Breedon Aggregates and Aggregate Industries UK A report on the completed acquisition by Breedon Aggregates Limited of certain Scottish assets of Aggregate Industries UK Limited 9 April 2014 C M A 26 Crown copyright Website: www.gov.uk/cma Members of the Competition Commission who conducted this inquiry Simon Polito (Chair of the Group) Robin Aaronson Lesley Ainsworth Graham Sharp Chief Executive and Secretary of the Competition Commission David Saunders Members of the Competition and Markets Authority panel who from 1 April 2014 are responsible for the remaining stages of this inquiry Simon Polito (Chair of the Group) Robin Aaronson Lesley Ainsworth Graham Sharp Chief Executive of the Competition and Markets Authority Alex Chisholm The Competition and Markets Authority has excluded from this published version of the report information which the Inquiry Group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range. These are shown in square brackets. Non-sensitive wording is also indicated in square brackets. iii The Competition Commission’s (CC’s) provisional findings were published on 7 February 2014. On 1 April 2014 the remaining functions of the CC in relation to the reference were transferred to the Competition and Markets Authority (CMA), under Schedule 5 to the Enterprise and Regulatory Reform Act 2013 and the Schedule to the Enterprise and Regulatory Reform Act 2013 (Commencement No. 6, Transitional Provisions and Savings) Order 2014 (the Order). Accordingly this report is published in exercise of the CMA’s functions under sections 35 and 38 of the Enterprise Act 2002, read with paragraph 2 of the Schedule to the Order. This report sets out the findings of the CMA, based on the evidence reviewed and the analysis carried out by the CC and by the CMA during the course of the inquiry. The Inquiry Group was acting on behalf of the CC before 1 April 2014 and on behalf of the CMA from 1 April 2014. Any reference in this report to the CC shall be construed as including a reference to the CMA where it relates to a decision or other action taken or to be taken from 1 April 2014. All CC guidelines mentioned in this report have, with effect from 1 April 2014, been adopted by the CMA. iv Contents Page Summary .............................................................................................................................. 3 Findings .............................................................................................................................. 10 1. The reference ................................................................................................................ 10 2. The companies and the industry in which they operate ................................................. 10 Breedon ........................................................................................................................ 10 Aggregate Industries and its operations in north Scotland ............................................. 12 The supply of heavy building materials in north Scotland .............................................. 15 The relevant products and services .......................................................................... 17 Primary aggregates .................................................................................................. 18 Recycled and secondary aggregates ........................................................................ 20 Drivers of demand .................................................................................................... 23 Customers ................................................................................................................ 25 Competitors .............................................................................................................. 26 3. The merger and the relevant merger situation ............................................................... 34 Outline of merger situation ............................................................................................ 34 The rationale for the merger .......................................................................................... 34 Jurisdiction .................................................................................................................... 35 Enterprises ceasing to be distinct ............................................................................. 35 Turnover test/share of supply test ............................................................................. 36 Timing of the reference ............................................................................................. 37 Conclusions on relevant merger situation ................................................................. 38 4. Market definition ............................................................................................................ 38 Analytical framework ..................................................................................................... 38 Product market .............................................................................................................. 38 Aggregates ............................................................................................................... 38 RMX ......................................................................................................................... 42 Asphalt ..................................................................................................................... 43 Contract surfacing services....................................................................................... 45 Conclusions on product market definition ................................................................. 45 Geographic market and catchment area analysis .......................................................... 46 Approach .................................................................................................................. 46 Aggregates ............................................................................................................... 47 RMX ......................................................................................................................... 49 Asphalt ..................................................................................................................... 51 Decorative aggregates .............................................................................................. 53 Contract surfacing services....................................................................................... 53 Conclusions on geographic market definition ................................................................ 54 5. Counterfactual ............................................................................................................... 54 The circumstances prior to the merger .......................................................................... 55 Our assessment of the counterfactual ........................................................................... 56 Scenario 1: Closure of the acquired operations ........................................................ 56 Scenario 2: acquisition by one or several alternative purchasers .............................. 56 Scenario 3: continued ownership of the acquired operations by Aggregate Industries ................................................................................................................. 57 Conclusion on the counterfactual .................................................................................. 58 6. Assessment of the competitive effects of the merger ..................................................... 58 Introduction ................................................................................................................... 58 Pre-merger competition ................................................................................................. 59 Purchasing processes .............................................................................................. 59 Criteria used to select suppliers ................................................................................ 61 Pricing ...................................................................................................................... 63 Closeness of competition between Breedon and Aggregate Industries in north- east Scotland........................................................................................................... 63 1 Analysis of local effects for aggregates, RMX and asphalt ............................................ 66 Approach .................................................................................................................. 67 Step 1: Filtering out of sites based on overlap and concentration analysis ................ 71 Step 2: Detailed analysis of the competitive effects of the transaction in the relevant product markets and local areas ................................................................ 75 Step 3: Countervailing factors: Likelihood of entry and expansion in the relevant product markets of the problem sites and buyer power .......................................... 103 Conclusions on the competitive effects of the merger in the markets for aggregates, RMX and asphalt in the relevant local