OFT closed case: Completed acquisition by GB Oils Ltd of Shell Direct UK Ltd.
Affected market: Heating oils and transport fuels
The OFT's decision on reference under section 22 given on 29 March 2005. Full text of the decision published 13 April 2005
Please note square brackets indicate details or figures excised at the request of the parties for reasons of commercial confidentiality
GB OILS Ltd (GB Oils) is wholly owned by DCC plc (DCC). DCC is a business support services group focused on the energy, IT, healthcare, food and beverage and environmental sectors. DCC markets and distributes both oil and LPG products in the UK and Ireland. DCC subsidiaries supply heating oils, transport fuels and fuel oils to domestic, commercial and agricultural customers, mainly in Scotland, Northern Ireland and Yorkshire.
Shell Direct UK Ltd (Shell) supplied heating oils and transport fuels to domestic, agricultural and small commercial and industrial customers in Great Britain (GB).
This is an acquisition of trade, assets and goodwill by GB Oils from Shell. The statutory deadline expires on 29 March 2005.
As a result of this transaction GB Oils and Shell have ceased to be distinct. The UK turnover of Shell 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 the case that a relevant merger situation has been created.
The parties overlap in the supply of heating oils and transport fuels in GB.
Heating oils, such as kerosene, gas oil and heavy fuel oil and transport fuels such as, diesel and petrol, are manufactured as part of the process of refining crude oil by major oil producers in the nine oil refineries in GB. These products are distributed by both the oil producers as well as independent distributors for sale to end users.
The parties and several third parties contend that there are demand side substitutes for heating oils, such as mains gas or LPG, although it is not clear that these are viable substitutes for a sufficient number of customers to constrain the prices of heating oils. Although there are no alternatives for transport fuels, the parties submit the supply of heating oils and transport fuels are most appropriately considered together as supply side switching is easy and cheap. In practice, most distributors supply both and tankers have separate compartments to allow simultaneous transport of both fuels. However, there is no need to reach a definitive conclusion on this point as, regardless of the frame of reference considered, this transaction is not expected to result in a substantial lessening of competition.
Views on the typical catchment area for a depot range from 30 to 50 miles. The overlapping catchment area between the parties' depots may suggest a wider frame of reference. However, there is no need to reach a definitive conclusion on this point as this transaction is not expected to result in a substantial lessening of competition, regardless of the geographic frame of reference considered.
Post transaction, the parties combined share of supply (by volume) for heating oils in GB will be [1-10 per cent] (with very small increments), while for transport fuels it will be [less than 5 per cent] (with very small increments). The parties' share of supply in GB for both transport fuels and heating oils combined will also be [less than 5 per cent] (with very small increments). The parties submit that, post transaction, there will continue to be over 200 independent oil distributors in GB, including larger suppliers like CPL and Total Butler.
Pre transaction, the parties had depots in Scotland and the North East.
The parties estimate that their combined share of supply in Scotland
will be between [15-25 per cent] (with very small increments) for
heating oils, between [1-10 per cent] (with very small increments) for
transport fuels and between [5-15 per cent] (with very small
increments) for the two combined.
Figures were not available for the North East but four or five competitors will remain post transaction within the catchment area of the parties overlapping depots in this region. One third party raised concerns that smaller family-operated businesses may not act as an effective constraint on the merged entity, as it believed that larger firms benefitted from volume discounts which are passed on to customers. The parties do not believe that there is any significance in the size of distributors. For example, the parties past experience found wholesale prices were not substantially different between smaller and larger suppliers . They further note that there are many successful family owned businesses providing a good level of service which are able to compete effectively with larger suppliers. Notwithstanding the one third party mentioned, overall third party comment supported the parties' argument that the merged entity faces sufficient competitive constraints from other existing suppliers in all regions in which it is active.
Barriers to entry and expansion
The parties submit that to gain a 1 per cent share of supply, a new entrant would need at least four depots  and invest in a fleet of at least 18 tankers [ ] . Third parties felt it would not be profitable to enter on this scale.
Domestic, agricultural and small commercial and industrial customers vary in size, with a couple considering they had buyer power as they purchased in large volumes and, post transaction, would continue to have a number of alternative suppliers. Smaller customers who may purchase lesser volumes may hold less negotiating strength, however, post transaction, they will also have a number of alternative suppliers.
This transaction does not raise any vertical issues.
THIRD PARTY VIEWS
The vast majority of third parties were unconcerned about the merger. One third party was concerned about the prospects for competition in the North East post transaction, as discussed above, but this view was not shared by other third parties.
The parties overlap in the supply of heating oils and transport fuels in Scotland and the North East. Within Scotland their combined share of supply does not exceed [15-25 per cent] and within the North East the parties will continue to face competition from a number of alternative suppliers. Third parties (with one exception) were unconcerned, regarding remaining suppliers as an effective constraint on the merged entity.
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.