William Cook Plc acquisitions: A report on the merger situations

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On 22 November 1989 William Cook plc (Cook) purchased assets of the Paramount Foundry (Paramount) from Lake & Elliot Industries Ltd (Lake & Elliot). On 17 January 1990 Cook acquired Lloyds (Burton) Ltd from Triplex Lloyd plc. On 9 March 1990 Cook contracted to acquire assets of the Armadale Steel Works (Armadale) from Australian National Industries Ltd (ANI). On 3 May 1990 we were asked to investigate and report on these acquisitions. The terms of reference are at Appendix 1.1. We were concerned with the supply in the United Kingdom of steel castings.

Steel castings have a very wide range of uses in all engineering industries chiefly as components to be incorporated into machines, plant or pieces of engineering equipment. They range in size from a few grammes to many tonnes. In 1989 the supply of steel castings in the United Kingdom amounted to at least 116,000 tonnes and was worth about £250 million. Cook was by far the largest supplier in the United Kingdom with at least 35 per cent of the United Kingdom market by tonnage and Lloyds (Burton) was the second largest supplier (between 6 and 8 per cent). Paramount accounted for about 1 per cent of the market and Armadale for about 1 per cent. No other United Kingdom foundry out of the remaining 52 supplied more than 4 per cent of the market. Imports are estimated to have been between 20 and 33 per cent of the United Kingdom market.

The market for steel castings has declined severely in the last 15 years in the United Kingdom. Despite numerous closures of foundries we believe that there is still a degree of overcapacity in the market and there is also increasing competition from overseas suppliers.

We analysed the supply of steel castings by reference to end use and to type, quality and size. Although steel castings are very disparate in size and type, all steel foundries compete either directly or indirectly. Each foundry occupies a distinct position in the market but its capabilities overlap with several other foundries each of which in turn overlaps with others. Foundries are able to expand their product range if opportunities appear. We have therefore considered the steel castings market as a whole (excluding rolling mill rolls and centrifugal castings).

We examined several issues affecting competition including alternative sources of supply, prices, barriers to entry and exit and the development and introduction of new technology. Of those, we judged the most important to be the ability of customers to obtain castings from foundries other than those owned by Cook. We considered competition both from other United Kingdom producers and from outside the United Kingdom.

The market share created by these acquisitions is undoubtedly high and increases the possibility of monopolistic abuse. We believe, however, that in the case of each of the three mergers the potential threat of price rises is likely to be mitigated by the potential for increased imports of steel castings and by effective United Kingdom competition.

We concluded that the three mergers between Cook and Paramount, between Cook and Lloyds (Burton) and between Cook and Armadale do not operate, and may be expected not to operate, against the public interest.

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