Trelleborg AB and McKechnie Extruded Products Ltd: A report on the acquisition by Trelleborg AB of McKechnie Extruded Products Ltd

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On 26 July 1990, the Secretary of State for Trade and Industry asked us to investigate and report on the proposed acquisition of McKechnie Extruded Products Ltd (MEP) by Trelleborg AB (Trelleborg)-see Appendix 1.1.

MEP, a subsidiary of McKechnie plc (McKechnie), is the United Kingdom's second largest producer of semifinished extruded brass (referred to as `brass semis'), with a share of about one-third of brass semis used in the United Kingdom. Trelleborg, a Swedish company, is among the leading importers of brass semis into the United Kingdom, with a market share of between 4 and 5 per cent.

United Kingdom producers of brass semis use the product in-house, in the manufacture of brass components, as well as selling on the `free market', although the extent varies considerably from producer to producer. MEP accounts for about 45 per cent and Trelleborg for about 7 per cent of sales to users in the free market. The two together therefore would account for more than one-half of this United Kingdom free market.

The United Kingdom market for brass semis has become increasingly competitive over the last few years, due to growth in competition from imports, which in 1989 accounted for 18 per cent of the total market. There is, in our view, strong potential competition from a number of European producers, whose activities in the United Kingdom are at present limited. Competition from imports is particularly marked in that sector of the market-for `commodity' brass rods-where Trelleborg currently competes most effectively; whereas in the more specialist sector of the market where MEP's position is strong and import competition relatively weak, Trelleborg is less active.

Although the effect of the merger would be to remove one main supplier, we believe that with Delta Extruded Metals Company Ltd (Delta), the leading United Kingdom producer, other European suppliers and a number of independent stockholders active in the market, there would be sufficient competition to prevent Trelleborg from exploiting its position with reference to price, service or quality.

We have therefore concluded that the proposed merger may be expected not to operate against the public interest.

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