PATRICIA HEWITT ACCEPTS COMPETITION COMMISSION'S CONCLUSIONS ON SIBELCO/FIFE MERGER

4 Jul 2001 12:00 AM

Patricia Hewitt, Secretary of State for Trade and Industry, has decided not to permit the acquisition of Fife Silica Sands Ltd (FSS) and Fife Resources Ltd (collectively: the Fife companies) by SCR-Sibelco SA (Sibelco). Ms Hewitt accepted the conclusions of the Competition Commission (CC) and the advice of the Director General of Fair Trading (DGFT) that the merger may be expected to operate against the public interest. In addition, in accordance with the conclusions of the CC and the DGFT, she has decided that Sibelco should be required to divest the Fife companies to a purchaser approved by the DGFT.

Ms Hewitt said:

''I accept the conclusions of the CC, endorsed by the DGFT, that the merger would be against the public interest. This is because, without the competitive constraint of FSS (which produces glass sand at its quarry in Fife), glass sand prices in the UK may be expected to be higher than would otherwise be the case.

''The CC found that before the merger FSS was competing with Sibelco, notwithstanding loss of business to it. They conclude that, if Sibelco had not acquired the Fife companies, they would have been acquired by another company and would have remained a competitive force in the supply of sand for container glass and become a new competitive force in the supply of sand for float glass. The CC find no benefits flowing from the merger and conclude that the only remedy which deals with the adverse effects identified is for Sibelco to divest itself of the Fife companies. The DGFT endorses this conclusion and I have accepted it. I have asked the DGFT to seek suitable undertakings from Sibelco to effect the disposal.''

The CC concluded that that the relevant market is that for the supply of sand for glass manufacture in England and Scotland. They considered that FSS was competing with Sibelco before the merger. They found that although FSS''s position had deteriorated before the merger (due to quality problems experienced during 1998 and 1999 which had undermined customers'' confidence in it as a supplier, and increases in haulage costs), FSS was actively negotiating for orders in the latter part of 1999 and the early months of 2000.

The CC found that:

- the acquisition of FSS has increased Sibelco''s share by volume of glass sand supplied to third parties in the UK to 86 per cent;

- prices in the UK are subject to individual negotiation and there are no price lists;

- there is no likelihood of glass sand prices being constrained by imports; and

- there are severe constraints on new entry.

In the light of all the evidence, therefore, the CC concluded that FSS was continuing to provide a constraint on Sibelco''s glass sand prices prior to the merger and that, without this competitive constraint, glass sand prices may be expected to be higher than would otherwise have been the case. The CC also concluded that there were no benefits flowing from the merger.

The CC considered various behavioural and monitoring remedies. They concluded that price regulation would be undesirable and difficult to operate and that other behavioural remedies would do little to address the adverse effects identified in the glass sand market. Monitoring, too, would not address the problem of market power created by the merger. The CC therefore decided that the most appropriate remedy to address the loss of competition brought about by the merger would be the divestment of the Fife companies by Sibelco.

The DGFT agreed with the CC''s conclusions and recommendations and Ms Hewitt''s decisions are in accordance with his advice.

Notes for Editors

1. The acquisition by SCR-Sibelco of Fife Silica Sands Ltd and Fife Resources Ltd was referred by the then Secretary of State for Trade and Industry to the Competition Commission under the Fair Trading Act 1973 (DTI Press Notice P/2001/18). The CC submitted its report to the then Secretary of State on 12 April 2001.

2. The Fair Trading Act 1973 empowers the Secretary of State to refer to the CC for investigation and report actual or proposed mergers which create or intensify a market share of over 25 per cent of the supply in the UK, or a substantial part of the UK, of particular goods and services, or involve the take-over of assets exceeding #70 million.

3. Copies of the report ''SCR-Sibelco and Fife Silica Sands Limited and Fife Resources Limited - a report on the merger situation'' (Cmd 5139) are available from The Stationery Office, priced #14.30.

4. Once the CC have reported it is for the Secretary of State to decide what action to take in the event that the report is adverse.

5. A copy of the DGFT''s advice is attached to this Press Notice.

Press Enquiries: 020-7215 5969/64 (Out of Hours : 0207 215 3234/3505) Public Enquiries: 020-7215 5000 Textphone (for people with hearing impairments): 020-7215 6740 http://www.dti.gov.uk

REPORT BY THE COMPETITION COMMISSION (''CC'') ON THE COMPLETED