& Fisher (Holdings) plc and Pittard Garner plc
A report on the proposed merger
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On 24 November 1988 we were asked to investigate and report
on a merger in contemplation involving the acquisition of
Pittard Garnar pic (Pittard Garnar) by Strong & Fisher
(Holdings) pic (Strong & Fisher) (see Appendix 1).
We concluded that a merger situation qualifying for investigation
was in contemplation.
Both Strong & Fisher and Pittard Garnar are tanners, with
no significant interests outside leather, although their businesses
are somewhat different.
Strong & Fisher concentrates on the production of ovine
leather for clothing. It is interested in the earlier stages
of production (salting and fellmongering skins) primarily
to obtain the material to make its finished product. It normally
only sells material at earlier stages of processing which
does not reach the quality required for its subsequent processing.
Pittard Garnar produces gloving leather, other ovine leather
for clothing, diaries and bookbinding and other uses, and
chamois, as well as bovine leather for shoe manufacture and
other purposes. Pittard Garnar buys hides and skins not only
for subsequent processing but also for sale outside the group.
The two companies' activities overlap in:
(a) the purchase of raw sheep and lamb skins;
(b) the salting of raw skins;
(c) the removal in fellmongeries of wool from skins and the
preservation of pelts by pickling; and
(d) the production of wool-off clothing leather by the tanning
of pickled pelts.
Much of the business is subject to international competition;
there are considerable imports and exports of salted skins,
pickled pelts and finished leather.
The main matters which we put to the parties suggesting possible
public interest issues involved competition in the four United
Kingdom markets in which a merged group would operate; the
impact on exports and on research and development; and the
future of Pittard Garnar's bovine leather businesses.
In considering the issues involving competition we took account
of the fact that in the respective markets a combined group
would be subject to competition not only from other United
Kingdom operators but also from imports and because of the
lack of barriers to entry. In addition there was a ready market
overseas for United Kingdom exports of salted skins and pickled
pelts. We concluded, unanimously, therefore, that no effects
adverse to the public interest would be expected to arise
over competition in the four United Kingdom markets.
We disagreed over the impact of a merger on the competitiveness
of United Kingdom clothing leather in overseas markets. Three
members (including the Chairman of the group) considered that
the extent of foreign competition more than compensated for
any loss of competition within the United Kingdom. The other
three members thought, however, that a merged group would
be a less effective competitor in overseas markets.
We were divided equally also on the impact on research and
development. Three members (including the Chairman) thought
there was no reason to assume that Strong & Fisher would
not maintain the necessary level of research and development.
The other three members were impressed by Pittard Garnar's
in-house research which they felt might be diminished or extinguished.
We were also divided equally over the various issues arising
from the future of Pittard Garnar's bovine businesses which
Strong & Fisher intended to sell. Three members (including
the Chairman) considered that it was likely that the bovine
businesses would be sold as going concerns and would, therefore,
continue to serve their customers; in addition there were
other suppliers. Such sales would not necessarily give rise
to unemployment. The other three members thought that the
sale of the businesses to more than one purchaser would reduce
the effectiveness of this source of supply to United Kingdom
users, and would also reduce the scope for exchanging the
results of research with the bovine side of the merged group.
They were also concerned about the prospect of direct and
indirect redundancies following a closure or fragmentation
of the bovine businesses.
On the final issue of gearing, five members of the group (including
the Chairman) thought Strong & Fisher's plans for reducing
gearing were acceptable. The sixth member thought, however,
that a highly-geared group would be more vulnerable to the
volatility of leather markets and to rises in skin prices.
The further reduction in gearing envisaged by Strong &
Fisher could be expected to have adverse effects through a
reduction in research and collaborative development, and an
increased risk of further disposals and of unemployment.
We will be reporting shortly on a rival proposal to acquire
Pittard Garnar, by Hillsdown Holdings pic.
We concluded, by a majority of four (including the Chairman's
casting vote) to three, that this proposed merger would not
be expected to operate against the public interest.
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