On 8 February 2016, the UK's Competition and Markets Authority (CMA) published its decision not to refer Whittan Intermediate Limited's (Whittan) proposed acquisition of Apex Linvar Limited (Apex) to a Phase II investigation. Whittan is a large UK-based manufacturer of a range of storage solutions (including pallet racking, shelving and lockers) and operates across Europe; Apex is a smaller UK-based manufacturer of pallet racking systems and some shelving.
Having elected not to settle on a firm definition of the relevant market, the CMA still considered that the deal represented a relevant merger given that the parties’ combined share of supply of (i) pallet racking in the UK including direct imports and (ii) the supply of shelving in the UK including direct imports would exceed the 25% threshold established under section 23 of the Enterprise Act 2002. It specifically examined whether the horizontal effects of the merger would result in a substantial lessening of competition – factors such as price, the range of products and the number of competitors were all considered.
In relation to pallet racking, it was shown that the merged entity would be the largest supplier of the relevant product with a combined share of supply of 50%-60% (representing an increase of 10%-20%) and the parties are close (but not particularly close) competitors. However, the CMA concluded that the high post-merger share of supply was not actually demonstrative of how the parties compete, since 70%-80% of projects by value are for individual products and customers indicate a strong readiness to switch suppliers or use multiple suppliers to secure the best price. This, together with the high number of continental-European manufacturers active in the UK, either directly or through an agent, exhibits a competitive environment with low barriers to both product switching and market entry.
As to the supply of shelving, the CMA found that Apex is a supplier of a very limited range of shelving and it would only contribute a 0%-5% increase in the 30%-40% share of supply already held by Whittan in the UK. The market data supplied also demonstrated healthy competition: (i) Whittan lost 50%-60% of the shelving-only tenders that it recently competed in; and (ii) there are a range of other competitors with shares of supply between 5% and 20% who would continue to compete with the parties post-merger.
Drawing on these conclusions, the CMA observed that the proposed merger does not present a risk of substantially lessening the competition within the UK market. It noted that any initial effect on competition that the merger may have can be mitigated by the expansion of existing firms and the low barriers to entry available to market disrupters. Commentators have remarked that it will be interesting to see the extent to which the CMA applies the approach taken to high market shares in this particular case to future competition situations that it must consider.