INQUIRY INTO THE ACQUISITION OF McKECHNIE PAXTON HOLDINGS LIMITED BY LINPAC GROUP LIMITED

Statement of Issues and Hypothetical Remedies

The Competition Commission has sent an issues letter, which also lists some hypothetical remedies, to the Linpac Group Limited.

Such letters are always sent to main parties in a merger inquiry, before the Commission has reached any conclusions. They are designed to highlight the matters which have been identified by the investigating group for further consideration. This statement is being made public now to give interested parties an opportunity to bring to the Commission’s attention, in the next two weeks, any further points that they wish to see raised. The Commission has reached no conclusions about whether any matters operate or may be expected to operate against the public interest and will not do so until after it has discussed these issues with the Linpac Group.

The issues the Commission is likely to consider are:

a) The appropriate definition of the economic markets affected by the acquisition, in particular:

whether the UK is the relevant market in all cases or whether, for some products, the market is different, and, if so, why;
whether – in terms of products, geographical definition, customers or otherwise - there is a single market (or a distinct segment of a market) for returnable transit products (RTPs), or several distinct markets, or whether they are part of a larger market;
whether there is a single market (or a distinct segment of a market) for other plastic-based, transit packaging items, or several distinct markets, or whether they are part of a larger market;
whether there is scope for substitution at the boundaries of any of the markets identified; and, if so
whether that substitutability is affected by seasonal , or other, considerations.

b) Whether the acquisition is likely to affect competition in any of the markets identified in the UK, and, in particular:

whether the acquisition is likely to lead ultimately to a significant rise in prices, or to a reduction in quality or levels of service, for customers of these products;
whether any practices– such as collusion, price discrimination, manufacturers forcing full lines of products onto customers, or predatory pricing – may be expected to come into existence or be exacerbated as a result of the acquisition;
whether, as a result of the market conditions created by the acquisition, other suppliers of RTPs, or of other plastic-based, transit packaging items to customers in the UK, would be seriously weakened;
whether there are significant barriers to entry or expansion in the relevant markets, such as:
start-up costs;
intellectual property rights;
the costs involved in developing new products;
the costs involved in transporting products to customers;
economies of scale, e.g. advantages in providing a wide range of products, in purchasing raw materials or in establishing a distribution network, or
an expectation that existing firms will respond aggressively to new entry or expansion;
whether there are identifiable trends in the development of the market;
whether any features of the market – such as links between manufacturers and distributors, or lack of transparent pricing –restrict competition;
whether other aspects of the acquisition could be expected to be to the detriment of customers or competitors; and
whether any potentially unwelcome consequences of the acquisition might be constrained sufficiently to avoid detriment to the public interest:
by customers having sufficient buyer power, or
by their ability to find alternative sources of supply in the UK or abroad.

c) Whether there are likely to be benefits to the public interest from the acquisition; if so:

what are they likely to be; and
to whom will they accrue.

d) In the event of the Commission finding that the acquisition was expected to operate against the public interest, what remedies, behavioural or structural, would be appropriate to deal with the adverse effects identified:

a partial or complete divestment of one or more of Linpac’s UK subsidiaries operating in these markets;
a divestment, by Linpac, of vertically integrated logistics businesses using RTPs, and an undertaking, not to recreate any;
an undertaking to make transparent to customers that Paxton is now part of the Linpac group, and no longer a competitor;
undertakings about the prices charged for RTPs or other plastic-based, transit packaging items, or about the mechanisms by which they are set; or
any other remedies.

Notes to Editors

The reference was made by the Secretary of State for Trade and Industry, under section 64(8) of the Fair Trading Act 1973, on 4 January 2002 (see DTI press release P/2002/003).
No conclusion will be reached about whether any matters operate or may be expected to operate against the public interest until the Competition Commission submits its report to the Secretary of State on 10 April 2002.
This inquiry is being undertaken by a group of five Commission members and is led by Denise Kingsmill, one of the Commission’s two deputy chairmen. The other members are Christopher Clarke, a former director of HSBC Investment Banking, Dame Helena Shovelton, the Chief Executive of the British Lung Foundation, Professor Catherine Waddams, Director of the Centre for Competition and Regulation at the University of East Anglia and Martyn Webster, former Group Managing Director of Southern Water plc.
Further information can be obtained from the Commission's website at www.competition-commission.org.uk/inquiries/ref.htm
Enquiries should be directed to: Francis Royle, Press Officer (020 7271 0242).