SUMMARY OF STAGECOACH HOLDINGS PLC AND CHESTERFIELD TRANSPORT (1989) LIMITED: A REPORT ON THE MERGER SITUATION

Under the reference (see Appendix 1.1) we have to report on the merger between Stagecoach Holdings plc (Stagecoach) and Chesterfield Transport (1989) Limited (CT89).

CT89 was formed as an employee-owned company to purchase Chesterfield Transport Limited (CTL), the bus operation of Chesterfield Borough Council, in 1990. Stagecoach, the leading bus operator in the UK, has made many acquisitions since the bus industry was deregulated in 1986. Among these was East Midland Motor Services Limited (EMMS), which Stagecoach acquired in 1989, whose headquarters are also in Chesterfield. In the area which we designated as appropriate for our inquiry, which comprises seven local authority districts in north Derbyshire and north Nottinghamshire, CT89 supplies 20 per cent of bus services, measured by registered vehicle mileage, and EMMS 43 per cent.

The merger has brought, and in our view would continue to bring, several benefits. These include the continuation of the CTL service, increased efficiency in its operation, an improved fleet and quality of service and a more innovative approach to developing the market.

The loss of actual competition as a result of the merger is relatively small. EMMS and CTL for the most part provided different sorts of services and the extent of direct overlap was minor. There has been a loss of competition between them for tendered services which may affect prices in one district but CTL's activities in that area were not sustainable.

There is some loss of potential competition but we do not regard that as a problem in the short to medium term. This is partly because of our conviction that CTL could not have continued as an independent operator and our doubts that anyone else would have been willing and able to make it an effective competitor. We also believe that, in this time-frame, Stagecoach would be likely to run the CTL services at lower fares than would otherwise have been the case.

Assessment of the longer-term effects is more problematic. On the one hand there is no guarantee that Stagecoach will continue to maintain a low-fare strategy and it may come under pressure to raise fares or reduce services. On the other hand there are a number of sizeable operators in and around the designated area which could compete with Stagecoach. EMMS has not behaved in an aggressive manner and it does not appear that other operators will be deterred from competing in this area. We are reasonably confident that if Stagecoach's services were to deteriorate, other operators would see that as an opportunity to encroach. We cannot discount the possibility that Stagecoach could raise fares without precipitating a competitive response but we consider it unlikely. Taking account of the various factors, we consider that the benefits arising from the merger are likely on balance to outweigh any detriments which may result. We therefore conclude that the merger is not against the public interest.

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