Irish Competition Authority Decisions

Notification No. CA/42/93 - Sedgwick Group plc/TSB Group plc .

1. Arrangements relating to the purchase of the entire issued share capital of Noble Lowndes & Partners Limited and its subsidiaries by Sedgwick Group plc (Sedgwick) were notified to the Competition Authority on 20 August 1993. The notification requested a certificate under Section 4(4) or, in the event of a refusal by the Authority to issue a certificate, a licence under Section 4(2) of the Competition Act, 1991.

2. The notification concerns an agreement dated 17 August 1993, relating to the sale and purchase of the Noble Lowndes Group (Noble Lowndes), whereby Sedgwick and others (the purchasers) acquired the entire issued share capital of Noble Lowndes including Noble Lowndes Irish Pension Trust Limited (NLIPT) and its subsidiaries from the TSB Group plc (TSB). The arrangements contained a number of restrictive provisions. The arrangements were notified to the Minister for Enterprise and Employment on 9 July 1993 under the Mergers Take-overs and Monopolies (Control) Acts 1978 - 1987. A clearance was granted by the Minister on 27 July 1993.

3. Sedgwick Europe BV is a wholly owned subsidiary of Sedgwick Group plc which is based in London. Sedgwick is engaged in the provision of risk consultancy, insurance broking, employee benefits consultancy and financial services in 230 locations throughout the world. Sedgwick is involved in the Irish market through its Irish subsidiary Sedgwick Dineen Group Limited (SDGL) which, through its subsidiary companies is engaged primarily in the provision of pensions, life assurance and disability benefits services for employees of corporate bodies. Sedgwick had a turnover of Stg£684,900,000 in the year ending 31 December, 1992.

4. NLIPT having its registered office at 28 Adelaide Road, Dublin 2 was a subsidiary of TSB. It is involved in the business of employee benefits, corporate personal pensions, income continuance and financial services. NLIPT has the following Irish subsidiaries: IPT Income Continuance Ltd, Noble Lowndes, IPT Actuarial Services Ltd, Irish Pensions Trust Ltd, and Irish Pensions Trustees Ltd. It also holds 50% of the shares of Combined Performance Measurement Services Ltd. TSB is the holding company for subsidiaries providing banking and related services, insurance and investment services, consultancy in employee benefits, vehicle rental and leasing and estate agency services.

5. The arrangement relates to the financial services sector, in particular, the personal financial services and employee benefits markets. The personal financial services market refers to the provision of advice to individuals (as opposed to corporate bodies) on the purchase of life assurance and investment products. In its submission to the Authority the parties explained that the products falling into this category would include term assurance, whole life and endowment policies, permanent health insurance, personal accident insurance, personal pensions, unit linked funds, unit trusts and annuities. According to the parties, the size of the market is difficult to quantify. In its Annual Report the Department of Industry and Commerce indicated that the total single premiums amounted to IR£686,900,000 with total annual premiums of IR£957,464,000 for 1993. These amounts would include employer-sponsored pension schemes which should properly be excluded to arrive at a relevant assessment of market size. In addition, it would be necessary to add the amount invested in unit trusts.

6. The services in the employee benefits sector which SDGL provide relate mainly to pensions, life assurance and disability benefits for employees of corporate bodies. Advice is occasionally rendered on profit-sharing schemes. It is difficult to quantify the employee benefits market but the parties estimated that it is between £30m and £40m in terms of fees/commissions.

7. There is a significant number of sellers in the personal financial services market in Ireland including banks and building societies as well as insurance and pension brokers. The buyers are mainly corporate bodies who would have a very high level of sophistication in terms of their understanding of the market, knowledge of the available services and purchasing power. Individuals rarely use these services.

8. According to the parties the market is extremely competitive. There are many competitors in the market including many new entrants such as the banks which have established separate divisions for these areas of business. There are no significant barriers to entry in this market. No actuarial valuations are required nor are government licences normally required. There is no equivalent in Ireland to the UK's Financial Services Act.

9. The notification relates to an agreement dated 17 August 1993, between TSB Group plc as guarantor, 3 separate subsidiary companies of TSB as vendors and 6 separate subsidiaries of Sedgwick as purchasers in regard to the sale by the TSB subsidiaries of the entire shareholding in 11 Noble Lowndes companies worldwide to the Sedgwick subsidiaries. The arrangements include the sale by TSB Group, BV, Rotterdam of the entire issued share capital of NLIPT and Lowndes Ltd (Ireland) to Sedgwick Europe BV, Amsterdam which is the only element of the transaction considered in this decision. The agreement contained a number of restrictive provisions which are described below insofar as they apply within Ireland:-

Clause 12.1 provides that the Guarantor (TSB) undertakes with Sedgwick for itself and as trustee for the Relevant Group Companies that it and its Group Companies will not while members of the TSB Group:-

(a) directly or indirectly carry on or be interested in any Restricted Business for three years from completion except:-

(i) by being interested in not more than 5% of the issued share capital of a company the shares of which are listed on any designated investment exchange; or

(ii) by the carrying on and development of Restricted Business by any after acquired company or business undertaking any of whose activities constitute Restricted Business Provided that:-

(a) such activities account for less than twenty per cent of the annual consolidated turnover of such company and its subsidiaries or of the business; and

(b) the annual consolidated turnover of

such company and its subsidiaries or of the

business deriving from such activities

amounts to less than £10 million; and

(c) such activities are subsequent to

acquisition carried on discretely from the

activities of the remainder of the Guarantor's

Group; or

(iii) by the carrying out and development within their existing geographical areas of the existing businesses of named subsidiaries of the Guarantor.

(This last restriction does not prevent TSB Group companies in Ireland developing their existing business so as to carry on the restricted businesses.)

(b) for three years from Completion for the purpose of any Restricted Business canvass or solicit the custom of any person firm or company who or which is currently (or who has, during the current financial year, been) a customer within the relevant area of a Relevant Group Company except:-

(i) where, the customer approaches the relevant company or where the customer has ceased to be such a customer (otherwise than by reason of canvassing or solicitation as above); or

(ii) where the canvassing or solicitation is undertaken by method of general advertising or mailshots not aimed specifically at customers of relevant Group Companies.

(c) during a period of two years from Completion, cause, induce or seek to induce any present employee of any relevant Group Company whose basic annual salary exceeds £20,000 or equivalent to become employed whether as employee, consultant or otherwise by any member of the Guarantor's Group except where employment of or offer of employment to such an employee whose basic annual salary does not exceed £40,000 is as a result of public advertisement or where the relevant Group Company has terminated the employment, or where the relevant person has ceased to be employed by the Relevant Group Company (other than as a result of such person's resignation within 6 months prior to such employment or offer of employment);

(d) until the same shall fall into the public domain, (other than by disclosure in contravention of this clause) use or disclose confidential information relating to the businesses, operations, customers, suppliers, products, research programmes or services of the Relevant Group Companies;

(e) within a period of ten years from Completion, carry on any business directly or indirectly under any of the names or under any name which includes any of the names (or any name likely to be confused therewith) set out in the first column of Schedule VIII in the territory or territories set opposite such name in the second column of Schedule VIII (and whether from a place of business inside or outside the relevant territory or territories);

(f) until the same shall fall into the public domain, use or disclose the existing research, database and information acquired or developed by or on behalf of any of the Relevant Group Companies in the field of private healthcare.

Clause 12.2 provides that Sedgwick undertakes to the Guarantor to procure that:-

(a) within eight weeks from the Completion Date, all company names, insignia, signage, logos or other indications bearing a reference to "Hill Samuel" or "TSB" or "Trustee Savings Bank" or anything that may be confused therewith shall be changed and no longer used by any member of the Group;

(b) each member of the Group and each of the Associates which shall fall within the definition of "Related Companies" as defined in the UDT Sale Agreement shall comply with Clause 9 of such agreement to the intent and effect that Hill Samuel & Co. B.V. shall not be caused to be in breach of such Clause by any act or omission by or on behalf of any such member of the Noble Lowndes Group or Associate.

The term " Restricted Business " is defined as:

'(i) providing employers or pension fund trustees in relation to employee benefits (other than healthcare benefits), with consultancy, administration and insurance broking advice and services;

(ii) providing pension fund administration and actuarial

services to employers or pension fund trustees;

(iii) providing within the United States of America employers with

third party administration, consultancy, stop-loss insurance arrangements

and other services in relation to healthcare arrangements for their

employees; and

(iv) providing employers of more than 50 persons

Republic of Ireland with consultancy, stop-loss insurance

arrangements and other services in relation to the healthcare

arrangements for their employees.'

Arguments in support of issuing a certificate

10. Sedgwick submitted that the arrangements did not prevent, restrict or distort competition but enhanced competition in the relevant markets by strengthening each party's ability to compete with banks and other large institutions by having access to each other's resources. The merged entity would be further strengthened in competing with the larger institutions. There would be many competitors left in the market after the acquisition and new competitors would continue to enter. In addition the arrangements were unlikely to cause any material difficulty under the four firm concentration test. Sedgwick argued that there would be no significant distortion in trade and there was likely to be an increase in trade by virtue of the fact of establishing an environment for creating new products.

11. It was submitted that the non-compete clauses did not prevent, restrict or distort competition, were reasonable and necessary to transfer the goodwill and merited the issuance of a certificate. Sedgwick argued that because of the nature and scale of the transaction and the particular industry involved (as referred to in Woodchester/UDT, para. 97)1. a three year non-compete term was justified, rather than the two years normally allowed by the Authority. The new entity needed time to grow and develop. A three year period as had been certified by the Authority on occasions in the past was merited in this case. Similarly, Sedgwick submitted that the non-solicitation clause was reasonable in the circumstances given the personal nature of the business. The confidentiality clause was not intended or designed to prevent the vendors from competing with the business being sold but was intended only to prevent the vendors from using information that was confidential. It was submitted that the restriction on the use of confidential information and on the use of a trade name did not prevent, restrict or distort competition.

12. The arrangements would not have any appreciable effect on trade in Ireland. The accretion of Sedgwick's business to Noble Lowndes' business in the employee benefits market in Ireland would be about 1% and therefore the alteration in market conditions would be minimal. It was argued that the merger would not result in an actual diminution of competition in the market concerned.

13. Finally, it was submitted that the Authority should issue a certificate as licences were an unsatisfactory method of approving concentrations due to the time constraints attached. Notwithstanding this Sedgwick submitted a number of arguments in support of granting a licence. As these are not relevant in this case they are not dealt with here.

14. The Authority expressed its concern at the duration of the non-compete clauses contained in the agreement. In a letter to the Authority dated 21 August 1995, Sedgwick confirmed that they were willing to reduce the duration of the restricted period in clause 12.4(d), insofar as it related to the Republic of Ireland, from three years from completion to two. They stated that they would formalise this amendment by executing a Deed of Variation.

15. 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.'

16. 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.' Sedgwick and its subsidiaries are involved in the business of risk consultancy, insurance broking, employee benefits consultancy and financial services. Therefore they are undertakings which are engaged for gain. NLIPT and Lowndes Ltd Ireland are limited companies engaged primarily in the employee benefits, corporate personal pensions, income continuance and financial services and are also engaged for gain. TSB is the ultimate parent company of NLIPT and Lowndes Ltd (Ireland). TSB and its subsidiaries are engaged for gain in the banking and insurance sector. Therefore, the notified agreement is an agreement between undertakings, all of which are engaged for gain in the provision of services.

17. The arrangements consist of an agreement between undertakings whereby Sedgwick acquired the issued share capital of the Noble Lowndes Group. The arrangements concern a large international transaction whereby various companies within the Sedgwick Group acquired the issued share capital of Noble Lowndes and Partners Ltd and its subsidiaries from TSB. The Competition Authority is only concerned with that part of the acquisition which affects competition in the State i.e the transfer of NLIPT and Lowndes Ltd Ireland to Sedgwick Europe BV. The Authority has dealt with numerous such sale of business agreements in the past. It has indicated that a sale of business per se does not offend against section 4(1). The present acquisition will not, in the Authority's opinion, have any appreciable effect on competition in the relevant markets. Sedgwick is involved in the Irish market through its subsidiary SDGL which has a 1%-2% share of the employee benefits market. NLIPT has 15% - 20% share of the employee benefits market. While NLIPT has a sizeable share of the employee benefits market, the merger with Sedgwick (which has only a 1% - 2% share), will not result in any significant alteration in the market structure. The acquisition will not lead to any increased concentration in either the employee benefits market or the overall financial service market. The market is extremely competitive with a large number of companies, including many new entrants operating therein. There are no significant barriers to entry into the market. Consequently, the market will continue to be highly competitive after the merger and there will be no adverse effect on competition. Therefore in the Authority's opinion, the acquisition does not offend against Section 4(1).

18. Clause 12 of the agreement contained a number of non-compete clauses. Clause 12.1(a) provided that TSB could not, for a period of three years from the date of completion, in the Republic of Ireland, directly or indirectly, be involved in the business of providing employee benefits and personal financial services or advice thereon. However, TSB was not prevented from holding an interest of 5% or less in a competing company whose shares are listed on any designated investment exchange or other recognised stock exchange. In addition, it was permitted to be engaged in a business where the competing activities of the business accounted for less than 20% of the annual consolidated turnover of the company, the annual turnover of the company and its subsidiaries is less than STG£10m, and such activities are carried on discretely from the remainder of the TSB Group. Similarly clause 12.1(b) provided that the TSB could not, for a three year period, within the same territory, solicit any person, firm or company who is currently, or was during the current financial year a customer of Noble Lowndes or its subsidiaries.

19. This is a typical non-compete clause which is found in many of the sale of business agreements which have been examined by the Authority in the past. The Authority has indicated that it normally regards a restriction on the vendor following completion as necessary to secure the complete transfer of the goodwill of the business. It has stated that, provided the restriction on the vendor is limited in terms of duration, geographic scope and subject matter to what is necessary to achieve that purpose, it would not, in the Authority's view, offend against Section 4(1). The Authority has indicated that it generally regards a period of two years as adequate to secure the transfer of goodwill. It has also indicated that a restriction on soliciting customers for a like period would be acceptable. The restriction in the present arrangements was originally for a period of three years and the Authority considered that it exceeded what was necessary to secure the transfer of the goodwill concerned. As the parties have agreed to reduce the duration of the restriction from three years to two, it no longer exceeds what is considered necessary by the Authority and therefore does not offend against Section 4(1).

20. Clause 12.1(c) provided that the vendors could not, for a period of two years from completion, solicit any employee of the Lowndes Group whose basic annual salary exceeds £20,000. However, they were not precluded from recruiting by advertising, employees whose basic annual salary does not exceed £40,000, whose contract of employment had terminated or who had resigned from Noble Lowndes six months prior to such employment or offer of employment. The Authority has previously stated that similar considerations to those applied to non-compete restrictions in sale of business agreements should apply to restrictions on soliciting employees. Therefore, it does not consider that a two year restriction on soliciting employees exceeds what is necessary for the transfer of the goodwill of the business and consequently it does not offend against Section 4(1).

21. Clauses 12.1(d) prevented the vendors from using or disclosing confidential information relating to the business, operations, customers, suppliers, products, research programmes or services of the relevant group companies. Clause 12.1(f) prevented the vendors from using or disclosing existing research database and information acquired or developed by or on behalf of the relevant companies, in the field of private healthcare. The Authority has previously stated that a restriction on using or disclosing confidential information would not offend against Section 4(1) provided it is not used to prevent the vendor re-entering the market concerned once a legitimate non-compete clause has expired. 2. Sedgwick have stated that the confidentiality clause was neither intended or designed to prevent the vendors from competing with the business being sold but only to prevent them from using information that is confidential. Therefore clauses 12.1(d) and 12.1(f) do not, in the Authority's opinion, offend against Section 4(1).

22. Clause 12.1(e) provided that for a period of ten years from completion, the vendors could not carry on a business in Ireland under a name which includes any of the words 'Noble' 'Lowndes', 'NL', Irish Pension Trust or 'IPT'. This restriction does not involve any restriction on competition in the State or in any part of the State and does not offend against Section 4(1).

23. In the Authority's opinion, TSB Group plc and Sedgwick Group plc are undertakings within the meaning of Section 3(1) of the Competition Act and the notified arrangements for the acquisition by the Sedgwick Group of the entire issued share capital of Noble Lowndes and Partners Ltd constitutes an agreement between undertakings. In the Authority's opinion, the agreement for the acquisition of Noble Lowndes Irish Pensions Trust and Lowndes Ltd (Ireland) by Sedgwick Europe BV, as amended by the letter of 21 August 1995, 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.

24. 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 17 August 1993 between TSB Group BV and Sedgwick Europe BV for the acquisition by the latter of the entire issued share capital of Noble Lowndes Irish Pensions Trust Limited and Lowndes Ltd (Ireland), (notification no. CA/42/93), notified on 20 August 1993 under Section 7, and amended by the letter of 21 August 1995, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

25 August 1995.

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Notes:

1. Competition Authority decision no. 6, Woodchester Bank Ltd./UDT Bank Ltd., 4 August 1992.

2. See Competition Authority decision no. 12, Scully Tyrrell & Company and Edberg Limited, 29 January 1993.