SUMMARY OF STAGECOACH HOLDINGS PLC
AND AYRSHIRE BUS OWNERS (A1 SERVICE) LIMITED: A REPORT ON THE MERGER SITUATION
In a reference dated 6 June 1995 (see Appendix 1.1)
the Secretary of State for Trade and Industry asked us to investigate
and report on a merger between two bus operators, Stagecoach Holdings
plc (Stagecoach) and Ayrshire Bus Owners (A1 Service) Limited (A1 Service).
Stagecoach, the leading bus operator in the UK, acquired
Western Scottish Buses Limited (Western Scottish), the main operator in
south-west Scotland, in July 1994. In January 1995 Stagecoach also acquired
A1 Service, a long-standing independent operator with some 80 buses
which ran services in part of Western Scottish's area of operations, for
4.3 million. A1 Service was unusual in being a co-operative
venture in which ten member firms, each supplying and maintaining its
own buses, ran the services.
In the area which we designated as appropriate for our
inquiry, which comprises eight districts of Strathclyde region, Western
Scottish supplies 26 per cent of bus services, measured by turnover,
and A1 Service 6.5 per cent. Most of the overlap between the
two companies' services is in two Ayrshire districts: Cunninghame, where
A1 Service has 18 per cent of the registered mileage and Western
Scottish 10 per cent; and Kilmarnock & Loudoun, where A1 Service
has 11 per cent and Western Scottish 70 per cent.
The merger has led to a modest loss of actual competition
between the two companies in the supply of commercial services and schools
transport. There is also a more significant loss of potential competition:
although A1 Service under its previous owners was unlikely to present
a threat to Western Scottish, the latter might well have initiated more
vigorous competition with A1 Service. Moreover A1 Service might
have been acquired by another operator.
It is clear that Stagecoach's strategy is to increase
Western Scottish's already high share of bus services in Ayrshire. This
is likely to lead to competition from existing operators, already weak,
being further diminished. We see the merger as part of that strategy.
We believe there is unlikely to be effective competition from small new
entrants or from other large operators.
The merger has brought benefits, including a marked
improvement in A1 Service's fleet of buses. It is likely to lead
to some innovative services being introduced and fares being held in the
short term. In the longer term, however, as the scope for Stagecoach to
grow by acquisition diminishes, we believe that as a result of the weakening
in competition, Stagecoach can be expected to seek increased profits by
raising fares and reducing levels of service. We conclude on balance that
the merger is against the public interest.
We have considered recommending the divestment of A1 Service.
Having regard to Western Scottish's already dominant position in its area
of operations, however, and in view of doubts about the willingness of
others to acquire A1 Service and compete in what is perceived to
be `Stagecoach territory', we are not convinced that divestment would
be effective in strengthening competition; and it would put at risk the
benefits from the merger. We therefore recommend a number of behavioural
remedies with the aim of fostering competition and restricting Stagecoach's
ability to exploit its position. One member of the Group, Professor Pickering,
favours divestment. His view is set out in a note of reservation following
Chapter 2.
Back to the top
Last Revised 04/99
|
