SUMMARY OF STAGECOACH HOLDINGS PLC AND AYRSHIRE BUS OWNERS
(A1 SERVICE) LIMITED: A REPORT ON THE MERGER SITUATION
In a reference dated 6 June 1995 (see Appendix 1.1) the
Secretary of State for Trade and Industry asked us to investigate
and report on a merger between two bus operators, Stagecoach
Holdings plc (Stagecoach) and Ayrshire Bus Owners (A1 Service)
Limited (A1 Service).
Stagecoach, the leading bus operator in the UK, acquired
Western Scottish Buses Limited (Western Scottish), the main
operator in south-west Scotland, in July 1994. In January
1995 Stagecoach also acquired A1 Service, a long-standing
independent operator with some 80 buses which ran services
in part of Western Scottish's area of operations, for 4.3 million.
A1 Service was unusual in being a co-operative venture
in which ten member firms, each supplying and maintaining
its own buses, ran the services.
In the area which we designated as appropriate for our inquiry,
which comprises eight districts of Strathclyde region, Western
Scottish supplies 26 per cent of bus services, measured
by turnover, and A1 Service 6.5 per cent. Most of
the overlap between the two companies' services is in two
Ayrshire districts: Cunninghame, where A1 Service has
18 per cent of the registered mileage and Western Scottish
10 per cent; and Kilmarnock & Loudoun, where A1 Service
has 11 per cent and Western Scottish 70 per cent.
The merger has led to a modest loss of actual competition
between the two companies in the supply of commercial services
and schools transport. There is also a more significant loss
of potential competition: although A1 Service under its
previous owners was unlikely to present a threat to Western
Scottish, the latter might well have initiated more vigorous
competition with A1 Service. Moreover A1 Service
might have been acquired by another operator.
It is clear that Stagecoach's strategy is to increase Western
Scottish's already high share of bus services in Ayrshire.
This is likely to lead to competition from existing operators,
already weak, being further diminished. We see the merger
as part of that strategy. We believe there is unlikely to
be effective competition from small new entrants or from other
large operators.
The merger has brought benefits, including a marked improvement
in A1 Service's fleet of buses. It is likely to lead
to some innovative services being introduced and fares being
held in the short term. In the longer term, however, as the
scope for Stagecoach to grow by acquisition diminishes, we
believe that as a result of the weakening in competition,
Stagecoach can be expected to seek increased profits by raising
fares and reducing levels of service. We conclude on balance
that the merger is against the public interest.
We have considered recommending the divestment of A1 Service.
Having regard to Western Scottish's already dominant position
in its area of operations, however, and in view of doubts
about the willingness of others to acquire A1 Service
and compete in what is perceived to be `Stagecoach territory',
we are not convinced that divestment would be effective in
strengthening competition; and it would put at risk the benefits
from the merger. We therefore recommend a number of behavioural
remedies with the aim of fostering competition and restricting
Stagecoach's ability to exploit its position. One member of
the Group, Professor Pickering, favours divestment. His view
is set out in a note of reservation following Chapter 2.
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