SUMMARY SERVICE CORPORATION INTERNATIONAL
AND PLANTSBROOK GROUP PLC: A REPORT ON THE MERGER SITUATION
On 20 December 1994 the Secretary of State for Trade and Industry asked
the MMC to investigate and report on a merger situation, as defined in
the Fair Trading Act 1973 (the Act), arising from the acquisition by
Service Corporation International (SCI) of Plantsbrook Group Plc (Plantsbrook).
The terms of reference are at Appendix 1.1.
SCI is a US company, whose business comprises funeral homes, cemeteries
and related activities in the USA, Canada, Australia and the UK. It entered
the UK market in August 1994 when it acquired Great Southern Group (GSG).
SCI purchased Plantsbrook in September 1994. At that time Plantsbrook
had about 8.7 per cent and GSG 4.0 per cent of the UK market for funeral
directors' services and they were both active in the supply of prepaid
funerals. GSG also owned crematoria but Plantsbrook did not.
As a result of the merger, SCI increased its share of funeral directing
services in an area comprising central, south, south-west and south-east
London, the remaining part of the county of Surrey and the counties of
East and West Sussexan area (the determined area) which, in our
view, constitutes a substantial part of the UKfrom around 20 per
cent to around 28 per cent, satisfying the requirements for our investigation
under the Act.
Our investigation indicates that although funeral directors do compete
on price the competition is muted. The market is a long way from functioning
effectively. Entry is likely to be particularly difficult where a powerful
well-run supplier has a large share of the market, the situation which
this merger has created or reinforced in ten specified localities (the
ten localities) in the determined area. We also have concerns about the
degree of transparency of funeral directors' charges, the lack of transparency
of ownership of funeral directing outlets and the ability of funeral
directors unduly to influence the choice of funeral arrangements.
Consumers of funeral directing services are vulnerable in an imperfect
market. The merged companies' market share in the determined area is
itself a cause for concern, but given the local nature of competition
such concern will in practice arise in particular localities. In the
ten localities we have identified the merged companies' shares range
from about 29 per cent in Eastbourne to about 51 per cent in Battersea.
We find the following detriments relating to the supply of funeral directing
services arising from the merger:
(a) SCI may be expected generally to raise prices excessively,
ie by more than would be possible in a competitive market, in the ten
localities, to the detriment of consumers in those localities.
(b) SCI's failure to disclose to consumers the ownership of its
branches will add significantly to the inability of consumers in the
determined area to make informed decisions.
(c) Choice of funeral director will be materially reduced in
the ten localities, to the detriment of consumers in those localities.
SCI estimated that prepaid funerals now accounted for some 1 to 1.5
per cent of all UK funerals. Chosen Heritage (CH), which SCI purchased
as part of GSG, was the next major entrant in the UK after the Co-operative
Societies (Co-ops), in 1985. SCI acquired Dignity Limited (Dignity),
another prepaid funeral company, as part of Plantsbrook. There are another
six prepayment plans marketed on a national basis, an unknown number
of local arrangements and a number of insurance-based schemes. We believe
that SCI's acquisition of Dignity has added little to its strong position
in the supply of prepaid funerals. Overall we consider that in respect
of prepaid funeral plans no detriment arises from the merger.
When the merger took place, SCI owned 13 crematoria accounting for about
6 per cent of crematoria in the UK, and Plantsbrook none. However, we
found considerable disquiet about the vertical integration of SCI's activities
as funeral director and operator of crematoria. In particular there was
the fear that the merger would increase the opportunity for SCI to channel
funerals to its own crematoria.
We consider that it would be natural for SCI to take advantage of the
vertical integration brought about by its ownership of funeral directing
businesses and crematoria where it can. The position has been exacerbated
by the acquisition of Plantsbrook. We have identified those crematoria
in the determined areaSouth London (Streatham Vale), Randalls Park
(Leatherhead), Surrey and Sussex (Crawley), all owned by SCI, and Downs
(Brighton) in the course of being acquired by SCIwhere we would
expect SCI to channel funerals carried out by the former Plantsbrook
branches to those crematoria. As prices at SCI's crematoria are generally
higher than those of competitors, this would be a clear loss to consumers.
It would also be detrimental to competition between crematoria.
We therefore conclude that the merger may be expected to operate against
the public interest.
Regarding the supply of funeral directing services we recommend that
SCI should be required:
(a) in the five following localities, defined in Appendix 4.6,
to reduce its market share to no more than 25 per cent by selling funeral
Brighton and Hove; and
(b) in the five following localities, defined in Appendix 4.6,
where it had a market share in excess of 25 per cent before the merger,
to sell the funeral directors' businesses it has acquired from Plantsbrook:
It is clear that SCI intends to make further acquisitions of funeral
directing businesses in the UK and in this process could purchase further
businesses in the ten localities, thus diluting or removing the effect
of our recommendations. We accordingly also recommend that an undertaking
should be obtained from SCI not to acquire any funeral directing business
within the ten localities unless the Director General of Fair Trading
(DGFT) has given prior approval to the acquisition as unlikely to give
rise to the adverse effects set out at (a) and (c) of paragraph
As to the adverse effect set out at (b) of paragraph 1.6, we
recommend that the DGFT should secure an undertaking requiring SCI to
disclose its ownership of funeral directing businesses in the determined
area prominently in all documentation presented to customers and in all
advertisements or other promotional material used in connection with
those businesses. We believe it is highly desirable that the disclosure
of ultimate ownership of funeral directing branches should be general
practice throughout the UK. We suggest that this might best be achieved
by the DGFT negotiating appropriate additions to the National Association
of Funeral Directors (NAFD), Funeral Standards Council (FSC) and Society
of Allied and Independent Funeral Directors (SAIF) Codes of Practice.
SCI has offered behavioural undertakings to remove any doubt about its
intentions regarding the supply of crematoria services. It said that
it would be prepared to give an undertaking that it would `post' details
of competing crematoria at every SCI funeral directing branch in the
area of an SCI crematorium. It would also be prepared to give an undertaking
that it would not operate a two-tier pricing system favouring its own
funeral directors. Such undertakings would be useful, and we recommend
that the DGFT should secure them, but in our view they do not go far
enough. We therefore also recommend that the DGFT should secure an additional
undertaking that its funeral directors in the determined area should
inform customers of the prices of competing crematoria.
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