CELEX: 31995M0567
Language: en
Date: 1995-12-21 00:00:00
Title: COMMISSION DECISION of 21/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.567 - Lyonnaise des Eaux / Northumbrian Water) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0567

COMMISSION DECISION of 21/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.567 - Lyonnaise des Eaux / Northumbrian Water) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 011 , 16/01/1996 P. 0003

 COMMISSION  DECISION of 21/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.567  - Lyonnaise  des  Eaux  /  Northumbrian  Water)  according  to Council Regulation (EEC) No 4064/89  (Only the English text is authentic).  The  paper version of the decision is available through  the sales offices of the Office of Official Publications of  the European Communities PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION TO THE NOTIFYING PARTIES Subject:<ind>   <ind>   Case  N    IV/M567   LYONNAISE   DES EAUX/NORTHUMBRIAN WATER <ind>  Notification of 23.11.95 pursuant  to  Article  4  of Council Regulation N  4064/89 1.<ind>   The   abovementioned  notification  concerns   the acquisition  of  Northumbrian Water Group plc (Northumbrian) by   a   British  subsidiary  of  Lyonnaise  des  Eaux  S.A. (Lyonnaise), by way of a public offer. 2.<ind>   After   examination  of  the   notification,   the Commission  has concluded that the notified operation  falls within  the  scope  of application of Council  Regulation  N 4064/89  and  does  not  raise  serious  doubts  as  to  its compatibility   with  the  common  market   and   with   the functioning of the EEA Agreement. I.<ind> THE PARTIES 3.<ind>  Lyonnaise  is a French multinational  group  mainly active  in  water  distribution and waste  water  treatment, waste  management,  energy  and  construction.  It  is  also involved  in  other  activities such as  land  and  property development,   television   broadcasting   and   cable    TV operation. 4.<ind> Northumbrian is principally engaged in the provision of  water supply and sewerage services in the North East  of England.   It   is   also  involved  in  waste   management, consultancy  and the manufacture and supply of environmental protection equipment. II.<ind> THE OPERATION  5.<ind>  On  23 November 1995, Lyonnaise launched  a  public recommendedcash  offer  for  the  entire  share  capital  of Northumbrian. Through this operation, Lyonnaise  intends  to acquire  sole  control of Northumbrian. It  is  therefore  a concentration within the meaning of Article 3(1)(b)  of  the Merger Regulation. III.<ind> COMMUNITY DIMENSION 6.<ind>  The  combined worldwide turnover of  Lyonnaise  and Northumbrian  exceeds  Ecu  5  billion  (Lyonnaise:   15.186 billion; Northumbrian: 0.404 billion) and they have each  an ECwide turnover in excess of Ecu 250 million. Lyonnaise  and Northumbrian do not achieve more than twothirds of their  EC turnover in one and the same Member State. The operation has therefore a Community dimension. IV.<ind> ARTICLE 21(3) PROCEDURE 7.<ind> By decision of 29 March 1995 under Article 21(3)  of the  Merger Regulation [See OJEC N C94 of 14.4.95, p.2], the Commission recognised the legitimate interest of the  United Kingdom  authorities in applying, under certain  conditions, the  relevant provisions of the Water Industry Act  1991  as amended  by  the  Competition and Services  (Utilities)  Act 1992.  In conformity with this decision, the United  Kingdom authorities   applied  these  provisions  to   the   present operation. 8.<ind>  In  its  decision of 29 March 1995, the  Commission also  required the United Kingdom authorities to communicate any measures in each case where the relevant legislation was applied  in  order for the Commission to verify  that  these measures are appropriate, proportional and nondiscriminatory and more generally in line with Community law.  <ind>  Subsequent to the Commission's decision, and  in  the light of Lyonnaise's public announcement of its intention to bid  for  Northumbrian which had been made on 6 March  1995, the   UK  authorities  initiated  an  investigation  by  the Monopolies  and Mergers Commission (MMC) into  the  proposed operation.   Following  the  MMC's  report  and  discussions between the UK authorities and the companies concerned,  the UK  authorities communicated their proposed measure  to  the Commission  as  required by the Commission's  decision.  The Commission examined the measures, namely: 1. a tightening of price  control  in  respect of the merged  companies'  water business by comparison with the existing price control  with a  given  cumulative effect over a sixyear period and  2.  A requirement  on Lyonnaise that it will list all  its  United Kingdom  water  interests  on the Stock  Exchange  by  2005, subject to market conditions. By letter of 30 October  1995, the  Commission  did  not  make any  observations  on  these measures in the light of the abovementioned criteria.  V.<ind> COMPATIBILITY WITH THE COMMON MARKET 9.<ind>  The  economic sectors involved in the concentration include  water  supply  and  sewerage  services,  and  waste management. <ind> Water supply and sewerage 10.<ind>  Water  supply  and  sewerage  services  have  been provided  in  England  and  Wales since  September  1989  by private companies to which licences have been issued by  the British  government.  Ten of these  companies  provide  both water  supply and sewerage services ("WASCs") and  twentyone others  provide  water  services only ("WSCs"),  each  being competent for an allocated region. Licences are granted  for a minimum duration of 25 years and may be terminated upon 10 year's  notice.  Water  supply  and  sewerage  services  are subject to regulatory control principally organised  by  the Director General for Water Services (DGWS).        11.<ind> Water and sewerage undertakers have strong  natural monopolies within their allocated region because it  is  not economically  viable  to have more than  one  network  in  a region. Competition therefore only takes place between  them in two different ways: <ind>  <ind> a) at the time where the licence is granted  by the  government [In this connection, see Commission decision N  92/385/EEC  of 28 April 1992 declaring the  compatibility with  the common market of a concentration (Case N  IV/M.126 Accor/WagonsLits  OJ  L  204  of  21.7.92  page  1)  and  in particular  point V.D for a sector operating under  regional monopoly.]; <ind>  <ind>  b)  residually along  the  allocated  regions' borders.  The U.K. legislation permits the DGWS to grant  an "inset appointment" to another water undertaker, that  is  a separate  licence  set  inside the area  of  the  undertaker initially licensed to provide services there.   12.<ind>  As  regards  competition at  the  time  where  the licence  isgranted, the relevant market  is  the  market  on which  the U.K. government grants licences for water  supply and  sewerage  services for England and Wales [The  specific regulatory  regime  under  which  the  water  and   sewerage undertakers operate does not apply to the rest of the United Kingdom  (Scotland  and Northern Ireland).].  In  this  case however, it is unnecessary to reach a precise definition  of the  relevant geographic market because, even  on  a  narrow definition, taking just England and Wales, the concentration would not create or strengthen a dominant position.  <ind>   Following   the  acquisition,   and   the   expected combination  of  Northumbrian  and  North  East   Water   (a subsidiary of Lyonnaise) into one licence holder,  Lyonnaise will  not acquire or reinforce any dominant position in  the market  for  the  granting of licences  by  the  government. Lyonnaise will only be one among the many potential bidders. No  particular advantage would be acquired by  Lyonnaise  in that market following this operation. Lyonnaise will control only  two  out  of  approximately  thirty  licences  in  the relevant  geographic  market  [This  corresponds  to  8%  of resident  area.]. In any case, there are a number  of  other companies with a similar financial strength to Lyonnaise (eg Compagnie  Générale  des Eaux, SAUR  (Bouygues  Group))  who could equally bid for licences.  <ind>  For sewerage services, Lyonnaise will not acquire  or reinforce  any  dominant position  in  the  market  for  the granting of licences by the government. Lyonnaise will  only be  one  among  the  many  potential  bidders.  No  dominant position  would be created or strengthened by  Lyonnaise  in that market following this operation. Lyonnaise did not have any WASC licence before the operation and therefore did  not provide sewerage services in England and Wales [Northumbrian covers 6.2% of resident area.].  <ind>  As  a  result, the operation does  not  lead  to  the creation or the strengthening of a dominant position. 13.<ind>  As Northumbrian and one of the WSCs controlled  by Lyonnaise,  North East Water, are adjacent companies,  there is a need to examine the question of "inset appointment" for water  supply. In this connection, the Commission has  noted that  under  the current regime "inset appointments  include restrictions  on  their application. Notably,  the  existing appointee  must consent to the appointment or variation,  or the  area  must not include  premises served by it.  In  the latter   case  the  DGWS  must  also  have  regard  to   any arrangements  made or expenditure incurred by  the  existing appointee for the purpose of enabling premises in that  part of  the  area to be served" [See the 1990 report by  the  UK Monopolies  and Mergers Commission on a proposed  merger  of the  three  statutory  water companies  (General  Utilities, Colne  Valley Water Co. and Rickmansworth Water Co  Cm  1029 April 1994 "Three Valleys"]. The Commission also agrees with the  parties and the Monopolies and Mergers Commission  that inset  appointments  are unlikely to apply  in  relation  to existing supply because of the heavy investments which would have  to  be  made  in  an area where there  is  already  an established network. In the present case, it should be noted that  no inset appointment has been made by North East Water or  Northumbrian   and  that neither North  East  Water  nor Northumbrian  have ever been approached with a  request  for inset  appointment.  Consequently the  Commission  considers that  inset appointment does not, in the present case, raise any competition concern. <ind> Waste management  14.<ind> The waste management activities described below are regulated at national level and mainly subject to the  grant of  (local) concessions. Competition takes place essentially at  the  time of tendering for these concessions. For  legal and  regulatory reasons the conditions governing  the  grant and  the operation of the concessions are uniform throughout the  UK. It is unnecessary to reach a precise definition  of the   geographic  market  because,  even  on  the  narrowest definition, England and Wales, the concentration  would  not create  or  strengthen a dominant position. The segmentation described below is made without prejudice that each  segment constitutes a distinct product market . 15.<ind> Collection and transport of nonhazardous waste <ind>  Northumbrian's presence in this field is minimal  and the  parties represent jointly less than 3% of the  turnover generated by this activity at national level. Therefore  the market  for  granting  of concessions is  not  substantially affected 16.<ind> Landfill disposal <ind>  The  parties represent jointly less than  3%  of  the turnovergenerated  by  this  activity  at  national   level. Therefore  the  market for granting of  concessions  is  not substantially affected. Furthermore, there is no  geographic overlap of the parties' activities. 17.<ind> Incineration <ind>  Lyonnaise represents 12.5% of the turnover  generated at  national  level  for  this growing  activity  through  a jointventure  with  the North London Waste  Authority  which operates a plant in the North of London. Northumbrian is not yet  active  in  this  field  but  is  about  to  start  the construction  of  a  new  plant  at  Billingham,  Cleveland, through  a  jointventure with Cleveland County Council.  The parties'  activities do not therefore overlap at  geographic level.  Furthermore, their combined activities will  be  far below  20% of the turnover generated at national level,  and other specialised companies exist who are able to enter this market. 18.<ind> Clinical waste disposal <ind>  The  combined activities of the parties  at  national level is minimal (less than 1% of the turnover generated  at national level)  and there is no geographic overlap.  19.<ind>  As  a result, the operation will not lead  to  the creation or the strengthening of a dominant position in  the waste management sector. VI.<ind> CONCLUSION 20.<ind>  It  follows  from  the  above  that  the  proposed concentration  would  not create or  strengthen  a  dominant position   as  a  result  of  which  competition  would   be significantly  impeded  in  the  common  market  or   in   a substantial part of it. <ind> For the above reasons, the Commission has decided  not to   oppose  the  notified  operation  and  to  declare   it compatible  with the common market and with the  functioning of   the   EEA  Agreement.  This  decision  is  adopted   in application  of  Article  6(1)(b) of  Council  Regulation  N 4064/89. For the Commission,