run Microsoft
XP Pro and domestic computers run Microsoft XP Home; and business IT
equipment invariably must be able to run on a network.
- Different purchasing patterns. Most private customers buy their IT
requirements through a mix of retail outlets and direct sales; more
business customers typically buy their products direct over the
telephone or by the internet.
- Different product requirements. Most businesses operate a specific
network, an intranet and a server which manages the network's various
resources, such as PCs, printers and fax machines.
- Different terms and conditions. Business customers usually benefit
from a business account (with VAT registration) in order to obtain a
credit facility as opposed to private customers. Also, sales to
business customers exclude the conditions under the relevant consumer
sales of goods legislation.
All but one of the third party responses concurred with this view. One
third party submitted that there is a high level of commonality in the
products supplied to private customers and small to medium size
enterprises, and consequently the supply of IT goods to business
customers is different to, but not separate from, the supply to private
Dixons submits that the relevant geographic scope is at least national
because business customers source their requirements from across the UK.
In general, the available purchasing channels operate on a national
level and business customers tend to negotiate prices centrally for the
whole of their UK operations.
IT reselling to business customers is a highly fragmented industry, with
no player having more than a 10 per cent market share. The major players
include Computacenter, Insight, Bechtle, Systemax, SCH and direct supply
manufacturers such as Dell and Apple, with the remainder of the industry
made up of many medium and small resellers.
The parties estimate that they have a combined share of supply of [less
than 10] per cent (an increment of [less than 5] per cent) in IT
reselling to business customers in the UK (see [note 1]). Given
these low shares of supply, the transaction does not raise any
horizontal competition issues.
Barriers to entry
Dixons submits that barriers to entry into IT reselling to business
customers are low. In support of this, it argues that:
- manufacturers who do not currently sell direct could enter the sector
by establishing their own direct selling operations (mail order,
telephone or internet)
- it would be relatively easy for manufacturers/retailers specialising
in the sale of consumer IT products to enter the segment for sales to
- direct resellers to business customers (and manufacturers) which are
active in other countries would also be able to enter the segment
without great difficulty.
Given the lack of horizontal issues in this case, it is not necessary to
reach a firm conclusion on barriers to entry.
There are many suppliers of IT goods to business customers and it
appears that such customers have no switching costs, implying that they
may have a degree of negotiating power. Given the lack of horizontal
issues in this case, it is not necessary to reach a firm conclusion on
One third party raised concerns that Dixons would be able to leverage
its buyer power from its purchases of IT for private customers into
Micro Warehouse UK. It believed that Dixons was already doing this
because PCWB was able to bid at a lower price than it on many supply
contracts for business customers.
Dixons submits, however, that purchasing for PCWB is completely separate
from the PC World consumer business; indeed, the two parts of the
business have completely different purchasing teams under a completely
different management structure. The OFT did not receive any evidence to
suggest that Dixons is currently leveraging any buyer power it might
have to purchase IT goods for PCWB, nor any evidence to suggest that it
will begin doing so. Given the size of Micro Warehouse UK, the
acquisition has not and is not expected to materially increase any
buying strength that Dixons had prior to completion of the merger.
THIRD PARTY VIEWS
The vast majority of third parties who responded were unconcerned about
the transaction. As noted above, one third party raised concerns about
Dixons' upstream buyer power but no evidence was received to support
In light of the highly fragmented nature of IT reselling to business
customers in the UK and the parties' low shares of supply, the
transaction has not and is not expected to lead to a substantial
lessening of competition.
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.
- This is on the basis of an
estimated total industry size of the UK market for IT reselling to
business customers of £[ ] billion with Micro Warehouse's turnover
amounting to £143 million and Dixons' turnover amounting to £[ ]