Opinion: The Competition Authority - which is investigating the proposed high-profile get-together of the Woodies DIY group, Grafton, and Atlantic Homecare company, Heiton - ended 2004 with a mini-flurry of acquisition notifications.
Just two days before Christmas Day, it received four proposed acquisition notifications: the acquisition of PQ Corporation by JPMP Capital Corporation; Ionics by General Electric Company; Setanta Sport Holding by AIG Global Sports and Entertainment Fund, LP; and lastly Coderidge by Ulster Television. Two days earlier, there was the proposed acquisition of Gabani, an internet company, by Independent Newspapers.
In all, the Competition Authority had 81 acquisition notifications in 2004. Here is the crucial question: how effectively has it dealt with these proposals?
Out of the notifications, 64 were cleared and allowed to go ahead, one was banned (the IBM takeover of the Irish operations of Schlumberger, the business continuity and disaster recovery services), and another (the takeover over of Heiton by Grafton) is undergoing a full investigation under phase two of the legislation governing acquisitions. The remaining 15 are active and awaiting a decision.
Looking at those cleared, the vast majority had quick decisions, ranging from a fortnight to a month. You can't grouse about that.
The investigations are two-pronged; phase 1 involves an initial examination of one month; phase 2, according to the Competition Authority, takes an extra three months to conduct a detailed examination of the transaction and the market. In 2004, some took two months while one, Uniphar/Whelan, took over three months.
Worst was the long-time scale in processing the IBM /Schlumberger proposal. It took an incredible five months-plus to reach a decision to ban the deal. Why?
That transaction was notified to the Competition Authority on May 20th. Then a formal request was made on June 11th to the parties for information to which they replied on June 29th which was then considered the new appropriate date. The Competition Authority then announced its decision to carry out a full (phase two) investigation on July 28th which gave it until October 29th to make a final determination. The five months-plus was due to intermediary dialogue.
It announced the ban on October 28th. That was just one day before the legal deadline.
The reasons were that such a merger would have brought together the two leading suppliers of business recovery hotsite services in the State, with a combined market share of over 80 per cent. "The authority concluded that those companies who are most dependent on business recovery services would not have sufficient alternatives post-merger and would have no choice but to bear a price increase."
The investigation into the proposed takeover of Heiton by Grafton is also on a long time scale. Notified on September 10th, 2004, it has already been under scrutiny for four months. The Competition Authority has until February 17th, 2005 to make a final determination on the proposed deal. Granted, this is new ground for the Competition Authority as it is the first time it has had to investigate two publicly quoted companies. Also with their high-profile Woodies and Atlantic stores, there is bound to have been a lot of submissions from interested parties. And undoubtedly competitors will have voiced their objections to the proposed deal. After all, a combined Grafton/Heiton will have greater buying strength and will give it an extra competitive edge.
However, while each company has large market shares in their respective markets, they are no means dominant and are facing strong competition from others in the field. A few industry estimates back up this contention. The value of the DIY market is estimated at €1 billion. Woodies is reckoned to have 8.4 per cent, with Atlantic holding 7.3 per cent. But Homevalue is reckoned to have the second-largest share with 7.7 per cent, followed by B&Q with 5 per cent and Arro with some 4.3 per cent. Overall, a ban of the DIY merger could hardly be justified, but there might be local areas where a concentration of Woodies/Atlantic stores constitutes undue dominance.
The lower-profile builders providers sector, valued at over €2 billion, is twice the size of the DIY sector. Here again, Heiton with an estimated industry share of 11 per cent is the largest while Chadwicks (Grafton) has some 8 per cent. But other large players include Homevalue, the Associated Hardware buying group (with an estimated 9 per cent), Brooks/Heatmerchants/Tubs and Tiles/Wolsey (8 per cent), Topline, the Amalgamated Hardware buying group (8 per cent), Arro, the National Hardware buying group (7 per cent), McMahon (4 per cent) and Dublin Providers (3 per cent).
While Grafton and Heiton have national networks of branches, the competitors are also well spread. Dublin Providers, for example, has branches in Dublin, Dundalk, Drogheda, Dún Laoghaire, Wexford, Cork and Galway. While the McMahon Group is usually associated with Limerick, it also has branches in Dublin, Portarlington, Drogheda, Dunmanway, Monard and Foynes.
Competition in the builders providers sector has intensified and, with the invasion of outside groups, it has all the hallmarks of becoming even more intense. Also, Dairygold, with its ear to the agriculture sector last year created the 4Home group with a network of branches. This will put particular pressure on the buying groups which have been losing members - National Hardware, for example, lost Eddies Hardward to Heiton - and they will undoubtedly have made strong submissions to the Competition Authority.
These submissions will subsequently be made public in a Competition Authority report and should make interesting reading. The comprehensive and well-balanced 64-page report on the decision to block the IBM/Schlumberger deal is revealing.
The get-together of Grafton and Heiton has been approved by 92 per cent of its shareholders as they see benefits flowing from such a natural bond.
The Irish Takeover Panel has yet again postponed its decision on the proposals until Monday, pending the outcome of the Competition Authority's investigation, and this is likely to be postponed further.
The Competition Authority has, of course, to weigh up the overall implications. However, a public company has to put a stop on any developments pending the outcome of its deliberations.
Delays inhibit the natural development of a growing company; obviously the quicker the decision the better.
