Affected market: Aggregates and asphalt
The OFT's decision on reference under section 22 of the Enterprise Act 2002 given on 28 February 2005. Full text of decision published 8 March 2005.
Ennstone plc is principally involved in quarrying, the production and sale of aggregates, building materials and other related activities in the UK and the US.
Johnston Group plc (Johnston) has two main operating divisions: construction materials and engineering. As part of its construction materials division, Johnston owned the freehold of Leaton Quarry in Shropshire. This quarry is operated by Berwyn Granite Quarries Limited, a 51/49 joint venture between Johnston and Tarmac Roadstone Holdings Limited. Johnston also leases and operates Leinthall Quarry in Herefordshire. Both quarries are engaged in the production of aggregates and asphalt. For the year ended 31 December 2003, Johnston had a UK turnover of £95.9m
Ennstone announced on 29 July 2004 an offer for the entire issued and to be issued share capital of Johnston not already owned by Johnston (Ennstone already owned 0.8 per cent of the issued share capital of Johnston). Ennstone announced on 1 November 2004 that its offer had become unconditional in all respects and the statutory deadline for consideration of this transaction expires on 28 February 2005. The OFT's administrative deadline also expires on the same date.
As a result of this transaction Ennstone and Johnston have ceased to be distinct. The UK turnover of Johnston exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 is satisfied. A relevant merger situation has been created.
The parties overlap in the production and sale of aggregates (see [note 1]). Aggregates are used for construction purposes and consist of primary aggregates (sand, gravel, and crushed rock) and secondary/recycled aggregates (including china clay waste, glass waste, slag, recycled construction/demolition site waste and recycled railway ballast). Although aggregates can be sorted and graded differently, the OFT has previously considered (see [note 2]) there to be a single relevant market for aggregates given the substantial overlap between the uses to which different types of aggregates can be put. The OFT has not received any evidence as a result of its assessment of this case to justify or suggest an alternative definition.
As the decisions referred to at [note 2], the OFT has previously considered a 30-mile radius from the point of production as the most appropriate initial geographic basis for analysing the effect of aggregates mergers, due to (i) high transportation costs relative to the product's sales value; and (ii) Government planning policy recognising the 30 mile delivery distance in respect of aggregates (see [note 3]). When analysing the Tarmac / Anglo American transaction in 2004, the OFT also considered (based on the parties' arguments) the prospect of a geographic frame of reference based around a two hour drivetime which generally equates to a 50 mile radius from the point of production. As the parties to this merger only overlap on the basis of a 50 mile radius, the OFT has, for completeness, considered the effects of this transaction on that basis. However, no firm conclusion is needed on the relevant radius as no competition concerns arise as a result of this analysis.
Shares of supply
Ennstone is not active within a 30, 40 or 50 mile radius of the Leinthall quarry and the parties only overlap on a 50 mile radius around the Leaton quarry, where they have a combined share of supply for aggregates of 5-10 per cent (0-5 per cent increment). There is no evidence of direct competition between Ennstone and Johnston within this area - Ennstone has not bid against Johnston for contracts with any customer that responded to our enquiries.
In the previous cases it was considered that shares below 33 per cent would not create competition concerns. The combination of Ennstone and Johnston in a 50 mile radius falls well below this threshold. Although this is a concentrated industry, the HHI increment (0-50) does not raise prima facie concerns.
No vertical competition issues arise as a result of this transaction.
THIRD PARTY VIEWS
No third parties raised any competition concerns about this transaction.
The parties overlap in the supply of aggregates within a 50 mile radius of Leaton. Their combined share of supply is relatively small, with a minimal increment. Furthermore, there is no evidence that they have competed against each other in the past to supply customers in the area.
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.
- The parties also overlap in the production of asphalt, although not within the same geographic frame of reference.
- See cases under the Fair Trading Act 1973 Hanson / Pioneer (2000), Tarmac / Anglo American (2000) and RMC Group / Alexander Russell (2001) and cases under the Enterprise Act 2002 MQP / Griff (2004) and Anglo American / Johnston (2004).
- Minerals Planning Guidance 6, published by the Office of the Deputy Prime Minister, states that 'aggregates are mainly transported from sites by road and rail. Most travel by road and rail are delivered within 30-35 miles from the quarry or pit'; National Planning Policy Guideline 4 for land for mineral workings published by the Scottish Office states that 'since road access and related transport costs require working in relatively close proximity to the main urban markets, working more than 30 miles from the main markets will not generally be attractive to the industry and will conflict with Government objectives for reducing energy consumption'.