Groupe Eurotunnel S.A. and SeaFrance S.A. merger inquiry A report on the completed acquisition by Groupe Eurotunnel S.A. of certain assets of former SeaFrance S.A. 6 June 2013 Competition Commission 2013 Website: www.competition-commission.org.uk Members of the Competition Commission who conducted this inquiry Alasdair Smith (Chairman of the Group) Robin Aaronson Ivar Grey Malcolm Nicholson Chief Executive and Secretary of the Competition Commission David Saunders The Competition Commission has excluded from this published version of the final 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 []. Non-sensitive wording is also indicated in square brackets. iii Contents Page Summary .............................................................................................................................. 4 Findings ................................................................................................................................ 7 Appendices A Terms of reference and conduct of the inquiry B GET’s financials C Event analysis—freight and passenger cross-Channel ferry and tunnel services D Prices and volumes E Capacity and its utilization F Bundling of tunnel- and ferry-based services G Horizontal unilateral effects H Likelihood of entry I Analysis of GET’s corporate documents and board minutes J Assessment of the effect of the Order by the Commercial Court of Paris on the CC’s ability to implement structural remedies Glossary iv Table of Contents Page Summary .............................................................................................................................. 4 Findings ................................................................................................................................ 7 1. The reference .................................................................................................................. 7 2. General context ............................................................................................................... 7 The economic context ..................................................................................................... 7 Demand for transport services on the short sea .............................................................. 8 Suppliers of transport services on the short sea ............................................................ 10 3. The companies, transaction and rationale for the merger .............................................. 12 Groupe Eurotunnel SA .................................................................................................. 12 SeaFrance .................................................................................................................... 12 Events leading to the transaction................................................................................... 13 The rationale for the merger .......................................................................................... 16 Preventing the acquisition of the Vessels by a competitor and capacity rationalization ......................................................................................................... 17 Complementary transport option and cost synergies ................................................ 18 Capacity expansion .................................................................................................. 19 Market analysts’ reports ............................................................................................ 21 Conclusions on the rationale for the merger .................................................................. 22 4. The ‘relevant merger’ situation ...................................................................................... 23 Enterprises: what are the relevant assets and do they constitute an ‘enterprise’? ......... 23 The legal test and CC guidance ................................................................................ 23 GET’s views ............................................................................................................. 24 The SCOP’s views .................................................................................................... 25 Context of the analysis ............................................................................................. 25 Vessels ..................................................................................................................... 27 Staff .......................................................................................................................... 28 Other assets acquired ............................................................................................... 33 Assets not acquired by GET ..................................................................................... 34 Conclusions .............................................................................................................. 36 Ceasing to be distinct ............................................................................................... 37 Share of supply test....................................................................................................... 37 Turnover test ................................................................................................................. 37 Statutory time limit ......................................................................................................... 37 Conclusion .................................................................................................................... 38 5. Counterfactual ............................................................................................................... 38 GET’s views on the counterfactual ................................................................................ 38 Our approach to the counterfactual assessment ........................................................... 39 Approach 1: the Court abandoned the sealed bid process and held a public auction ................................................................................................................... 41 Approach 2: the Court considered only the initial sealed bids ................................... 43 Conclusions .............................................................................................................. 44 6. Market definition ............................................................................................................ 44 Introduction ................................................................................................................... 44 Product market .............................................................................................................. 45 Freight versus passenger markets ............................................................................ 46 Freight: substitution from accompanied to unaccompanied services (ro-ro) .............. 47 Freight: substitution from ro-ro to lo-lo ...................................................................... 47 Passengers: evidence on intermodal competition ..................................................... 47 Geographic market ........................................................................................................ 48 Capacity ................................................................................................................... 50 Transport costs ......................................................................................................... 50 Freight customers’ evidence ..................................................................................... 51 Event analysis .......................................................................................................... 52 1 Pricing analysis ......................................................................................................... 52 Conclusions on market definition ................................................................................... 52 7. Nature and evolution of competition .............................................................................. 53 Approach to competition ................................................................................................ 54 Positioning of the key operators ................................................................................ 54 Nature of freight contracts and competition for freight customers ............................. 55 Sales to passengers ................................................................................................. 56 CC analysis of the intensity of competition between suppliers on the short sea ............. 57 Share of traffic of various routes and operators ........................................................ 57 Events analysis ......................................................................................................... 57 Pricing analysis ......................................................................................................... 59 Customers’ views ..................................................................................................... 60 Conclusions .............................................................................................................. 61 8. Assessment of the competitive