Has DX and First Post merger created a substantial lessening of competition in the market?
First published by Admin on December 25, 2016 in the following categories: Mergers and tagged with cma
The Competition and Markets Authority (CMA) are in the process of deciding whether DX Network Services Ltd (DX) and First Post Ltd (First Post) merger has created a ‘substantial lessening of competition in the market’.
The DX and First Post merger
In May, DX acquired First Post and Legal Post. The CMA intervened as they believed the companies weren’t distinct enough to create a ‘competitive enough’ market. At the beginning of the initial merger, the services that DX and Legal Post provided were reportedly overlapping with one another in Scotland. Customers didn’t consider other mail services, such as those offered by Royal Mail.
The supply of document exchange services offered by DX and Legal Post had a combined share of supply revenue of more than 25%. Under the Enterprise Act, companies mustn’t hold more than a 25% share of supply in the U.K. (or a substantial part of the U.K.). As such, the merger may be deemed as a relevant merger situation that could decrease the competition in the U.K.
Prior to the merger
On the basis of gathered evidence, the CMA believes that, prior to the merger, the DX and Legal competed closely for some customers, and this may have affected DX’s pricing structure. The CMA also believes that, as a result of the closed nature of the network and limited overlap between their members, both DX and Legal Post only competed for a small number of customers.
These factors gave the CMA a “realistic prospect” that the companies’ actions were substantially lessening the competition for mail services, particularly in Scotland.
The CMA’s non-referral to the Commission
Usually, when there is a suspicion of anti-competitive actions, the CMA can refer the matter to the Commission under section 22(1) of the Enterprise Act. However, the merger won’t be referred in this case, because it’s on a fact-finding basis that the CMA has – after taking into account relevant factors including the size of the affect market (approximately £1-5 million) – used its discretion to not refer the matter.
They also believe that the companies were only competing for small numbers of mail sent in document exchange services in Scotland pre-merger. The CMA also noted that there is a decrease in document exchange services which means that the merger may only have a short-term effect.
Substantial lessening of competition
Just because the CMA has decided not to refer the matter to the Commission, they have still drawn a conclusion that the merger has resulted, or may be expected to result, in a substantial lessening of competition in Scotland. This is because the CMA may believe that the market concerned doesn’t have sufficient importance to justify a referral to the Commission under section 22 of the Enterprise Act.
Sources:
https://assets.publishing.service.gov.uk/media/582d832540f0b6437800000a/dx-network-service-legal-post-first-post-decision.pdf (Opens as PDF)
https://www.gov.uk/cma-cases/dx-network-services-legal-post-and-first-post-merger-inquiry
https://www.gov.uk/government/organisations/competition-and-markets-authority/about