SUMMARY OF
BRITISH STEEL PLC AND C WALKER & SONS (HOLDINGS) LTD:
A REPORT ON THE MERGER SITUATION
On 21 December 1989 the Secretary of State
for Trade and Industry referred to the MMC (see Appendix
1.1) for investigation and report the proposed acquisition
by British Steel plc of C Walker & Sons (Holdings) Ltd
(Walker). Walker and British Steel (through its distribution
division, British Steel Distribution (BSD)) are the two largest
steel stockholders in the United Kingdom. Together they hold
about 34 per cent of the total stockholder market and
each supplies the whole range of steel stockholder products.
British Steel is a major producer of stockholder products,
supplying 58 per cent of total purchases by United Kingdom
stockholders and about four-fifths of purchases by both Walker
and BSD.
Most core steel products produced at the
mill are subject to the provisions of the Treaty of Paris.
Steel products not covered by the Treaty of Paris (in general
the more highly processed and fabricated products) fall to
be considered under the Treaty of Rome. We established that
about four-fifths of the steel products sold by Walker and
BSD are Paris products; the remainder are Rome products.
It was put to us by the parties that under the Treaty of
Paris the European Commission had exclusive jurisdiction
to rule on the merger as it related to Paris products and
that this Commission was, therefore, unable to investigate
and report on the public interest in relation to the
merger.
We consulted leading Counsel. We are advised
and accept that to investigate and report on the merger as
it affects Paris products would be to intrude on the jurisdiction
of the European Commission and thus would be ultra vires
this Commission, as the Fair Trading Act may not be applied
in a way which conflicts with the Treaty of Paris. This Commission,
however, retains jurisdiction under the Fair Trading Act
to investigate and report on whether the merger situation,
as it relates to Rome products, may be expected to operate
against the public interest. In so doing we are able to consider
the position of Paris products only to the extent necessary
for a proper understanding of our conclusions. We have conducted
our inquiry within these constraints.
Some Rome products occur within all the
main groups of steel product handled by stockholders. The
definitions used in the Treaty of Paris no longer fully reflect
the structure and practices of the industry. The Rome products
do not themselves form a coherent group, nor can they be
considered individually except as part of the broader product
groupings. The Rome/Paris distinction is of little or no
practical significance to stockholders in conducting their
business, and the products are often handled together so
that available market information and the views we received
on the effects of the merger generally relate to the wider
groupings. Where necessary we have made best estimates of
sales and market shares and have only taken account of views
expressed on the merger in so far as they relate to Rome
products.
We identified five categories of Rome products:
bright bar, some strip mill products, specialised profiles,
reinforcement steels and tubes. Reinforcement steels are
not normally handled by stockholders and not at all by BSD,
although Walker has a small interest; we did not, therefore,
consider these further. In relation to the other products
we identified issues of horizontal competition arising from
the market share that the combined stockholding group would
possess and issues of vertical competition arising from British
Steel's position as a major supplier.
We concluded that for bright bar, Rome strip
mill products and specialist profiles the proposed merger
would not lessen competition in the stockholder market.
We looked particularly closely at the tube
sector. This comprises structural hollow sections (SHS),
other types of welded tube and seamless tubes. BSD/Walker
together supply about one-quarter of stockholder sales of
all tubes: within this, they together account for 43 per
cent of sales by stockholders of SHS (of which British Steel
is also the main supplier to the United Kingdom market),
12 per cent of other welded tubes and 17 per cent
of seamless tubes. We concluded that competition in these
last two sectors of the market would not be adversely affected
by the merger.
SHS, which were developed for use in the
construction industry by British Steel, are handled mainly
by stockholders together with their sales of general steels,
which are Paris products. BSD and Walker both take most of
their supplies of SHS from British Steel. The United Kingdom
market for SHS has been growing strongly; stockholder sales
of SHS grew by nearly 90 per cent between 1986 and 1989.
However, British Steel's share of this growing market, and
BSD/Walker's share of stockholder sales, have both been declining
significantly as other producers, particularly overseas,
have developed sales of their competing products through
stockholders. Entry costs are low and there is competition
throughout the country from established chains and smaller
stockholders to supply customers who `shop around' and are
prepared to split orders. Against this background the consolidation
of BSD/Walker's market share through the merger is unlikely
to reduce competition significantly or to enable British
Steel to increase its market share.
Accordingly, we conclude that in respect
of Rome products the proposed merger may not be expected
to operate against the public interest.
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Last Revised: June 1999
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