GROUP 4 FALCK A/S - THE WACKENHUT CORPORATION C C MERGER INQUIRY

Statement of Issues

The Competition Commission (the Commission) has sent an issues letter to Group 4 Falck A/S concerning its acquisition of The Wackenhut Corporation (TWC).

The Commission has identified a number of issues that it wishes to consider, arising from the information received from Group 4 Falck and other interested parties. These issues will form the basis for the Commission's findings on the question whether the acquisition of The Wackenhut Corporation by Group 4 Falck might be expected to operate against the public interest.

An issues letter is always sent to the main parties and is designed to highlight those matters which have been identified by the investigating Group for further consideration, and to ensure that no relevant matter has been missed. The purpose of making the statement of issues public is to inform all interested parties, should there be any further point they wish to raise with the Commission within the next week. No conclusions have yet been reached by the Commission as to whether any matter operates or might be expected to operate against the public interest.

The issues that the Commission intends to consider, relating to the enterprises carried on by Group 4 Falck and the Wackenhut Corporation in the United Kingdom, particuarly in the provision of transportation and custodial services, are as follows:

Market definition, Market Shares and Market Concentration

1. Whether the relevant economic markets for the provision of transportation and custodial services to the Home Office are defined by each contract, or whether the market definition should be wider.

2. Whether market shares or market concentration measures, however the markets are defined, are good indicators of market power in these types of "bidding markets".

3. Whether the relevant economic markets include manned guarding services and aviation security services and whether they should be defined as:
a. the supply of security officer services; and
b. the supply of aviation security services; or
c. whether the market service definitions should be wider or narrower, and
d. whether increases in the market share (resulting from the merger for the supply of security officers and aviation security services) are sufficiently small such as to remove any competition concerns in these areas.

4. Whether each type of service is relatively homogeneous or whether there are particular variations arising from regional or local characteristics, the form and duration of contract, or special requirements of the organisation inviting bids to tender.

Competitive Constraints

5. Whether G4 Falck and TWC are close competitors in these markets and whether inter firm rivalry in these markets is reduced as a result of the merger.

6. Whether the size and experience of the merged company would be likely to deter other companies from competing against it.

7. Whether bidding costs or other particular characteristics of the markets would deter potential entrants.

8. Whether the history of entry into the relevant markets shows that new entrants are now less likely to offer strong competition to the incumbents.

9. Whether new entry is possible and likely and whether any potential entry threat constrains the behaviour of the merged entity.

10. Whether the Home Office, as a monopsony purchaser (a market situation where there is only one buyer), possesses significant buyer power and, if so, whether the buyer power is sufficient to alleviate any substantial lessening of competition in the markets with which we are concerned.

Possible adverse effects of the merger

11. Whether, taking all the factors above into account, the acquisition of TWC by G4Falck will substantially lessen competition thereby:
a. raising the price of future contracts for the services; and/or
b. decreasing the quality of services provided now or in the future;
c. whether the merged entity, or another, would be less likely to innovate, or to develop new and more effective ways of delivering the services;
d. whether the merged company would be less likely to bid for new contracts or supply services in the future than would otherwise have been the case; and
e. whether any adverse effects would be likely to result from the acquisition of TWC by G4Falck (a) for the organisations offering contracts for the services, (b) for
employment, (c) for public order and safety, (d) the tax payer, or (e) of any other kind.

Possible benefits of the merger

12. Whether any benefits would be likely to result from the acquisition of TWC by G4Falck (1) for the organisations offering contracts for the services, (2) for employment, (3) for public order and safety, (4) the tax payer, or (5) of any other kind.

Possible remedies

13. Whether any of the possible adverse effects set out in section III above could be remedied by:

a. requiring the merger be undone;
b. the divestment of the shareholding in Wackenhut Corrections Corporation (WCC) and Wackenhut UK Ltd (WUK);
c. the divestment of WCC's shareholding in Premier Custodial Group Ltd (Premier);
d. the divestment of Group 4 Global Solutions Ltd;
e. the separation of the management and operations of Premier from WCC's control;
f. behavioural remedies of any other kind; or
g. by any other means.

14. The Commission wishes to receive views on various matters surrounding the commercial motivation for the merger and the future strategy of the merged company. In particular, the Group would like views on:

a. the business rationale for the proposed merger, including the anticipated synergies which are expected to result;
b. the commercial objectives of the proposed merger;
c. the strategy for managing current contracts and for bidding for future contracts for services in the UK; and
d. the managerial and other consequences for the company's operations in the UK.

15. The Commission shall also wish to hear views on:

a. the current market for the services in the UK;
b. the scope for innovation and cost reductions arising from different methods of procuring services in the UK; and
c. the scope for improving the sharing and managing risks as between the public sector and private sector providers.

Notes to Editors

1. The reference concerning the proposed acquisition by Group 4 of Wackenhut was made under the Fair Trading Act 1973 on 9 May 2002 (see DTI Press Notice P/2002/279).

2. Jeremy Seddon, one of the Commission's members, is chairing the inquiry. The other members of the Group conducting the inquiry are Professor John Baillie, Robert Bertram, Professor Catherine Waddams and Alan Young.

3. Further information can be obtained from the Commission's website at www.competition-commission.org.uk/inquiries/custodial.htm
4. Enquiries should be directed to: Francis Royle, Press Officer, Tel: 020 7271 0242