Stagecoach (Holdings) Ltd and Portsmouth Citybus Ltd: A report on the acquisition by Stagecoach (Holdings) Ltd of Portsmouth Citybus Ltd

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Summary

On 21 February 1990, the Secretary of State for Trade and Industry asked the Commission (see Appendix 1.1) to investigate and report on the acquisition in October 1989 of Portsmouth Citybus Ltd (PCB) by Stagecoach (Holdings) Ltd (Stagecoach).

We are initially required to determine whether a merger situation qualifying for investigation exists, ie whether, following the merger, Stagecoach supplies over 25 per cent of local bus services in a `substantial part' of the United Kingdom. In our view the area specified in the terms of reference (East Hampshire, Eastleigh, Fareham, Gosport, Havant, Portsmouth, Southampton, Winchester and Chichester) represents a substantial part of the United Kingdom. Following the merger Stagecoach subsidiaries supplied over 40 per cent of local bus services in that area and we have therefore concluded that a merger situation qualifying for investigation has been created.

The Stagecoach Group is one of the largest bus companies in the United Kingdom, with operations in a number of areas. Its subsidiary, Southdown, acquired by Stagecoach in August 1989, operates mainly in Sussex and East Hampshire, including services in Portsmouth and Havant. PCB was formerly owned by Portsmouth City Council (PCC), but was sold to Southampton City Transport Ltd and the Start-Right Co-operative Ltd in June 1988, and subsequently to Stagecoach.

Before the merger, Southdown and PCB accounted for almost 90 per cent of commercial bus miles in the Portsmouth and Havant area and about two-thirds of contract services, with extensive competition on many routes (as shown in Appendix 1.2), but little competition between them elsewhere in the reference area. Although the extent of competition had some disadvantages, for example frequent changes in services, confusion amongst passengers, and loss of interchangeable tickets, passengers benefited in other ways, with, for example, significant increases in frequency on many routes. Both companies incurred significant financial losses in Portsmouth and Havant but while one might have withdrawn or partly curtailed its operations it is possible that had the merger not gone ahead a greater degree of competition or potential competition could have been retained than now exists.

Following the merger competition and potential competition has been significantly reduced within Portsmouth and Havant, particularly on commercial services. The result is a market structure which lends itself to further market dominance, and Stagecoach would, we believe, be in a position to deter other firms from entering the market, and threaten the position of the few remaining competitors.

We do not believe that the merger has to date had adverse effects on the public interest and it has produced benefits, removing some of the disadvantages to which we have referred. However, in our view in the longer term the reduction in competition may be expected to have the effect of producing higher fares and lower standards and frequency of service on commercial services in the Portsmouth and Havant area than would occur in a more competitive situation. We have therefore concluded that the merger may be expected to operate against the public interest.

In the particular circumstances of this case, we believe that sufficient safeguard to the public interest would be provided by a number of undertakings and other steps we have suggested with a view to making Stagecoach's activities more transparent and deterring predatory action. We have recommended that steps be taken to limit Stagecoach's scope to engage in predatory retaliation against competitors by temporary undercutting of fares or temporary increases in frequency. We have also recommended that Stagecoach be required to publish information on its Portsmouth operations, to improve its accountability. These measures would be supported by the prospect of action under the Competition Act should Stagecoach engage in other forms of anti-competitive practice or under the Fair Trading Act should it seek to exploit its position and by the readiness of local authorities to use their powers to safeguard the interests of passengers and stimulate competition. If undertakings to this effect are agreed, divestment of the assets of PCB or imposition of any more formal regulation of fares would not be necessary.

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