Icopal Holding A/S and Icopal a/s: A report on the merger situation

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Summary

On 24 November 2000 the Secretary of State for Trade and Industry referred to the Competition Commission (CC) for investigation and report (under the merger provisions of the Fair Trading Act 1973 (the Act)) the acquisition of Icopal a/s (Icopal) by Icopal Holding A/S—formerly named CAIK Holding af 13.06.2000 A/S, a consortium company formed by IKO Sales Limited (IKO), Carlisle Companies Inc, Kirkbi A/S and Axcel IndustriInvestor a/s.

Our terms of reference, at Appendix 1.1, ask us to answer two questions:

We were required to report by 13 March 2001.

Icopal is a Danish holding company with subsidiaries which produce a wide range of roofing materials in many parts of Europe—including the UK—and the USA.

IKO, one of the members of the consortium company that has acquired Icopal, is a Canadian company which also manufactures roofing materials. It too has a wholly-owned UK subsidiary, Ruberoid plc.

IKO—through its UK subsidiary—and Icopal—through its several UK subsidiaries—each has a significant share of sales in the markets for bituminous flat-roof coverings (known as roofing felts), pitched-roof underslatings (for fitting behind tiles as a second line of protection from rain and dirt) and damp-proof courses (DPCs) in this country.

There is only one other major UK manufacturer that supplies products into all three of these markets, although there are two medium-sized manufacturers that produce roofing felts and underslatings, and one large-scale producer of DPCs. There are also significant imports of some—although not all—types of roofing felts, and of underslatings.

On question (a) we concluded that a merger situation qualifying for investigation had been created.

In answering (b) we adopted a two-stage approach. We considered first whether the merger situation might lead to relationships developing between IKO and Icopal which would encourage their mutual cooperation, and thus bring about a reduction in the degree of competition between their respective UK subsidiaries. We concluded that there were grounds for a reasonable expectation that, if the parties were so minded, this reduction would be likely to happen.

We then proceeded to consider the actual form that such a cooperation might take, and the extent to which the parties would be likely to benefit from it.

We concluded that there was no serious likelihood of either party trying to withdraw from the supply of traditional roofing felts in the next few years—although this had been a concern raised with us by one of their customers.

We considered whether the parties might contemplate cooperating in raising, or otherwise manipulating, prices. The views of the members charged with carrying out this inquiry separated at this point. The Chairman, Professor Geroski, and Mr Bertram concluded that, although the merger situation created a basis for a relationship that could be used to sustain business contacts affecting competition in the marketplace, the structure and the character of the UK markets for the relevant products, as they have developed up to now, was likely—in the absence of fundamental changes—to preclude any detriment to the public interest.

So they went on to conclude that the creation of the merger situation did not operate against the public interest, nor could be expected to do so. As they form a majority of the members of the Group constituted to consider this reference, their conclusion is to be regarded as the CC’s view in this inquiry.

Mr Garthwaite, whose minority view is set out in a supplementary note to Chapter 2, concluded that the creation of the merger situation might be expected to operate against the public interest.

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