SUMMARY OF
SLIGOS SA AND SIGNET LTD: A REPORT ON THE PROPOSED MERGER
Signet Ltd (Signet), one of the two largest processors
of payment card transactions in the United Kingdom, has been put up for
sale by its owners, Lloyds Bank, Midland Bank, National Westminster Bank
and The Royal Bank of Scotland. After consideration of other bids, the
vendors' choice was narrowed down to two firms: First Data Resources
Ltd (FDRL) which is ultimately owned by American Express, and Sligos
SA (Sligos), a French subsidiary of the state-controlled bank, Crdit
Lyonnais SA (Crdit Lyonnais).
On 24 October 1990 the Secretary of State for Trade
and Industry referred Sligos's bid to this Commission, for investigation
and report. The Secretary of State noted in a press statement at the
time that since the sale of Signet would lead to the creation of the
largest third party processor of payment cards in the United Kingdom,
the implications of its coming under the control of a state-controlled
company raised issues of public interest which warranted investigation
by this Commission.
At a late stage in our inquiry, Signet's owners told
us that they had decided to negotiate in detail with FDRL. However, in
case these negotiations do not succeed, and the owners wish to turn to
Sligos instead, Sligos is continuing with its bid. We have therefore
to complete our investigation and report.
While Signet enjoys a substantial share of the payment
card processing market, Sligos has not hitherto had any business in the
United Kingdom. The merger would not therefore cause any increase in
market share in the United Kingdom.
The business of card processing is expanding, and the
customers of card processors are themselves becoming more cost-conscious
and selective because of the increased competition which they themselves
face. Several new firms, both domestic and foreign, have recently entered
the market. The barriers to new entry are not so high as to deter major
firms, especially as it is possible to start on quite a small scale,
and exit costs can be low, since much expenditure can be recovered.
No concern was expressed to us during our inquiry concerning
Sligos's possible acquisition of Signet, except in relation to the potential
effects of state control. Two banks, both engaged in processing themselves,
were worried that Sligos might exploit its position in the market through
being able, as a subsidiary of a state-controlled bank, to take longer-term
decisions than its competitors. However, as we found in our inquiry into
Crdit Lyonnais and Woodchester Investments1, in practice the French
authorities accord a high degree of independence to the management of
banks directly under state control and expect them to operate commercially.
This is particularly the case in respect of activities outside France.
There is even less reason for supposing that they would be likely to
interfere, indirectly, in the United Kingdom activities of Sligos, a
subsidiary of Crdit Lyonnais. It is also the policy of Crdit Lyonnais
to give the managements of its subsidiaries freedom to run their businesses,
and Sligos told us that it follows the same principle with its own subsidiaries.
We do not believe that, if Signet's business under Sligos's
ownership were to run into trouble, Crdit Lyonnais—and still less
the French authorities—would step in with any assistance that could
not be justified on the standard financial criteria prevailing in the
private sector.
We do not consider that Signet under Sligos would have
the market strength, with or without state control, to benefit from anti-competitive
practices. If it attempted to do so, major customers could take their
processing in-house; or they, and smaller customers, could turn to one
of the increasing number of third party processors. Signet's position
in the market is not as strong as might be supposed from its large market
share: it owes the latter entirely to the business of its present shareholders,
the four banks, who would only be committed to Signet for up to about
five years after its sale, and that probably on a declining scale. After
that period, Signet would have to compete to keep the four banks' custom.
We conclude that the proposed merger may be expected
not to operate against the public interest.
1 See
our recent report on Credit Lyonnais SA and Woodchester Investments plc,
cm 1404, January 1991.
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