Irish Competition Authority Decisions

1. Arrangements for the acquisition by Eureko Ireland Holdings Limited (the purchaser) of substantially all of the issued share capital of Celtic International Insurance Company Limited (Celtic) from Dalysfort Limited, Glenlo Abbey Limited, and Eyre Investments Limited, (the shareholders) and Celtic Holdings Limited were notified to the Competition Authority on 28 February 1995. The notification requested a certificate, or, in the event of a refusal to issue a certificate, a licence.

2. The notification relates to an agreement dated 21 July 1993 between Friends Provident Holdings Ireland Limited (which has since changed its name to Eureko Ireland Holdings Limited, (Eureko), John F. Bourke, Stellar International Limited and the shareholders for the sale of substantially all of the issued share capital of Celtic to Eureko. Mr Bourke was the beneficial shareholder of substantially all of the issued share capital of the shareholders. The agreement was notified to the Minister for Enterprise and Employment on 22 July 1993 under the Mergers, Take-overs and Monopolies (Control) Acts, 1978 - 1987. No order was issued and a clearance was granted on 27 July, 1993.

3. Eureko BV of Entrada 111, P.O. Box 94215, 1900 CE Amsterdam, The Netherlands, is the ultimate parent company of Eureko. Eureko BV is a holding company, holding shares in companies involved in the financial services industry, mainly insurance.

4. Celtic was incorporated on 27 March 1975 and is the ultimate parent company of a number of subsidiaries including Celtic Insurance Services Limited and Ireland Assist Limited. The Celtic group is involved in the business of non-life insurance. Celtic is authorised to write each of the eighteen classes of non-life insurance. Celtic Insurance Services Ltd acts as a life and non-life broker and has agencies from a panel of life and non-life companies. Ireland Assist Limited, a joint venture company provides assistance in support of the classes of non-life insurance written by Celtic and other insurers.

5. Dalysfort Limited, Glenlo Abbey Limited and Eyre Investments Limited, having their registered offices at 42 Dalysfort Road, Salthill, Galway all had shares in Celtic. Mr. F. Bourke held shares in these companies. He was the beneficial owner of substantially all of the issued share capital of Celtic and Stellar International Limited, a software development and leasing company which has agreed to repay certain indebtedness to Celtic.

6. The market concerned in the arrangements relates to the non-life insurance market. According to Eureko there are 18 classes of non-life insurance and Celtic is licensed to operate all of these. Types of non-life assurance include accident and health, motor vehicle, marine, aviation and transport, fire and other damage to property and liability insurance. There is a significant number of sellers of non-life insurance operating in the Irish market, comprising Irish registered non-life companies, branches of overseas companies and a number of Lloyd's agencies. According to the Insurance Annual Report for 1993 there were 20 Irish based companies, 22 companies which are based in other EU member States and one, Zurich Insurance Company, which is based in Switzerland engaged in the non-life insurance business in Ireland. Celtic had only a 1.8% share of the overall premium income in the non-life insurance market and a 2.69% share of the motor insurance market. Buyers are those persons who require non-life insurance, varying from individual consumers requiring motor, property or health insurance to large corporations requiring fire insurance.

7. The geographical market has traditionally been Ireland with a strong presence of UK companies operating in Ireland. The situation in the market is changing rapidly and the potential market is now the EU due to the easy availability of services from elsewhere in the EU as a result of the liberalisation of EU financial services rules. According to Eureko the non-life insurance market is extremely competitive and there are at least 60 companies authorised to provide non-life insurance services in Ireland. Competitors in the Irish market include many new entrants.

8. The insurance services market in Ireland is regulated by the Insurance Acts 1909 - 1991 (as amended) and various regulations. However, any non-life insurance company which complies with the regulations of an EU Member State can operate in the Irish market in line with EU measures. Apart from complying with these regulations there are no significant barriers to entry into the non-life insurance market.

9. The notified arrangements relate to an agreement dated 21 July 1993 for the purchase of almost the entire issued share capital of Celtic by Eureko. Under the terms of this agreement 6,545,162 of Celtic's ordinary shares were sold to Eureko. Under two separate very short form share transfer agreements also dated 21 July 1993, one between J.P. Iburg, Esq., and Eureko and the other between Porcupine Investments Limited and Eureko the balance of the issued share capital of Celtic (274,149 shares) was sold to Eureko.

Clause 8 of the main agreement provides:

'8.1.1 for a period of two years commencing upon, in the case of each of the Vendors other than Mr Bourke, the date of Completion, and in the case of each of Mr Bourke, the date upon which he ceases to be a director of any of the Companies, he/it will not within Ireland and Northern Ireland either on his or its own behalf or in conjunction with or on behalf of any person, firm or company carry on or be engaged, concerned or interested in carrying on the businesses of non-life insurance in any of the eighteen classes of business referred to in the Regulations (other than as a holder of no more than 5% of any class of securities traded on a recognized securities market);

8.1.2 for the period of two years commencing upon, in the case of each of the Vendors

other than Mr Bourke, the date of Completion, and in the case of each of Mr Bourke, the date

upon which he ceases to be a director of any of the Companies, he/it will not either on his or

its own account or in conjunction with or on behalf of any other person, firm or a company

solicit or entice away from any of the Companies any officer, manager or servant whether or

not such person would commit a breach of his contract of employment by reason of leaving

service; and

8.1.3 each Vendor will procure that no company owned or controlled by such Vendor or

any one or more of them (and, insofar as such Vendor is able to ensure the same, none of its

subsidiaries or associated companies) will act in such a way as would be a contravention of

the obligations contained in this clause 8.1.3 if such Vendor were itself to so act.

8.1.4 each Vendor will not either on its/his own or in conjunction with or on behalf of any

other person, firm, or company carry on or be engaged, concerned or interested in any

company, firm, partnership, undertaking or business which has either the word "Celtic" or the

word "Autoline" in its name or utilises either such word in any of its business names, titles or

styles, or in any way whatsoever.

8.1.5 if at any time during the period referred to in clause 8.1.1 Mr Bourke proposes to

carry on, be engaged, concerned or interested in carrying on any business which may

constitute the carrying on of the business of non-life insurance in any of the eighteen classes

of business referred to in the Regulations but which shall not be in competition with any

business then carried on by the Purchaser and/or the Companies ("the Proposed Business")

Mr Bourke may make application to the Purchaser for the Purchaser's consent to enable Mr

Bourke to carry on or be engaged, concerned or interested in carrying on the Proposed

Business. The Purchaser shall not unreasonably withhold its consent as aforesaid provided

that the Proposed Business is not likely to be in competition with any business then carried on

by the Purchaser and/or the Companies.'

10. Eureko submitted that the arrangements did not have the object or effect of preventing, restricting or distorting competition within the State to any significant extent and that they were not abusing any dominant position. They stated that the arrangements did not offend against Section 4(1) of the Competition Act, 1991 and satisfied all the criteria for the issuance of a certificate. It was argued that the arrangements would enhance competition by introducing new technology and techniques into the Irish market, given Eureko's experience in the European market. Celtic's ability to compete with others larger institutions would be strengthened by the acquisition.

11. Eureko pointed out that there would be many competitors left in the market after the acquisition and new competitors would continue to enter the market. The transaction was unlikely to cause any material difficulty under the four-firm concentration test or the HH1 test. There would be no significant distortion of trade and there was likely to be a possible increase in trade brought about by Eureko introducing new financial services products based on their experience abroad.

12. It was submitted that the non-compete clauses were reasonable and necessary, did not prevent, restrict or distort competition and merited the issuance of a certificate. This was clear from the jurisprudence of the European Court of Justice, the European Commission and the Competition Authority. In support of their argument, Eureko referred to the Authority decisions in Woodchester/UDT, para. 102 and GI/General Semiconductor para.28.

13. It was argued that, with over 60 sellers and many more potential sellers, the market was highly competitive. Eureko explained that the proposed merger would not result in an actual domination of competition in the market concerned and quoted from Woodchester/UDT, para. 78 in which the Authority set out the criteria for determining whether an acquisition could be found to offend against Section 4(1) of the Competition Act. Eureko concluded that the Authority should issue a certificate rather than a licence as a licence which was for a particular period of time was an unsatisfactory method of approving concentrations due to the time constraints attached.

14. The parties also submitted arguments in support of a request for a licence. As these are not relevant in this case they are not dealt with here.

15. The Authority expressed its concern regarding the duration of the restrictive provisions in clause 8 of the agreement which prevented Mr. Bourke from becoming involved in the business of non-life insurance or from soliciting employees of the companies for a period of two years after he ceases to be a director of any of the companies. In a letter dated 22 June 1995, Eureko indicated that they had decided not to rely on the two year post-directorship restriction on Mr. Bourke but would only rely on the restriction in clause 8.1.1 for a period of two years from the date of completion of the agreement, that is up to 28 July 1995. However they stated that they would insist on a one year restriction on Mr Bourke soliciting customers and employees of the companies after he ceases to be a director.

16. Section 4(1) of the Competition Act states that 'all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

17. Section 3(1) of the Competition Act defines an undertaking as 'a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' Eureko is a partner in a pan-European insurance body and is engaged for gain in the provision of insurance services. Celtic is a company which was incorporated in Ireland in 1975 and is also engaged for gain in the insurance business. At the time of the agreement the shareholders were the beneficial owners of Celtic and were engaged for gain. Similarly Mr Bourke who held shares in the shareholding companies was engaged for gain.

18. The arrangements consist of an agreement between undertakings whereby Eureko has purchased almost the entire issued share capital of Celtic from the vendors. The Authority has indicated on several occasions in the past that a sale of business per se does not offend against Section 4(1). The Authority does not consider that there will be any anti-competitive effect on the market following the sale of business resulting from the present arrangements. Celtic has only a 1.8% share of the non-life market and a 2.69% share of the motor insurance market. Eureko was not directly involved in the Irish market prior to the acquisition, though it owned Friends Provident Life Assurance Company Limited which offers life insurance products in Ireland. As the life assurance market and the non-life assurance market are separate markets the Authority does not believe that this will have any impact on competition in either market. The acquisition will not result in any increased concentration in any of the markets. The market is highly competitive and there are a significant number of competing firms operating in the market. While the company's position may be somewhat strengthened by the takeover, the Authority does not believe that this will make any significant impact on the present structure of the market. Consequently it does not believe that the arrangements will prevent, restrict or distort competition in the State.

19. Clause 8 of the agreement contained a number of non-compete provisions. Clause 8.1.1 provided that, for two years from the date of completion in the case of each of the vendors (other than Mr Bourke) and in the case of Mr Bourke, for two years from the date on which he ceases to be a director of any of the companies, each was prevented, within Ireland and Northern Ireland from becoming involved in the business of non-life insurance in any of the eighteen classes of business referred to in the Regulations (other than as a holder of no more than 5% of any class of securities traded on a recognized security market).

20. The Authority has given its views on non-compete clauses in sale of business agreements in a number of previous decisions. It has indicated that provided such restrictions are limited in terms of duration, subject matter and geographical scope to what is necessary to secure the transfer of the goodwill of the business being sold they do not offend against Section 4(1). The two year non-compete restriction (on the vendors other than Mr. Bourke) in this agreement is not considered to exceed what is necessary in terms of duration. Similarly, the geographic coverage and subject matter involved are not excessive. Therefore, in the Authority's opinion, clause 8.1.1 (insofar as it relates to the vendors other than Mr. Bourke) does not offend against Section 4(1).

21. In the case of Mr. Bourke the restriction in clause 8.1.1 had the effect of preventing him from competing with the business for two years from the date on which he ceases to be a director of any of the companies. The Authority considers that this provision could have the effect of extending the non-compete clause beyond what is necessary to secure the transfer of the business and therefore offends against Section 4(1). However in the light of Apex/Murtagh [1] a restriction on soliciting customers of the companies for one year after he ceases to be a director would be acceptable. As the parties have agreed that they do not intend to rely on the two year non-compete restriction on Mr. Bourke after he ceases to be a director of any of the companies, this no longer offends against section 4(1).

22. Clause 8.1.2 prevented the vendors (other than Mr Bourke) from soliciting any employees of the companies for a period of two years from the date of completion. Mr Bourke was prevented from soliciting employees for a period of two years from the date which he ceases to be a director of any of the companies. In Phil Fortune/Budget Travel Ltd, [2] the Authority considered that a restriction on soliciting employees for a period of time was acceptable as the expertise of employees represents primarily part of the goodwill of the company. It stated that 'such a restriction ensures that the goodwill of the company being purchased is transferred'. The Authority considers that the two year restriction in this case is necessary for the transfer of the goodwill of the company and therefore, it does not offend against Section 4(1). The Authority considers that the two years restriction on Mr. Bourke goes beyond what is necessary to secure the transfer of the goodwill and that it offends against Section 4(1). As the parties have agreed to reduce the duration of this restriction to one year it no longer offends against Section 4(1).

23. Clause 8.1.4 prevented the vendors from becoming engaged in any business which has either the word 'Celtic' or 'Autoline' in its name or uses these words in any of its business names. The Authority has indicated in previous decisions that such a restriction has no impact on competition. [3] It is merely a measure to protect the company's name and to prevent the vendors from passing themselves as representing Celtic or Autoline when dealing with customers, in the event that they should go into competition with these companies. Therefore it does not offend against Section 4(1).

24. In the Authority's opinion, Eureko, Celtic and the vendors are undertakings within the meaning of Section 3(1) of the Competition Act and the notified arrangements for the acquisition of almost the entire share capital of Celtic by Eureko, constitute an agreement between undertakings. In the Authority's opinion, the agreement as amended, does not have as its object or effect, the prevention, restriction or distortion of competition and does not offend against Section 4(1) of the Competition Act, 1991.

25. The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement of 21 July 1993, as amended, between Friends Provident Ireland Limited (which has since changed its name to Eureko Ireland Holdings Limited), Mr. John F. Bourke, Stellar International Limited, Dalysfort Limited, Glenlo Abbey Limited, Eyre Investments Limited, and Celtic Holdings Limited for the purchase of almost the entire share capital of Celtic International Insurance Company Limited by Eureko Ireland Holdings Limited, (notification no. CA/5/95), notified on 28 February 1995 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

23 June 1995

Notes:

2.Competition Authority decision no. 9, Phil Fortune/Budget Travel Limited, 14 September 1992.

3.See for example Scully Tyrrell & Company and Edberg Limited, decision no. 12, 29 January 1993.