Competition Commission investigates housing

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Competition Commission investigates housing

Investigations into mergers are well documented in the media. You only need to look at BSkyB, Stagecoach Group, Ryanair or the ‘Big Four’ accountancy firms for recent cases that the Office for Fair Trading (OFT) or Competition Commission (CC) have shown interest in.

The OFT examination of the Your Housing Group merger is a first for the sector, despite significant merger activity over the last decade. So what are the key points to be aware of? It’s a complex area, but here’s a brief introduction.

How does an investigation occur? The UK has a two-stage approach. The OFT completes an initial assessment of whether a merger will lead to a ‘serious lessening of competition’ (SLC). If the view is yes, the OFT refers it on to the CC for a detailed investigation. If a merger has a ‘special public interest’ the final decision is made by the Secretary of State.

The OFT may dismiss a case if it decides the ‘market is not important enough’, ‘customer benefits outweigh the SLC’ or ‘the merger isn’t likely to progress further’. When will the CC intervene? The CC doesn’t pro-actively seek mergers to investigate. Cases are only referred to it by another authority e.g. the OFT or sector regulators. The OFT and CC will also only investigate cases where:

Two or more entities cease to exist
The merger has not yet taken place
The value of the entity merging exceeds £70m, or the newly merged body will control more than a 25% share of the market.

What is meant by a market? This is not clear. It covers factors such as geography, customer groups or products. The CC applies a range of ‘hypothetical tests’, so it’s difficult to determine how a market will be defined for a Registered Provider (e.g. social housing in just one local authority area or a larger region?). We may only get a better understanding of how the definitions will apply when a case progresses to the CC.

So what powers does the CC have? The CC has two main powers. It can:

Prevent a merger
Force the merged organisation to sell off parts of the business.

Implications for housing. That’s difficult to say at present. Other than heightened awareness of the sector, it’s not clear what has triggered the OFT’s interest in Your Housing Group. It raises questions such as ‘What role will the HCA play in assessing mergers?’, ‘Do RPs compete?’ and ‘What markets does an RP operate in?’

As the sector continues to diversify into more commercial activities, competition will become a more pertinent issue and one to be mindful of during the merger governance process. It’ll be interesting to watch how the Your Housing Group case develops. I’m sure many in the sector will have their eyes on it… Watch this space.

Michael Appleby is an Altair Senior Consultant.

For further details contact Michael on 07545 314 749 or michael.appleby@nullaltairltd.co.uk