The Go-Ahead Group Plc and OK Motor Services Limited: A report on the merger situation

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Summary

In a reference dated 8 September 1995 (see Appendix 1.1) the Secretary of State for Trade and Industry asked us to investigate and report on the acquisition by The Go-Ahead Group PLC (Go-Ahead) of OK Motor Services Limited (a bus operator, referred to in this report simply as OK), OK Motor Services (Travel) Limited (a travel agency and tour operator), and OK Travel (Inclusive Tours) Limited (a coach tour operator) for a consideration of £5.4 million.

The reference area consists of the counties of Tyne & Wear, Durham, Cleveland and four adjacent districts or parts of districts in Northumberland. At the time of the merger in March 1995, Go-Ahead was the second largest bus operator in the reference area with a market share of 29.2 per cent. It operated chiefly in Tyne & Wear and north Durham. OK was the fifth largest operator with a market share of 5.4 per cent. It operated widely throughout the reference area, with a majority of its services being in south Tyne & Wear and Durham.

The bus market in the reference area is dominated by four large national operators (including Go-Ahead), the others being Stagecoach Holdings plc (Stagecoach), which has the largest market share, National Express Group PLC (National Express) and British Bus PLC (British Bus). Following the merger these four operators together have a 95 per cent share of the market in the reference area. Each operator has a core territory within which it is dominant and this limits competition between them. However, the territories overlap and there is competition on the main corridors served by Go-Ahead. Within Tyne & Wear competition is also provided by the Metro and the Newcastle-Sunderland railway.

The merger has resulted in a slight loss of competition for commercial bus services. However, we believe that the competition Go-Ahead continues to face from other bus operators and, on parts of its network, from other modes of transport such as the Metro will be sufficient to prevent this loss of competition with OK from producing adverse consequences for bus users. We also expect that the level of competition between major bus operators in the reference area will increase in future, at least to a limited extent, as a consequence of reduced opportunities to expand by acquisition. This increased competition will offset the loss arising from the merger.

The merger has also resulted in a loss of competition for tendered services. However, we consider that the number of potential competitors for tendered services remains sufficiently large that it would not be right to conclude that the loss of OK would in itself have a direct impact on tender prices. In addition, as OK was in a financially weak state, its loss as an independent competitor would probably have occurred in the absence of the merger.

The merger will bring some benefits, including efficiency savings arising from the combined operation of Go-Ahead and OK, greater inter-availability of tickets and improved passenger information.

We do not consider that the acquisition by Go-Ahead of OK Motor Services (Travel) Limited and OK Travel (Inclusive Tours) Limited will have any impact on the travel agency and coach tour markets in the reference area.

In view of these considerations we conclude that the merger does not operate and may be expected not to operate against the public interest. One member of the Group, Professor Pickering, disagrees. His views are set out in a note of dissent following Chapter 2.

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