Affected market: Pubs
The OFT's decision on reference under section 22(1) given on 25
Please note text in square brackets indicates range inserted at
request of parties.
Punch Taverns is a publicly listed company which, prior to the
transaction, owned over 4,500 tenanted pubs in the UK.
Pubmistress Ltd is the holding company of the Pubmaster Group. Prior to
the transaction, the Pubmaster estate comprised of [around 3,100]
tenanted pubs located throughout the UK.
On 6th November, Punch entered into an agreement to acquire the entire
share capital of Pubmistress Limited. Punch also entered into an
agreement to simultaneously sell 206 pubs (see [note 1]) to a
special purchase vehicle (SPV) wholly owned by Powertitan Limited. Both
of these transactions completed on 1st December 2003.
On 18th December 2003, Powertitan agreed to sell its 206 pubs to joint
ventures controlled by Flodrive Holdings Limited and Real London
Properties (UK) Limited. Punch also agreed to sell an additional 47
pubs from the combined Punch/Pubmaster estate to the same joint venture
companies. This transaction was completed on 23 January 2004, and the
SPV has since been disbanded.
The transaction was notified on 21 January 2004. The administrative
deadline is 17 March 2004 and the statutory deadline is 31 March 2004.
As a result of this transaction Punch and Pubmaster have ceased to be
distinct. The UK turnover of the Pubmaster pubs being acquired exceeds
£70 million, so the turnover test in section 23(1)(b) of the Enterprise
Act 2002 (the Act) is satisfied. A relevant merger situation has been
There have been a range of cases involving pubs in the UK. In a number
of these cases competition concerns have been considered to arise at the
local level where the merger adds to or creates a share of supply (by
number of pubs) of 25 per cent or more in any Petty Sessional Division
(PSD). Most recently, in Enterprise Inns Plc's acquisition of The
Laurel Pub Group Ltd (see [note 2]), there were a total of 10
PSDs where the merger created or added to a market share of over 25 per
cent of pubs. Enterprise gave undertakings to divest 59 pubs in lieu of
reference to the Competition Commission.
The parties overlap in the operation of pubs. Consistent with previous
cases (see [note 3]), the appropriate frame of reference to
adopt when assessing the competitive effects of this merger is
considered to be pubs (see [note 4]).
In previous cases involving pubs, the geographic analysis of overlaps
for assessing the extent of local competition among pubs has focused on
PSDs. Where a merger creates or increases a market share of 25 per cent
or above in any PSD, parties have been required to divest a number of
pubs to reduce their market share in any PSD to no more than 25 per cent
or (if higher) the pre-merger level.
Despite concerns over the ability for PSDs to accurately capture the
geographic scope of competitive constraints on individual pubs (see
[note 5]), based on the information available and in the absence
of a detailed study into local market conditions, PSD areas are
considered to be the best available proxy for the local geographic
Following the completion of the sale of 253 (see [note 6]) pubs
to the joint ventures controlled by Flodrive Real London, the merged
entity owns a total of 7396 pubs. In the past, various sources of PSD
data, including that from the Home Office, AC Nielsen and C.G.A Ltd have
been used depending on what has been provided by the parties. In this
case, two different data sources have been provided.
According to AC Nielsen data from Magistrates in 1998/99 but updated to
2003, there are 66,000 pubs in the UK. This would give the combined
entity a national share of 11.2 per cent (increment 4.5 per cent).
Using the Experian Bar*Track data, which estimates that there are
60,000 pubs, the parties would have a combined national share of supply
of 12.3 per cent (increment 4.9 per cent) (see [note 7]).
Using either the AC Nielson or Experian Bar*Track data discussed above,
there are no PSDs in which the parties' combined share of publican full
on-licences creates or increases a share of 25 per cent or more.
Barriers to entry and expansion
The main barrier to entry in pub retailing is obtaining a licence to
supply alcohol. Changes in the licensing regime are making entry easier
at the retail level. Moreover, changes in the ownership structure,
discussed below under the vertical issues section have allowed the entry
of retail pubs.
Entry on a small scale is considered difficult to sustain. To secure
discounts from brewers and wholesalers the new entrant needs to be a
significant player or a brewer. Without these discounts the new entrant
would find it difficult to compete effectively against existing larger
Buyer power on the part of individual consumers is believed to be
Neither Punch nor Pubmaster has any brewing interests. Both groups
currently have a policy of multi-sourcing and periodic tendering. Each
obtains its beer supplies from a wide range of brewers – national and
regional. Each contract has been entered into on a non-exclusive basis
and comes up for renewal by 2008 or earlier.
The combined beer throughput for the merged entity is estimated at
around [690-2,180] kba, or [2-5 per cent] of total UK beer sales and
[5-10 per cent] of on-licensed beer sales in the UK. Most brewers
offer volume related discounts to pub companies. Thus the merger may be
expected to improve the parties' bargaining power and ability to secure
a reduction in price paid to the brewer. However, given the parties'
relatively small share of total beer sales, any increase in buyer power
as a result of the merger is not considered to be significant.
THIRD PARTY VIEWS
With one exception, third parties were generally unconcerned by the
transaction. In an unsolicited response to the OFT's invitation to
comment, one third party considered that PSDs did not necessarily
accurately reflect competition and suggested that local competition
could be assessed on a 5 mile squared area or through the subdivision of
PSDs by parish lines. Another third party suggested an assessment based
on turnover might more accurately indicate the potential for competition
Following the merger the parties control around 7396 pubs (increment
2968) resulting in a national share of supply in pubs of between 11.2
per cent and 12.3 per cent (increment 4.5 per cent - 4.9 per cent).
There are no PSDs in which the parties' combined share of publican full
on licences creates or increases a share of 25 per cent or more.
On this basis, the OFT does not believe that it is or may be the case
that the creation of the relevant merger situation has resulted or may
be expected to result in a substantial lessening of competition within a
market or markets in the United Kingdom for goods or services. Nor does
it believe that there is a credible alternative view that the merger
might substantially lessen competition.
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
1. [110-140] of these 206 pubs would come from the Pubmistress estate
and the remaining [80-120] from the Punch estate.
2. A published version of the OFT's advice to the Secretary of State on
this case can be found on the OFT website.
3. For further discussion, refer to the OFT's advice in
4. A pub is defined as a full publican on-licence.
5. For further discussion, see Enterprise/Laurel.
6. Of the 253 pubs sold, [140-180] were from the Pubmaster estate and
[80-120] from the Punch estate.
7. The first set of data is taken from actual magistrates courts whilst
the second set is an amalgam of three different sources of data. The
parties are unable to pinpoint exactly why the difference in the numbers