Taylor Woodrow plc / Wilson Connolly Holdings plc
OFT closed case: Anticipated acquisition by Taylor Woodrow plc of Wilson Connolly Holdings plc.
Affected market: House building
Taylor Woodrow plc (Taylor Woodrow) is active in the building and sale of new housing in the UK, United States, Spain and Gibraltar. Wilson Connolly Holdings plc (Wilson Connolly) is active in the building and sale of new housing in the UK. The UK turnover of Wilson Connolly for 2002 / 2003 was £714.9 million.
Taylor Woodrow proposes to acquire Wilson Connolly for approximately £479.8 million.
This is a pre-notified merger. The unextended statutory deadline is 1 October 2003.
As a result of this transaction Taylor Woodrow and Wilson Connolly will cease to be distinct. The UK turnover of Wilson Connolly exceeds £70 million, so that the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. It is therefore probable that a relevant merger situation will be created.
The parties overlap in the supply of housing in the UK; specifically they build and sell new housing in the UK. New houses currently account for around ten per cent of all properties sold in the UK.
On the demand side, despite the numerous differences between new and older housing, it is likely that these two groups exert a significant competitive constraint on one another.
On the supply side, the techniques used to construct different styles of houses are reasonably similar. It is likely, therefore, that companies specialising in building different size or value properties could easily alter the specification of future properties such that they could supply different types of houses. The parties and the competitors contacted all build houses of different types and values. They commented that there were no significant issues with them building different types of houses and that all but the smallest house builder would have the capability to build houses of different values.
For the purposes of the following analysis, the frame of reference for the product market will be the supply of new housing.
A regional element to the geographic market could arise as customers generally seek properties in a specific area of the country rather than on a nationwide basis. However, if sufficient customers are willing to switch to a neighbouring area, a wider geographic market may exist.
Several companies provide new homes across the UK. Competitors commented that there are few barriers for a house builder to expand into other regions of the UK. This may suggest that the relevant geographic frame of reference is wider than strictly regional.
This transaction is therefore evaluated on both a regional and national geographic basis.
The parties’ combined share of completions of new houses in 2002/2003 in UK is six per cent (increment two per cent). The HHI at a national level is around 250, with the increment due to the merger of 16, showing the fragmented nature of the industry. There are around 117 firms that built more than 100 houses in 2002.
Regionally the parties’ combined share of completions does not exceed 11 per cent in any region of the UK.
Shares of supply are, of course, lower if older properties are included in the analysis.
Barriers to entry and expansion
Barriers to entry at a small scale appear to be low. Large scale entry seems less likely given the size of land bank required. One potentially significant barrier to entry is the availability of land for development.
As most houses are bought as individual purchases, buyer power is unlikely to be an issue.
No vertical issues were raised by this merger.
THIRD PARTY VIEWS
Competitors were unconcerned about this merger.
The merger was examined using the supply of new housing in the UK and regionally as frames of reference. The share of supply of the merged entity on any of these frames of reference would be low in a fragmented industry. Barriers to small scale entry appear low, although larger scale entry appears less likely.
The OFT does not believe that it is or may be the case that the creation of the relevant merger situation may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom for goods or services.
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.