Affected market: Healthcare logistics
The OFT’s decision on reference under section 33(1) given on 19 July
2006. Full text of decision published 26 July 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.
Exel Europe Limited (Exel) is a UK subsidiary of Deutsche Post AG.
Its core activities in the UK are contract logistics (including
warehousing and distribution) and freight forwarding.
NHS Logistics is an operating division of the NHS Business Services
Authority (NHSBSA). Its primary role is to provide a dedicated supply
chain service to the English NHS for consumable products (ranging from
medical and surgical supplies to stationery, cleaning materials and
NHS Purchasing and Supply Agency (PASA) is an executive agency of
the Department of Health (DH). It contracts on a national basis for the
purchasing of a range of products and services for NHS end users. It
also has a function to advise upon and coordinate procurement across the
health service and works with around 600 NHS Trusts and health
Once the transaction is completed, Exel will take over the supply of
certain logistics and procurement services for consumable products that
have previously been provided to the DH by PASA and NHS Logistics. Exel
will [ ] from the NHSBSA, as well as acquiring other assets (such as
IT and office equipment), contracts, the right to use certain NHS
intellectual property and up to 1,600 employees currently working within
NHS Logistics and NHS PASA under TUPE regulations.
The parties notified the agreement to the OFT on 1 June 2006 and the
Office’s administrative deadline is 27 July 2006.
The logistics and procurement services being taken over by Exel are
mainly provided to the DH by in-house arm’s-length bodies, and they
currently have extremely limited turnover from sales of such services to
The parties indicate that if an open market value is attributed to these
in-house services, either on the basis of current annual operating
costs, or based on an estimate of Exel’s expected remuneration during
the first year of the operation of the contract to supply the DH, that
open market value would exceed £70 million.
Given that the contracts and assets are being transferred by NHS
Logistics and PASA have an open market value, they are considered
enterprises for the purposes of the Enterprise Act 2002.
The turnover test in section 23(1)(b) of the Enterprise Act 2002 (the
Act) is therefore taken to be satisfied. 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’ operations overlap in logistics services which involve
order capture, warehousing, delivery, supply chain management to NHS
Trusts, invoicing, and collection of payments for the relevant products.
NHS Logistics functions almost entirely as an in-house provider of
logistics to NHS customers, although it does provide certain supplies to
other government bodies (e.g. the Ministry of Defence) and a small
amount to the private sector. Exel contends that the logistics’
services that it provides to NHS Trusts are complementary to those
provided by NHS Logistics since it acts as a provider of certain
logistics’ services to only three NHS Trusts in North West London, in
relation to very localised activities (e.g. product consolidation and
delivery to individual wards) rather than national supply of products on
a broader basis.
The parties submitted that it is not appropriate to use a narrower
product frame of reference than logistics' services, such as
‘healthcare logistics’ as many of the products concerned are not
healthcare specific, such as cleaning materials, food, stationery,
bedding, office equipment and clothing. This view of the range of
products supplied was not contradicted by third parties contacted during
A possible alternative approach (see [Note 1]) to identifying
the relevant product scope is to consider supply to particular customer
groups (in this case NHS Trusts), which differ in relation to their
volume requirements and alternative supply options. However, in
considering competition to supply this particular customer group, it is
important to note that the consumable products supplied to these
customers can be and are also sourced directly from manufacturers or via
other wholesale suppliers.
No firm conclusion is necessary in respect of the approaches discussed
above as even on the narrowest plausible potential product frame of
reference, the supply of logistics’ services to NHS Trust customers, no
competition concerns arise.
The parties suggest that there may be some evidence of a gradual move
towards a wider European market for general contract logistics. However,
previous UK merger decisions (see [Note 2]) have indicated a
national geographic scope, since customers display local preferences,
and even logistics’ service providers that operate in various countries
do so on the basis of a local presence in those countries. The OFT has
not received compelling evidence during this assessment to justify
changing that view. It is also noted that NHS Logistics only operates in
England and Wales.
The combined share of supply by contract value of the parties’
operations in logistics’ services in the UK would be 22.5 per cent,
with the logistics services of NHS Logistics accounting for a 1.0 per
cent increment. In relation to the supply chain for consumable products
supplied to NHS customers, NHS Logistics currently accounts for around
only 16 per cent of the consumable products supplied, the rest being
sourced either directly from manufacturers or from other wholesale
sources. As noted above, Exel currently only has limited supply
arrangements with NHS Trusts.
No vertical competition issues arise as a result of the transaction.
THIRD PARTY VIEWS
A number of customers and competitors were contacted during the
investigation. No competition concerns were raised which are directly
attributable to this transaction.
This merger, once completed, will result in the outsourcing of certain
supply chain and procurement functions of the NHS. The overlap between
the parties’ operations in respect of the supply of logistics’
services in the UK is minimal. In the view of the OFT, neither this
minimal overlap, nor the parties’ low combined share of supply and
limited increment raise any competition concerns.
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.
- Completed acquisition by Southern Syringe Services Limited of
Hospital Management and Supplies Limited; 24 January 2005.
- Anticipated acquisition by Celesio AG of Healthcare Services Group
plc: 29 March 2005. Completed acquisition by Southern Syringe Services
Limited of Hospital Management and Supplies Limited; 24 January 2005.