CMA merger review of InterCity East Coast franchise

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Summary: The Competition and Markets Authority announced that InterCity Railways Limited (ICRL) has submitted proposed “undertakings in lieu” (UILs) in an attempt to avoid a Phase 2 merger review of the award of the InterCity East Coast franchise to ICRL. The CMA believes that the UILs are likely to be able to address fully its competition concerns. The CMA must now consult on and formally accept final UILs by 21 April 2015 (50 working days – extendable by up to 40 working days). If UILs are not agreed and formally accepted, the CMA must refer the deal for a formal Phase 2 review. In principle a Phase 2 review could result in the franchise award being blocked. However, conditional clearance is significantly more likely.

Conditional clearance is the most likely outcome of the Competition and Market's Authority's (CMA) review of the award of the InterCity East Coast (ICEC) franchise to InterCity Railways Limited (ICRL).

The CMA's merger review

The CMA announced on 6th February 2015 its decision to refer the award of the ICEC franchise to ICRL for an in-depth “Phase 2” merger review because of competition concerns on two routes. On 20 February 2015, the CMA announced that ICRL has submitted proposed “undertakings in lieu” (UILs) in an attempt to avoid a Phase 2 merger review. The CMA believes that the UILs are likely to be able to address fully its competition concerns. The CMA must now consult on and formally accept final UILs by 21 April 2015 (50 working days – extendable by up to 40 working days). If UILs are not agreed and formally accepted, the CMA must refer the deal for a formal Phase 2 review. In principle a Phase 2 review could result in the franchise award being blocked. However, conditional clearance is significantly more likely; merger prohibitions are rare.

Implications for stakeholders

Stakeholders will be able to comment on the proposed UILs. In the unlikely event that final UILs are not accepted and the review proceeds to Phase 2, stakeholders will be able to participate at various stages as interested third parties. To ensure continuity, ICRL will operate the ICEC franchise from 1 March 2015, irrespective of the status of the CMA’s merger review. However, the CMA may impose interim (“hold-separate”) orders for the duration of its review, to prevent integration of businesses or loss of competition on the overlapping Stagecoach rail and bus routes. As for all franchise mergers, the primary focus of the CMA review is competition issues in transport services; the CMA will not typically address the commercial deliverables of the franchise contract or award. For example, the CMA would not generally challenge plans for e.g. specified rolling stock upgrades, service levels and DfT returns.

More details can be found in our full briefing.

Please contact us if you have any questions, or to discuss any aspect of this briefing.

 

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