Irish Competition Authority Decisions

1. This decision concerns an Asset Purchase Agreement dated 12 July 1995 between BnM Fuels Ltd, Fuel Distributors Ltd (FDL) and the National Coal Company Ltd.(NCC) The agreement was notified to the Authority on 4 July, 1995 with a request for a certificate under Section 4 (4)of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4 (2). The Authority invited submissions from the Minister for Enterprise and Employment and the Minister for Transport, Energy and Communications in accordance with Section 4 (5) of the Act.

2. This notification concerns an agreement for the purchase by BnM Fuels Ltd (the Purchaser), as a going concern, of the business, certain assets and goodwill of FDL and NCC (the Vendors). Essentially the business of FDL and NCC involved the importation and distribution to wholesalers and retailers of coal. The companies also had a small retail coal business and certain stevedoring businesses.

3. The parties to the agreement are as follows:

(i) BnM Fuels Ltd, incorporated in 1995, is a subsidiary of Bord na Mona - a statutory body established under the Turf Development Acts 1946 to 1990. Bord na Mona has no share capital and derives its funding from bank borrowing. Bord na Mona is involved in various activities. Primarily these include a peat energy division for the production of milled peat (supplied to five ESB power stations and used in the manufacture of peat briquettes by one of the other divisions); a solid fuel division for the production, marketing, and sale of peat and non-peat solid fuels (for domestic, industrial and institutional customers); a horticultural division for the production, marketing and sale of horticultural peat products (for home gardeners and professional horticulturalists); and an environmental division (for the production, marketing and sale of environmentally related products and services).

(ii) Fuel Distributors Ltd (FDL) is a private limited company and a wholly owned subsidiary of Consolidated Holdings Ltd, which is controlled by four companies - Heiton Holdings Ltd (22% of CHL), Tedcastle McCormick and Company Ltd (32%), O'Rourke Group (18%) and British Fuels Group (28%). Tedcastle Mc Cormick and Company Ltd and British Fuels Group are also involved in the solid fuel market and in the importation and distribution of oil products through other subsidiaries. FDL is involved in the importation and distribution of coals in Ireland through its various depots. The National Coal Company Ltd, jointly owned by Fuel Distributors Ltd and Fuel Holdings Ltd, carries on business from a depot in Drogheda. The turnover for CHL for the year ended 31 March, 1993 was £59,624,200. Tedcastle McCormick and Company Ltd, the largest shareholder in FDL (32%), is also an importer and distributor of coal products in Ireland, particularly Cork and Limerick in its own right, through a company called Morris Tedcastle Ltd in which it has a 50% shareholding. British Fuels Ltd, Heiton Holdings Ltd and the O'Rourke Group are not involved in the importation or distribution of coals in Ireland, but British Fuels Ltd is involved in the importation and distribution of solid fuels in Northern Ireland.

4. Bord na Mona are producers of turf and turf products, and distributors of those and other solid fuels, including coal. Fuel Distributors Limited are importers and distributors of coal and other solid fuels and have a number of other peripheral businesses. Coal, turf and related solid fuels are used for heating purposes by industrial and commercial outlets and by households in open fires or as part of a solid fuel central heating system. A small proportion of households also use solid fuels for cooking. In the Authority's opinion coal and turf, including peat briquettes are close substitutes for one another. Other forms of energy, notably oil, electricity, LPG and natural gas can also be used for heating and cooking purposes. These are not directly interchangeable with solid fuels since they require specialised appliances. Rather the type of fuel used will depend on the type of heating system installed. Clearly over time there is scope for users to change from one type of heating system to another by installing an alternative system. Some households and some industrial users will have systems capable of using more than one type of fuel and clearly in such circumstances where a household or firm has both a solid fuel heating system and one capable of using another type of fuel, then the fuels are substitutes. Most households and business premises with solid fuel heating systems do not have alternative heating systems, and so the Authority does not believe that other fuels normally constitute substitutes for solid fuels. Consequently the relevant market is that for solid fuels. The relevant geographic market is the State.

5. Insofar as this merger involves the importation, distribution and wholesaling of coal and coal products it comes within the exclusive jurisdiction of the European Commission under the European Coal and Steel Treaty and may not be considered under national legislation. The Commission has confirmed in relation to this merger that it is exempted, not on its merits but on the basis that it falls below the de minimis thresholds given in Decision 25/67 [1]. The Commission's exclusive competence extends to all activities of the parties in relation to coal up to but excluding the retail sales to domestic customers, and to small craft industries. The products of each company which remain to be considered therefore are Bord na Mona's sales of turf including briquettes to industrial, commercial and domestic consumers and its sales of coal directly to final consumers, along with FDL's sales of coal to final consumers.

6. Solid fuel sales by Bord na Mona in 1993/94 amounted to 497,000 tonnes (excluding sales to the ESB) with briquettes accounting for 391,000 tonnes of this total. Bord na Mona's turnover from sales of solid fuel amounted to £31.2m. It sells around 4,000 tonnes of coal products annually, valued at £[ ], to domestic consumers. The total turnover for Bord na Mona for 1993 - 1994 was £128.3m. FDL sold about 16,000 tonnes of coal directly to final consumers and its total revenues from such sales were almost £[ ]. Apart from its coal business, it also provides grain warehousing in Dundalk harbour, has a ships' agency in Dublin, Galway, Sligo and Dundalk, and provides stevedoring services for itself and others in Dundalk, Dublin and Sligo harbour. The activity of stevedoring business in Sligo and the ships' agency business in Galway and Sligo forms part of the transfer of assets in the merger, but the rest does not.

7. Over time there has been a shift away from solid fuels to other types of heating system so that solid fuel consumption has been falling steadily over time. Details of energy consumption by households for 1994 are given in the following table. The figures are in thousand tonnes of oil equivalent, not tonnes of the fuel itself. Table 1 shows that solid fuels accounted for 43% of household fuel consumption. In fact this figure understates the importance of solid fuels since a large proportion of electricity consumption is for lighting and powering domestic appliances with relatively little used for heating. The estimated value of the domestic fuel market for the year 1991 (the most recent estimates available) was £728m [2]. Peat accounted for 22% of all household fuel consumption.

Source: Department of Transport Energy and Communication.

8. According to Bord na Mona, as shown in Table 2, household consumption of solid fuel in 1994 amounted to 2.65m tonnes. Peat accounted for 62% of this total. Bord na Mona sales of peat, other than to the ESB amounted to 497,000 tonnes which is equivalent to almost 30% of household consumption of peat. [3] A large proportion of household peat is obtained directly by households while the balance is purchased from other suppliers. Bord na Mona sold 4,000 tonnes of coal while FDL sold 16,000 tonnes directly to households. This is equivalent to just over 3% of household consumption of coal. A significant proportion of coal is imported by FDL, sold to distributors and retailers and resold by them to households, but as already noted the Authority is precluded from taking such sales into account. Bord na Mona accounted for just over 18% of all household solid fuel sales while the combined share of Bord na Mona and FDL's direct sales to households was 19% of all household solid fuel consumption.

Table 2: Retail Sales of Solid Fuel to Households

Source: Estimated by BnM

9. The notified arrangements consist of an Asset Purchase Agreement for the sale and purchase of the business as a going concern and the assets as used in the conduct of the business, including also the goodwill and intellectual property, subject to the terms and conditions contained therein. The business involved in this notification is that of the import and distribution to wholesalers and retailers of coal carried on by FDL at various locations. Included also is a stevedoring business carried on by FDL at Sligo Harbour and FDL's ´interest in Galway Stevedores Ltd for itself and for third parties'.

10. The agreement was conditional upon clearance under the Mergers, Take-overs and Monopolies (Control) Act, 1978 from the Minister for Enterprise and Employment, the consent of the Minister for Transport, Energy and Communications and the Minister for Finance. The acquisition of FDL by Bord na Mona was completed on 14 August, 1995. Clause 3 of the agreement outlined the consideration for the sale and purchase of the business. Clause 5 detailed the requirements for completion of the transaction, including the assignment of interest in contracts and assignment of patents. Clauses 7 and 8 outline matters in relation to employee contracts of employment and pensions. The agreement did not include any non-compete provisions. The parties stated that restraint of trade clauses were being negotiated in order to protect the acquisition of the goodwill at a cost of £200,000 and they claimed that these would be absolutely minimum in keeping with the decision in Nallen O ' Toole [4].

11. The parties submitted, in support of their request for a certificate, that the proposed transaction was necessary for the survival of the Vendors business in order to provide an alternative energy source and they maintained that this was good for the consumer and it would not destroy or distort competition. If the Vendor's business failed, then the market would or might be distorted in that areas of the country would not be serviced with the product and prices would therefore increase.

12. They submitted that the arrangements would lead to improved distribution of the products (coal and briquettes) to the consumer. The consumer would also benefit as a result of one stop shopping for their solid fuels and the prices would have to be competitive in order to compete with other suppliers of the product and other sources such as oil and gas. The parties submitted that the proposed transaction did not afford the parties the possibility of eliminating competition in respect of the product, save for those relating to the goodwill, but rather preserved for the foreseeable future a viable alternative source of energy in the country. They maintained that the investment by Bord na Mona in the coal market improved that market as it preserved the market and would provide competition for other competitors.

13. They submitted that the domestic and industrial solid fuel market in the island of Ireland was estimated at 2.6 million tonnes of coal equivalent for the year ended 31 March, 1994. This included bituminous and smokeless fuels as well as peat briquettes and turf. CHL had sales of 285,000 tonnes of coal in the year 1993/94. Bord na Mona sales for the same period were 391,000 tonnes of peat briquettes, 106,000 tonnes of turf and 4,000 tonnes of coal. They stated that this combined entity would have a market share of c. 25%. They submitted that this level of market share would not be sufficient for the merged entity to fix or determine prices or otherwise exert an anti-competitive influence on the solid fuel market. The parties maintained that the present indications [5] were that the sales volumes of both companies had been reduced in 1994/95 to a degree which exceeded the overall rate of decline in the solid fuel market.

14. The companies said that there would be about 15 well established coal importers competing directly with Bord na Mona in a contracting market and none of them would be exiting as a result of the transaction. They maintained that the barriers to entry to the solid fuel business were low and the merger would not change this and it would have no effect on the traditional competition from other importers. Existing merchants with storage facilities could easily become importers of coal from a wide variety of sources abroad. Distributors should not have any difficulty in obtaining supplies at competitive prices on a long or short term basis either from other importers or on the international market. The parties estimated that a gradual reduction in the solid fuel market was expected and that this would increase competition not reduce it. Neither of the parties had any material market share in Northern Ireland. They submitted that any price increases in Ireland resulting from the proposed transaction would be likely to result in sales in Ireland by importers and merchants from Northern Ireland, as had happened in the past when there were variations in prices. Both British Fuel Group and Tedcastle McCormick will continue to compete in the market.

15. The parties submitted that, given the vulnerable position of solid fuel in relation to its competitive substitutes, Bord na Mona would not be able from a commercial point of view to raise prices to the consumer. Bord na Mona hoped to maintain prices at current levels through rationalisation and other means in order to retain market share. They asserted that coal importers were generally well informed as to prices charged by their competitors and any rise in prices, which was out of step with their competitors' prices, would lead to a loss in market share. Wholesale merchants and bellmen could change importers if an importer increased its prices or if he was no longer in line with his competitors' prices. Neither FDL nor Bord na Mona had any contractual agreements with merchants or other distributors of solid fuels (save for FDL's interest in the Joint Purchasing Agreement for Polish coal). They submitted that the proposed transaction would not have any effect on distribution except to improve the distribution of products in the Republic. They maintained that the proposed transaction would have little effect on access to suppliers but it might result in different blends of smokeless fuels becoming available in the future to consumers in areas where sales of bituminous coals were banned. The merger might enable Bord na Mona to develop this market with its peat briquettes. The parties also made arguments relevant to a request for a licence, but these are not considered here.

16. The parties suspected that the Competition Authority as a result of the prior ruling by the EU Commission under the ECSC Treaty did not have jurisdiction to deal with this agreement. They submitted the notification in the event that the Authority felt otherwise.

17. After the Authority had indicated to the parties that it proposed to issue a certificate in respect of the notification, they presented a further submission enclosing a consultancy report suggesting that the market should be defined as the Irish home heating market and not the solid fuel market.

18. The Minister for Transport, Energy and Communications submitted that in his consideration of the acquisition (which he approved with the consent of the Minister for Finance), he was cognisant of the fact that Bord na Mona's solid fuel business was in long-term decline. He pointed out that this was a reflection of the decline in the solid fuel market generally resulting from consumers switching to "convenience" fuels such as gas and oil. Bord na Mona had moved outside of its traditional product range because they felt that this was the only feasible option open to them and to lessen the impact of the decline in this sector. The Minister maintained that the aquisition would allow Bord na Mona peat briquettes, which were considered to be complementary to coal, to penetrate areas of the country where sales were traditionally weak and to maximise the synergies between the two fuels. The Minister also pointed out that before granting his approval to the acquisition, he sought and received written assurance from Bord na Mona that the purchase of the business would not result in any distortions in the solid fuel market such as unfair pricing or unfair competition.

19. The Minister for Enterprise and Employment submitted that following the notification of the proposed merger to him, he decided that as the part of the merger which remained, i.e. the non-ECSC aspects not covered by the European Commission, was below the threshold for notification under Irish Merger law, it was not notifiable. The Minister pointed out that he conveyed his concerns to the Commissioner for Competition, about the lacuna in competition law arising from the application of the ECSC Treaty. In effect, this meant that the concentration was exempted without the Commission carrying out any examination of the concentration while Member States were precluded from taking any action in relation to ECSC products and undertakings because of the Commission's exclusive jurisdiction. The Minister had also requested the Minister for Transport, Energy and Communications to ensure that there was no abuse of a dominant position by Bord na Mona and to ensure that consumers were able to purchase the product at reasonable cost.

20. 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'.

21. 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.' Bord na Mona Fuels Limited is engaged for gain in the manufacture and distribution of peat based solid fuel products in Ireland. Fuel Distributors Limited and the National Coal Company Limited are both engaged for gain in the importation and distribution of coals in Ireland. They are therefore undertakings within the meaning of the Act. The notified agreement is an agreement between undertakings.

22. The agreement notified is the sale of most of the assets of FDL to BnM Fuels Ltd., the distribution subsidiary of Bord na Mona. The EU Commission has confirmed that

"when a concentration falls below the levels for exemption set out Decision 25/67 as amended, the transaction is in effect authorised and does then not fall to be considered under national legislation.

In the Bord na Mona/Fuel Distributors case ... the exemption does not apply to coal sold to domestic consumers or small craft industries as these are specifically excluded from the jurisdiction of the Commission by Article 80 of the ECSC Treaty."

The effect of the exclusive jurisdiction of the EU Commission under the ECSC Treaty is that what can be considered by the Authority is only the sale of FDL's business of retail coal sales to domestic consumers, and its non-coal business of stevedoring services, to Bord na Mona Fuels Ltd. Bord na Mona's coal business consists of retail sales to domestic customers and therefore falls to be considered under the domestic Act. The ECSC Treaty does not apply to peat.

23. The Authority therefore is limited to considering this as if it were a sale of business in which Bord na Mona, which has 18% of the household solid fuel market in the State, was acquiring only the retail coal arm of FDL's business together with its stevedoring services. To the extent that the submissions made by the parties relate to aspects of the arrangements which are outside the scope of the Competition Act, they were not considered by the Authority. Since FDL's retail coal business accounts for less than 1% of the total household solid fuel market the implications of the portion of the transaction which the Authority is able to consider will have no impact on competition. There are other aspects of the transaction which may have significant implications for competition but the Authority is not permitted to consider these.

24. The notified agreement does not include any non-compete provisions. The parties have indicated that they intend to negotiate non-compete agreements but these have not been notified and they are not referred to in the notified agreement. This decision relates only to the arrangements notified and does not take account of any arrangements subsequently entered into by the parties.

25. In the Authority's opinion BnM Fuels Ltd, FDL and NCC are undertakings within the meaning of the Competition Act and the notified arrangements for the purchase and sale of assets constitute an agreement between undertakings. Insofar as the notified arrangements are within the scope of the ECSC Treaty, the question of offending against Section 4(1) of the Competition Act does not arise. The Authority believes that the aspects of the arrangements not covered by the ECSC Treaty do not, of themsleves, prevent, restrict or distort competition within the State or any part of it. In the Authority's opinion, the notified agreement does not offend against Section 4(1) of the Competition Act.

26. The Competition Authority has issued the following certificate:

Insofar as the Asset Purchase Agreement dated 12 July 1995 between BnM Fuels Ltd, Fuel Distributors Ltd (FDL) and the National Coal Company Ltd., comes within the scope of the ECSC Treaty, the question of offending against Section 4(1) of the Competition Act does not arise. The Authority believes that the aspects of the arrangements not covered by the ECSC Treaty do not, of themselves, prevent, restrict or distort competition within the State or any part of it. In these circumstances the Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Asset Purchase Agreement dated 12 July 1995 between BnM Fuels Ltd, Fuel Distributors Ltd (FDL) and the National Coal Company Ltd., (notification no. CA/25/95), notified on 4 July 1995 under Section 7, does not offend against section 4(1) of the Competition Act.

For the Competition Authority

Patrick Massey

Member

26 February 1996.