Affected market: Construction
The OFT’s decision on reference under section 22(1) given on
23 February 2007. Full text of decision published 5 March 2007.
Skanska Construction UK Ltd (Skanska) is a wholly owned subsidiary
of Skanska UK plc, which in turn is a wholly owned subsidiary of Skanska
AB, a Swedish incorporated company listed on the Exchanges in Stockholm.
Skanska operates in the construction sector, including the
telecommunications and gas segments.
McNicholas Holdings plc (McNicholas) is a construction business that
operates in the utilities and infrastructure sector, including the
electricity, gas, water, highways, transportation and demolition
segments. McNicholas's UK turnover in 2005 was around £168 million.
The transaction was completed on 9 December 2006. Skanska purchased the
entire issued share capital of McNicholas. The OFT’s statutory deadline
for deciding whether to refer the merger to the Competition Commission
is 7 April 2007 and the administrative deadline is 9 March 2007.
As a result of this transaction Skanska and McNicholas have ceased to be
distinct. The UK turnover of McNicholas 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 a relevant merger situation has been created.
FRAME OF REFERENCE
The parties submit that the only area of overlap between Skanska and
McNicholas is in relation to the existing joint venture between the two
companies for gas mains replacement in the North London Mains Gas
Alliance (the ‘joint venture’). Further, the parties claim they
provide complementary rather than competing services as McNicholas
contributes gas contracting expertise and Skanska provides project
management capabilities and support services. The joint venture contract
expires in 2012, with an option to extend for a further five years, and
is then open to tender.
The merging parties operate in the utilities and infrastructure services
sector, which is a segment of the wider civil engineering and
construction sector. Utilities services comprise the replacement,
operation and maintenance of the network of pipes and cables providing
water, gas, electricity and telecommunications. Infrastructure services
cover small scale repair and maintenance work in relation to the highway
and rail network.
There are elements to distinguish the utilities sector from the
infrastructure sector, such as different specialist expertise and
customer profile (mainly privatised utility companies for utilities and
national transport bodies for infrastructure). However, the parties
argue that utilities and infrastructure services should be considered as
a single segment of the wider civil engineering market on the basis of
supply-side substitution. They submit that both segments are similar in
terms of basic construction skills required, and that a significant
percentage of each utility or infrastructure service contract can – and
often is – sub-contracted out to specialist service providers. Some
third parties agreed with this approach, while others submitted that
utilities and infrastructure services should be considered in separate
frames of reference due to the lack of demand-side substitution.
In this case it is not necessary to conclude on the product scope as the
outcome of the competition assessment is the same regardless of whether
utilities and infrastructure services are examined together or
separately. The OFT has therefore analysed this merger on the basis of
the overlapping sub-sector (gas supply) as well as in the utility and
infrastructure services separately.
The parties assert that for the utilities and infrastructure services
the geographic scope is predominantly national, but that there may be a
regional dimension to competition for smaller contracts. Third party
comments generally supported this. Further, this is consistent with the
OFT’s analysis in previous cases [see note 1].
The OFT considered the merger at both a national and regional level.
However, it is not necessary to conclude on the geographic scope of the
frame of reference as the competition assessment is the same on either
The UK supply of utility and infrastructure services is highly
fragmented, with many strong national players. Indeed, the largest
supplier of utilities and infrastructure services in the UK has a share
of supply of just 5 per cent. Third party comments confirm that there
are numerous well-established service providers capable of tendering for
The parties have a combined share of supply of less than five per cent
for the UK utilities and infrastructure services sector. Their only
regional overlap is in Greater London, where the parties were already
operating as a joint venture before the merger and where their combined
share of supply in utilities and infrastructure services is less than 10
Taking the provision of gas supply services separately, the parties only
overlap in the relation to the joint venture. Their combined share of
supply of construction services related to gas supply in Greater London
is around 20 per cent, and in the UK as whole it is around five per
The parties’ bidding data, although not fully comprehensive, indicates
that they have not bid against each other in the last five years. This,
coupled with the fact that the merging parties' expertise lay in
different sub-sectors within the utilities and infrastructure services
segment, suggests that they are not particularly close competitors.
THIRD PARTY VIEWS
No third parties raised any concerns relating to this merger.
The parties overlap in the provision of utilities and infrastructure
services, and in particular the provision of gas supply replacement
services in North London through one joint venture contract. Their
combined share of supply is low, even under a very narrow frame of
reference. There are a number of alternative suppliers, the market is
highly fragmented and the parties do not have a history of bidding for
the same contracts. No third parties raised any concerns relating to the
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
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- For example, Office of Fair Trading anticipated acquisition of Birse
Plc by Balfour Beatty plc 11 September 2006.