Great South Eastern Railway Ltd / Integrated Kent rail franchise

OFT closed case: Anticipated acquisition by Great South Eastern Railway Limited of the Integrated Kent rail franchise.

Affected market: Passenger rail

No. ME/1528/05

The OFT's decision on reference under section 33 given on 4 April 2005. Full text of decision published 14 April 2005.

PARTIES

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 .  

TRANSACTION

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.

BACKGROUND

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.

JURISDICTION

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.

RELEVANT MARKET

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.

ASSESSMENT

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.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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