South Yorkshire Transport Ltd acquisitions: A report on the merger situations

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On 22 March 1990, the Secretary of State for Trade and Industry asked the MMC (see Appendix 1.1) to investigate and report on the acquisitions by South Yorkshire Transport Ltd (SYT) of Sheffield & District Transport Company Ltd (S&D), Michael Groves (Groves), Sheafline (PSV) Ltd (Sheafline), and The Hallam Bus Company Ltd (Hallam). Under a further reference dated 29 May 1990 we were required to investigate and report on the acquisition by SYT of SUT Ltd (SUT), which replaced the reference of Hallam.

In order to establish whether merger situations qualifying for investigation exist, we are also required to determine whether, following the mergers, SYT 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 reference1 (South Yorkshire, and the districts of Bassetlaw, Bolsover, Chesterfield, Derbyshire Dales, High Peak and North-East Derbyshire) represents a substantial part of the United Kingdom. Following the mergers, SYT supplies some 50 per cent of local bus services in the reference area, and we have therefore concluded that merger situations qualifying for investigation between SYT and S&D, Groves, Sheafline and SUT have been created.

SYT is the main operator of bus services in South Yorkshire, where before the mergers it accounted for over 50 per cent of bus miles operated, with a significantly higher market share in Sheffield. S&D, Sheafline and SUT were the three largest competitors to SYT in the Sheffield area, and Groves was one of a number of smaller competitors. In our view, the four companies each offered effective competition to SYT.

We believe therefore that each of the acquisitions, of S&D, Groves, Sheafline and SUT, has reduced competition in bus services in Sheffield but we are less concerned about the effects elsewhere in the reference area. As a result of the acquisitions, SYT's share of bus miles in Sheffield has increased from 73 per cent to 87 per cent, and competition to SYT has been halved. We do not believe that competition from other operators or potential competition from new entrants is sufficient to compensate for this loss of competition.

In our view the reduction in competition from each of the mergers has removed both a major constraint on the fares that SYT can charge, and an important stimulus to efficiency and improvement in service. We believe therefore that each acquisition may be expected to lead to higher fares, lower standards, quality and frequency of service, and less choice than would occur in a more competitive situation. We do not believe that any of the acquisitions has produced any offsetting benefits to the public interest.

We have therefore concluded that each of the mergers between SYT and, respectively, S&D, Groves, Sheafline and SUT may be expected to operate against the public interest. We have considered a number of remedies, but recommend that SYT be required to divest the assets and businesses acquired, as the most effective means to restore competition in Sheffield.

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