Stagecoach Holdings plc and Lancaster City Transport Limited: A report on the merger situation between Stagecoach Holdings plc and Lancaster City Transport Limited

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On 3 August 1993 the Secretary of State asked the MMC (see Appendix 1.1) to investigate and report on a possible merger between Lancaster City Transport Limited (LCT) and Stagecoach Holdings plc (Stagecoach). Stagecoach is one of the largest bus companies in the UK; its subsidiary Stagecoach (North West) Limited (Stagecoach North West), through its divisions Ribble Buses (Ribble) and Cumberland Motor Services (Cumberland), is the main operator of bus services in Lancashire and Cumbria. LCT was formerly owned by Lancaster City Council, providing services mainly in the district of Lancaster (see Appendix 1.2).

Stagecoach acquired various assets of LCT, namely its depot, a number of buses, and various plant, equipment and stock. In the circumstances of this case, we believe that the depot was so closely connected with LCT's business of operating bus services that the acquisition represented a merger situation as defined in the Fair Trading Act 1973 (the Act). As a result of the merger, Stagecoach increased its share of commercial bus miles in Lancashire and Cumbria-an area which, in our view, constitutes a substantial part of the UK from about 48 per cent to about 51 per cent, satisfying the requirements for our investigation under the Act.

As a result of the merger, Stagecoach now operates almost all commercial services in the district of Lancaster although other bus companies have a significant share of services run under contract to the County Council.

We have acknowledged that competition between Stagecoach and LCT before the merger was weak, the two companies having entered into a timetable agreement in 1989 under which almost all commercial services in the district of Lancaster were jointly operated. We believe, however, that LCT still offered the potential for competition to Stagecoach, as had occurred between LCT and Ribble before 1989: LCT's acquisition by a company other than Stagecoach would have maintained, or increased, potential competition, particularly as regards commercial services within the district of Lancaster. Competition and potential competition, in our view, are the main safeguards against higher fares and lower levels of service, and provide scope for operators to offer different combinations of fares and service standards. We do not believe that potential competition from other new entrants could prove as effective a constraint on Stagecoach in its current dominant position: we also do not believe that competition from other forms of transport provides as effective a constraint on fares or service standards.

We have therefore concluded that the merger may be expected to operate against the public interest by removing competition and potential competition to Stagecoach in commercial services in the district of Lancaster, which may in turn be expected to result in higher fares, lower levels of service and less choice than would otherwise be the case.

We have recommended a number of undertakings to remedy these adverse effects by limiting Stagecoach's ability to retaliate against new entrants in the district of Lancaster by temporary reductions in fares or increases in frequency. The result of these undertakings would be to enhance the effectiveness of potential competition from other operators should Stagecoach abuse its position. If such undertakings were not forthcoming, Stagecoach should be required to divest the depot. We have also recommended that Stagecoach be required to publish information on the financial performance of its operations in the district of Lancaster.

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