The OFT has recently published its decision on the anticipated acquisition by Atlas Copco Limited ('Atlas Copco') of the medical gas division of Penlon Limited ('Penlon') (announced on 7 July). The OFT recognised that although the transaction has the potential to create a substantial lessening of competition in the supply of terminal units used in medical gas systems, it was appropriate in the circumstances to exercise its discretion to apply the "de minimis" exception and therefore avoid a reference to the Competition Commission ('CC').
Atlas Copco and the medical gas division of Penlon overlap in the manufacture, installation and maintenance of primary medical gas pipeline equipment (including certain equipment systems and pipeline components) in the UK. In relation to terminal units, it was estimated that, post-merger, the merged entity would have a combined share of supply of 85 - 95% (with an increase of around 30%). Combined with customer concerns, the OFT concluded there was a realistic prospect of a substantial lessening of competition for the supply of terminal units triggering its duty to refer the merger.
The OFT then went on to consider whether the discretionary 'de minimis' exception may apply. The OFT's policy is to consider the application of the 'de minimis' exception to the duty to refer where the total value of the UK market in question is below £10 million (by applying a cost/benefit analysis).
The OFT first considered whether in principle 'clear-cut' undertakings in lieu ('UILs') were available. However, as Penlon's terminal units are not a discrete standalone product, it was found that it would be very difficult to separate the terminal units from the remainder of Penlon business. As a result, the OFT concluded that there was no effective (or proportionate) structural remedy available.
In circumstances where the annual value in the UK of the market concerned is, in aggregate, less than £3 million (and there are no workable UILs in principle available), a reference to the CC will only be justified in exceptional circumstances. In this case, the OFT found that size of the market for the manufacture and supply of terminal units in the UK represents less than £3 million and no exceptional circumstances were identified during its investigation.
In clearing the merger, the OFT applied it revised guidance on the exceptions to the duty to refer of December 2010. The 'de minimis' test for markets of insufficient importance is strictly applied and this is one of the few mergers to have been cleared on this basis since the new guidance was published.
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