Crédit Lyonnais SA and Woodchester Investments plc: A report on the merger situation

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In December 1989 Crédit Lyonnais SA, one of the largest French banks, acquired from British & Commonwealth Holdings plc, which was in financial difficulties, a shareholding of just under 30 per cent in Woodchester Investments plc (Woodchester), an Irish financial services company. In June 1990, proposals were agreed between the two parties to increase the shareholding of Crédit Lyonnais, through a subscription for new shares, to a little over 45 per cent.

On 30 August 1990 the Secretary of State for Trade and Industry referred those arrangements (the second of which is in abeyance pending our report) to the MMC (see Appendix 1.1) to determine whether they created a merger situation qualifying for investigation and, if so, whether they would operate against the public interest. The Secretary of State noted in a press statement at the time that Crédit Lyonnais was controlled by the state as were other financial institutions operating in the United Kingdom, and that this raised issues of public interest warranting investigation by the MMC.

We established that the assets of Woodchester at the material date exceeded £30 million, and that as a result of the arrangements Crédit Lyonnais would be in a position to control or materially to influence the policy of Woodchester. A merger situation would therefore exist if the arrangements were carried into effect.

Crédit Lyonnais operates in a wide range of financial services markets in the United Kingdom, and Woodchester likewise. Their respective shares of those markets are very small (generally well under 5 per cent in each case); and in only two sectors is there any significant overlap between them, giving in each instance a joint share of less than 1 per cent.

In the evidence given to us, no concern was expressed on competition grounds about the effects of the proposed merger in the market.

We considered the issue of state control on its specific merits in relation to the merger situation. We appreciated that the state was in a position to intervene in the business of Crédit Lyonnais, either in pursuit of a specific uncommercial objective or to provide financial assistance on uncommercial terms. However, we found that in practice the French authorities accorded a high degree of independence to the management of Crédit Lyonnais, as to other banks under state control. We judged that Crédit Lyonnais had received a relatively small proportion of its total equity capital from funding by the state in recent years; and that its financial results were in line with the performance of private-sector companies.

Given the small share which Crédit Lyonnais and Woodchester each has of the United Kingdom financial services market, and bearing in mind the substantial presence of competing institutions, we do not believe that the merger between the parties would enable Crédit Lyonnais to distort the market. The French state-owned banks together have only about 1.5 per cent of the market and, similarly, even if they sought to collaborate, they would have no distorting impact. Whilst accepting that in some circumstances the fact of state control could operate against the public interest, in this particular case we do not consider it to have an adverse effect.

We therefore conclude that the arrangements do not, and may not be expected to, operate against the public interest.

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