Affected market: Operation of licensed nuclear sites
The OFT’s decision on reference under section 33(1) given on 22 October 2008. Full text of decision published 31 October 2008.
Nuclear Management Partners Limited (NMPL) is a consortium with expertise in the operation of nuclear power stations. It consists of Washington International Holdings Limited, AMEC Nuclear Holdings Limited and AREVA NC.
Sellafield Limited (Sellafield) is the publicly-funded company which holds the site licence for the Sellafield nuclear site. The Sellafield site ceased generating electricity in 2003. Sellafield manages and operates the site and is, in effect, the vehicle through which the Nuclear Decommissioning Authority (NDA) meets its statutory obligations in connection with the decommissioning of the nuclear facilities on the site.
NMPL proposes to acquire the entire issued share capital of Sellafield. The economic purpose of the transaction is effectively to bring into the Sellafield site the decommissioning expertise enjoyed by NMPL. In other situations, such an arrangement might have been structured as an outsourcing or services agreement. However, the regulatory requirements relating to decommissioning in the UK require that the operator of the site is the licence holder (and hence NMPL is acquiring Sellafield in order to give NMPL permission to perform decommissioning activities on the site).
The OFT considered whether the transaction comprised two enterprises ceasing to be distinct for the purposes of section 26 of the Enterprise Act 2002 (the Act). In this respect the OFT consulted with both the parties and third parties, although no third party comments were received.
On the basis of the information available to it, the OFT has concluded that the anticipated acquisition of Sellafield by NMPL does not qualify for investigation under the mergers provisions of the Act because Sellafield is not an enterprise as defined in section 129 of the Act and does not carry on or control an enterprise. A relevant merger situation has, therefore, not been created.
An enterprise is defined in section 129 of the Act as meaning 'the activities, or part of the activities, of a business’, where a business 'includes a professional practice and includes any other undertaking which is carried on for gain or reward or which is an undertaking in the course of which goods or services are supplied otherwise than free of charge’.
The OFT’s Substantive Assessment Guidance states that ‘an ‘enterprise’ may comprise any number of components, most commonly including the assets and records needed to carry on the business, together with the benefit of existing contracts and/or goodwill. The transfer of ‘customer records’ is likely to be important in assessing whether an enterprise has been transferred. In some cases, the transfer of physical assets alone may be sufficient to constitute an enterprise: for example, where the facilities or site transferred enables a particular business activity to be continued. Intangible assets such as intellectual property rights are unlikely, on their own, to constitute an ‘enterprise’ unless it is possible to identify turnover directly related to the transferred intangible assets that will also transfer to the buyer.’ In its decision on this point in Cineworld/Hollywood Green Leisure Park the OFT emphasised that what was important was the substance of the transaction, rather than merely its legal form.
In this case, the reasons why the OFT has concluded that Sellafield is not an enterprise are summarised as follows.
- While the legal form of the transaction is NMPL acquiring all the shares in Sellafield, in substance the transaction is more akin to the award of a management contract. NMPL’s role will be limited to ensuring Sellafield fulfils its contractual obligations to ensure the efficient and effective decommissioning of the Sellafield nuclear site. NMPL will be remunerated in the form of Sellafield share dividends.
- Sellafield does not own the Sellafield site. All assets on the Sellafield site will continue to remain the property of the NDA and will continue to be used by Sellafield under license. NMPL may only cause Sellafield to use these assets for the purpose of fulfilling Sellafield’s obligations under its contract with the NDA.
- Ownership of the Sellafield shares (and therefore control of the regulatory licence to decommission on the nuclear facilities Sellafield site) does not in itself enable a particular business activity to be continued from which turnover is generated and which will transfer inevitably to the buyer. Rather, it is the pre-existing decommissioning expertise of NMPL that is revenue generating in this particular case, not the holding of the site licence per se.
- NMPL will be subject to a significant number of restrictions in terms of its ‘ownership’ of Sellafield which demonstrate that NMPL will not be able to own or control a market-facing business as a result of this acquisition. Most significantly, it will be unable to:
- change the nature of the Sellafield business
- dispose of any assets or shares of Sellafield
- use Sellafield's assets to undertake any
commercial activity without the consent of the NDA
- enter into new customer contracts
- appoint or remove Sellafield directors without NDA consent
- cause Sellafield to incur debt
- amend Sellafield's Memorandum of Understanding, or
- cause a change in the control of Sellafield without NDA consent.
Therefore the OFT has decided that the anticipated acquisition by NMPL of Sellafield does not qualify for investigation under the mergers provision of the Act because the arrangements that are in progress or in contemplation, if carried into effect, would not result in the creation of a relevant merger situation.