Recently, the Competition and Market Authority (CMA) served an initial enforcement order (IEO) against the LKQ Corporation Group, who owns the U.K. subsidiary Euro Car Parts Limited. The order was served on the LKQ Group following their recent acquisition of the Andrew Page business.
Initial Enforcement Order
The CMA, in serving the order, is considering whether the acquisition of Andrew Page created a situation that is expected to decrease competition in the market under section 22 of the Enterprise Act. As the competition watchdogs are interested in keeping competition between businesses as healthy as possible in the U.K. market, any mergers and acquisitions that are suspected to decrease competition will come under severe scrutiny.
As the investigations only started a few weeks ago, there hasn’t been any conclusive findings yet. As a pre-emptive action, the CMA served the IEO under section 72(2) of the Enterprise Act. This action has the power to: impose obligations on the company; prohibit or restrict the activities of the company; and implement supervision when carrying out activities.
Although there hasn’t been any conclusive findings yet, the order can restrict the company in its day-to-day conduct.
The IEO further details the ‘can and can’t’ of the LKQ Group in regards to the management and compliance of the business, until the CMA can determine whether there has been a breach of competition laws. If the LKQ Group wishes to take action or make any transaction that may be restricted under section 22, they’ll have to gain prior written consent of the CMA.
Derogations
There are no surprises that the company has gained written consent from the CMA to derogate from certain actions from the IEO. Since the enforced order, the CMA has consented to three derogations thus far, with the most recent one on 8 November.
The CMA’s authority
CMA doesn’t investigate all mergers and acquisitions. The competition watchdogs only have jurisdiction over ‘relevant merger situations’, which is where they meet the following three conditions:
- Made between two or more businesses;
- The merger mustn’t have taken place yet or if it already has, no longer than four months;
- And either:
- The business has a turnover in the U.K. of at least £70 million; or
- The combination of both businesses have a significant market presence. This is defined to mean if (together) they supply at least 25 per cent of the particular goods in the U.K. market. If the merger increases the share in the market, there will be further grounds to suggest a substantial lessening of competition in the market.
Suspicious
It’s deemed suspicious by the CMA, as Euro Car Parts is the U.K.’s number one provider of car parts, and Andrew Page has always been a rival distributor. Euro Car Parts’ CEO, Martin Gray, has since called the acquisition of 102 Andrew Page branch locations “iconic”.
However, Mr Gray states that they intend to keep Andrew Page’s brand image ‘alive’ by keeping the brand separate from Euro Car Parts. The acquisition intentions were to lend a helping hand to Andrew Page, as the CEO states that Andrew Page will benefit from their U.K. infrastructure and financial support of LKQ.
This statement by the U.K. Chairman and LKQ board member, Sukhpal Ahluwali seems to suggest a decrease in competition as Andrew Page was a main competitor:
“…as a competitor, I have always had the great respect and admiration for Andrew Page and the brand.”
The acquisition seems to be an ongoing commitment for the LKQ Group to expand in the U.K. market. However, there is a fine line between expanding in the market (through mergers and acquisition) and keeping a healthy competition in the marketplace.
Time will tell
The CMA will have to dig deeper in their next phase of investigations to uncover (if any) any substantial lessening of competition in the market.
Sources:
http://corporate.eurocarparts.com/news-and-events/detail/1229
http://www.legislation.gov.uk/ukpga/2002/40/contents