This is the sixth in a series of newsletters on
competition law developments in England and Wales. In
this edition, we report on the Office of Fair Trading’s
(OFT) investigation of a minority acquisition, the OFT’s
report on ownership and control of economic
infrastructure in the UK, and the OFT’s closure of a
“hub and spoke” cartel investigation.
OFT Investigates Minority Stake under Merger Rules
On 29 October 2010, the OFT announced it had started
a merger investigation into Ryanair Holdings plc's
acquisition of a minority shareholding in fellow Irish
airline Aer Lingus Group plc. Ryanair currently owns
29.82% of Aer Lingus, and the first question for the OFT
is whether this gives rise to a qualifying merger under
UK merger control law. The case is a reminder that UK
merger control can apply to small stakes (and certainly
to stakes lower than those relevant at EU level).
The stake arose out of Ryanair's public bid for the
entire shareholding of Aer Lingus, which was launched in
October 2006. The European Commission investigated the
bid and prohibited it in June 2007, under the EU Merger
Regulation (EUMR). Aer Lingus subsequently appealed
against the commission's decision not to order Ryanair
to divest its existing minority stake in Aer Lingus.
However, in July 2010, the European General Court ruled
that the commission did not have the ability to require
divestment of minority shareholdings that do not confer
"decisive influence" for the purposes of the EUMR.
Ryanair's separate appeal against the prohibition of the
bid on the substance was also turned down.
An interesting issue (although specific to this case)
is that the OFT’s investigation comes a considerable
time after the acquisition of the stake. The OFT appears
to claim it’s still able to consider the matter due to a
provision of the relevant legislation (Enterprise Act
2002) allowing for a delay caused by a separate
investigation under the EUMR.
So far as concerns the level of the minority stake,
since the EUMR does not apply to the acquisition of the
stake (no "decisive influence" means no "merger" under
the EUMR), national merger control in the EU can apply
(as well as, in theory, general EU competition law and
in particular, Article 101 TFEU). The UK's test for
control giving rise to a merger under the Enterprise Act
only requires "material influence" by the purchaser over
Whether this is met, depends on the facts of a
particular case, but any case where there is a
shareholding of 15% or more, particularly involving
competitors, will be looked at closely. In January 2010,
the English Court of Appeal required satellite TV
broadcaster British Sky Broadcasting to reduce its stake
in terrestrial broadcaster ITV to 7.5% (it originally
having been found that in the circumstances 17.9% gave
rise to material influence).
Even if the transaction is found to give rise to a
merger which can be investigated, there will be no
direct consequence for Ryanair, as a result of its
failure to file for clearance in the UK, since under UK
merger control law there is no obligation to seek
clearance even for qualifying transactions. However, if
substantive issues are found, remedies can still be
imposed in the normal way.
UK Economic Infrastructure Ownership and Control
On 3 December 2010, the OFT published a report on
ownership and control of the UK’s economic
infrastructure (Infrastructure Ownership and Control
Stock-take). The key aims of the stock-take were to
map ownership and control across the economic
infrastructure sectors such as ports, airports, energy
networks, and water networks; assess how ownership of
infrastructure affects outcomes for consumers in these
markets; and examine the different forms of ownership.
According to the OFT, this is the first time such
information has been available in one place. The report
- There is high diversity in infrastructure
ownership and sources of capital, with UK and with
public listed (UK and non-UK) companies accounting
for the largest share at 42%.
- There is a trend of ownership shifting toward
specialist infrastructure funds, and also a trend
for ownership to be increasingly internationalised,
with many sectors drawing in global investment. At
least 38% of UK infrastructure is owned by foreign
firms and investors.
- Around 18% of infrastructure assets are in
public ownership, whilst 9% are held in various
forms of not-for-profit structures – typically
trusts or companies limited by guarantee.
The report further shows there is cross ownership
within and across markets – for example, around 30% of
assets are held as part of wider infrastructure groups.
The OFT found there is no evidence that the UK merger
regime, as it applies in this area, is not operating as
intended, and it also has no immediate concerns about
overall levels of concentration and cross ownership
within the infrastructure market as a whole. However,
the OFT found that the potential for market power exists
in many infrastructure sectors, and that this can affect
outcomes for consumers.
Four case studies – into ports, waste, toll roads and
car parks – are used to highlight the importance of
considering competition when awarding concessions and
procuring infrastructure projects. For example, the case
study on the M6 toll road found that the operator is
likely to have pricing power, as alternative routes
don’t provide a strong competitive constraint.
The OFT further indicates that the report provides
clarity and greater certainty to businesses and
investors on when the OFT might consider intervening in
infrastructure sectors in order to solve perceived
competition concerns. In this regard, it highlights the
potential risks of intervention including the potential
“chilling” effect on investment where firms have taken
commercial risks in establishing their positions. The
OFT would be more likely to intervene where there are
long-term barriers to entry and where potential
competition is constrained.
OFT Identifies Compliance Success as Reason for
Closing "Hub and Spoke" Cartel Case
On 18 November 2010, the OFT closed on grounds of
"administrative priority" and without reaching any
conclusion as to a competition law infringement, a
price-fixing investigation involving retailers and
suppliers in the UK grocery sector. The investigation
concerned suspected "hub and spoke" retail price
coordination, in which a retailer passes confidential
pricing information to a supplier, who in turn passes it
to another competing retailer. There have been similar
cases in the UK in recent years in which fines have been
imposed. The OFT indicated that one reason for the
closure was the apparent positive influence of
competition compliance initiatives across the sector.