Affected market: Passenger rail
The OFT's decision on reference under section 33 given on 4 April 2005.
Full text of decision published 14 April 2005.
Sea Containers Limited (Sea Containers) is a Bermuda company with
regional subsidiary offices in London, Genoa, New York, Rio de Janeiro
and Sydney. Sea Containers is engaged in three business areas: passenger
and freight transport, marine container leasing and leisure. Sea
Containers through its wholly owned subsidiary Great Northern Railway
Holdings Limited (GNER Holdings) currently operates the InterCity East
Coast rail franchise (ICEC), through its subsidiary company Great North
Eastern Railway Limited (GNER). The franchise expires on 1 May 2005. In
the 52 weeks to 4 January 2004, GNER's UK turnover was approximately
£429 million. Sea Container's turnover for year ended 31 December 2003
was approximately $1.6 billion.
MTR Corporation (IKF) Limited (MTR (IKF)) is a wholly owned
subsidiary of MTR Corporation Limited of Hong Kong (MTR). MTR came into
operation in Hong Kong in June 2000 to succeed the Mass Transit Railway
Corporation that was established in 1975. The Government of Hong Kong
has retained a 76 per cent stake in MTR. MTR is engaged in two main
business areas: railway operations and property development. MTR's
principal business is to operate the mass transit railway system in Hong
Kong and currently has no rail operation in the UK. MTR's total
turnover for 2003 was HK$ 7.5 billion.
Integrated Kent Rail Franchise (IKF) will include passenger rail
services on the network currently operated by South Eastern Trains
(SET), a subsidiary of the Strategic Rail Authority (SRA). The IKF is a
commuter network serving several areas around South East England, parts
of Greater London and several London termini. The IKF will also include
new high-speed services from St Pancras making use of the Channel Tunnel
Rail Link (CTLR). Reported turnover for the period 9 November 2003 (when
SET took over the franchise from Connex) to 31 March 2004 was
approximately £195 million .
Sea Containers proposes to acquire the IKF through its subsidiary Great
South Eastern Railway Limited (GSER). Sea Containers through its wholly
owned subsidiary GNER Holdings holds 71 per cent of the issued share
capital of GSER. The remaining 29 per cent is held by MTR Corporation
(IKF) Limited. The entry into a franchise agreement will, pursuant to
section 66(3) of the Railways Act 1993, constitute an acquisition of
control leading to the IKF franchise business and the business of GSER
ceasing to be distinct.
A satisfactory notification was submitted on 3 February 2005 and the 40
day administrative deadline is 4 April 2005.
The anticipated merger arises from a competition for the award of the
IKF commencing on 11 December 2005. The SRA is currently in negotiations
with shortlisted bidders. In addition to GSER, other shortlisted bidders
are South Eastern Railways Limited (a joint venture between DSB
International and Stagecoach Group), First Kent Integrated Railways
Limited (FirstGroup PLC), and London & South Eastern Railway Limited
(a joint venture between Go-Ahead Group and Keolis). The SRA is expected
to announce its preferred bidder by early autumn 2005.
As a result of this transaction GSER and IKF will cease to be distinct.
The UK turnover of IKF 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 arrangements
are in progress or in contemplation which, if carried into effect, will
result in the creation of a relevant merger situation.
The parties do not overlap in the supply of any good or service. GSER's
ultimate parent company, Sea Containers, operates cross-Channel ferry
services between England and France and charters special train services
for on-board holidays and excursions in the UK. These services are
considered to be entirely distinct from, and therefore do not compete
with, the IKF's scheduled rail passenger services. GNER, a subsidiary
of GNER Holdings, currently operate the ICEC but there are no overlaps
with the IKF. Neither MTR (IKF) nor MTR have any passenger rail
operations in the UK.
THIRD PARTY VIEWS
No third parties expressed concern.
No overlaps or vertical competition issues are created by the merger.
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.