OFT closed case: Completed acquisition of Whittan Group limited by Stirling Square Capital Partners IV LP.
Affected market: Storage solutions
The OFT’s decision on reference under section 22 given on 30 June 2006. Full text published 10 July 2006.
Please note that the square brackets indicate figures or text which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.
Tidy Acquisitions Co Ltd (Tidy) is a newly incorporated company established for the purpose of this acquisition (see [Note 1]). It is majority-owned by Stirling Square Capital Partners IV (SSCP), an investment fund.
Whittan Group Limited (Whittan) is a UK-based provider of storage products and storage solutions (see [Note 2]). Its UK turnover for the financial year ended in March 2005 was £[ ] million.
SSCP investment funds currently control three portfolio companies. The only company controlled by SSCP whose activities overlap with Whittan’s is Schoeller Arca Systems N.V. (Schoeller), a supplier of plastic logistics systems.
Tidy acquired Whittan in February 2006. The OFT’s administrative deadline for deciding whether to refer the merger to the Competition Commission is 3 July 2006 and the statutory deadline is 9 August 2006.
As a result of this transaction Tidy and Whittan have ceased to be distinct. The UK turnover of Whittan 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 overlap in the supply of storage solutions which comprise various plastic containers, bins and drawers of different sizes and shapes, as well as louvred panels and metal feeder trolleys. These products can be sold separately or as complete units, and are marketed by both Whittan and Schoeller on their websites as ‘small parts storage solutions’. In this paper the term ‘small parts storage solutions’ (SPSS) is used to refer to the particular type of storage products in which the parties overlap.
SPSS are used for storing a large range of small parts such as screws, springs, nuts and bolts, small tools, office supplies, electronic components, domestic gadgets, etc. The containers or bins which are part of SPSS can be made of a variety of materials, including prefabricated steel, injection-moulded plastic, wood and composite materials. Whittan and Schoeller only overlap in the supply of SPSS which comprise bins and containers made of plastic.
Whittan does not manufacture SPSS itself; it sources both the plastic components (i.e. containers and bins) and metalwork (i.e. louvred panels and feeder trolleys) from third parties. Schoeller manufactures the plastic elements for its SPSS in-house, but sources the metalwork from a third-party supplier.
The parties submitted that all storage solutions that hold or allow the storage of small items, whatever the materials they are made of, are demand-side substitutes. This view was not supported by customer opinion. On the supply side, the parties argued the product scope could be broadened to either part of a wider injection-moulded standard plastic components and prefabricated steel components market, of which the storage industry is a small user, or part of wider all-storage-solutions encompassing frame of reference. However, they did not provide enough evidence to support this view and, although one third party supported it, others submitted that it would not be profitable to switch production in response to a 5-10 per cent increase in price of SPSS.
Due to the lack of evidence on demand and supply side substitution, the OFT has focused its analysis on the precise type of products in which Whittan and Schoeller overlap: SPSS in which containers and bins are made of plastic (hereafter ‘plastic SPSS’). Given that the merger does not raise any competition concerns even when assessed against this very narrow frame of reference, it is not necessary to reach a conclusion on whether the product scope should be any wider.
The parties submit that the geographic scope is European, on the basis that both Whittan and Schoeller distribute plastic SPSS across Europe.
However, the majority of third parties contacted submitted that some kind of UK presence is required in order to supply UK customers, in particular to ensure timely delivery and in some cases to provide design assistance and project management services. Indeed, none of the UK customers contacted sourced SPSS from suppliers that do not have some kind of presence in the UK. In addition, the evidence the OFT has found indicates that transport costs are high. The OFT therefore considers the UK as the appropriate geographic frame of reference.
The parties estimate that the UK market for plastic SPSS is worth at least £[8-12] million, which gives them a combined share of supply of [5-15] per cent (increment [0-5] per cent). They submitted it is difficult to estimate competitors' shares of supply, but according to third party comments there are a large number of suppliers of plastic SPSS. Although the products supplied by different manufacturers may differ slightly (e.g. the colour and the thickness of the plastic may vary), a number of them supply essentially the same kind of product. Customers told the OFT that there are no costs involved in switching plastic SPSS suppliers.
Whittan and Schoeller focus their activities on different types of storage products; while Whittan is primarily a supplier of metal pallet racking, metal shelving and metal personal lockers, Shroeller produces pallets, pails, crates for beverage and material handling, PET preforms, caps and closures. Although Whittan and Schoeller’s product lines could be seen as complementary, one third party told the OFT that it is unlikely that a customer would demand the full portfolio of products supplied by Whittan and Schoeller and that customers currently multi-source their storage solutions from a number of suppliers.
THIRD PARTY VIEWS
All third parties contacted were unconcerned about this merger.
Even adopting a very narrow product frame of reference, Whittan and Schoeller's combined share of supply resulting from the merger is low at [5-15] per cent, a large number of alternative suppliers will remain and third party customers have confirmed that it is easy to switch suppliers. In addition, customers and competitors of Whittan and Schoeller did not raise any concerns about the transaction.
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 United Kingdom.
This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.
- Co Ltd is now Whittan Acquistions Co Ltd.
- Group Ltd is now Whittan Investments Ltd.