OFT examines Arlingclose/Sterling merger

Arlingclose’s acquisition of Sterling is being examined by the Office of Fair Trade.

The acquisition was announced last month and the OFT is now inviting comments on whether the deal has resulted in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and may result in a substantial lessening of competition in the market.

Elliot Ball, spokesman for the OFT, said that as the merger has already been completed it may be that the companies concerned notified the Office as there is a voluntary regime for notification.

The OFT will look at whether the merged entity will have over 25% of market share. The other criteria for investigating a merger situation is combined turnover of over £70m, which is not the case with the merged Arlingclose/ Sterling.

The OFT has four courses of action available to it. One is finding turnover or market share too small and finding the merger does not qualify. Second is finding that the merger qualifies but clearing it. “It could be that we look at it and find that while it fits the criteria it does not raise any red flags and can be cleared without modifications,” explained Ball.

The two other options would be asking the merged entity to divest certain operations to avoid an anti-competitive market share, or referring the transaction to the Competition Commission. “There they would conduct an in-depth analysis over five weeks to look at the merger and potentially block it,” said Ball.

Sector’s merger with Butlers was referred to the Competition Commission last March. At the time several local authorities submitted comments, with only one or two concerned about lack of competition. A similar attitude exists now with regard to Arlingclose’s merger.

“What matters is whether you are confident with the quality of service that you are getting, so the number of players in the market isn’t as important as whether they are providing what you need,” Cambridge County Council’s head of accounting services Julia Minns told Room 151 this week.

At Ashford Borough Council deputy 151 officer Ben Lockwood agreed: “I’m not sure that having a wide market choice is the be all and end all when it comes to advisers, if the main players in the market are offering good advice and good service then that is enough.”

Minns also pointed out that more players in a market would not necessarily lead to better service. “In fact you might get a better concentration of expertise in the two organisations supporting the same user base,” she said.

A local authority treasurer who did not wish to be named thinks that the number of players in the market slimming down was inevitable. “Current market conditions combined with a reduction in other income streams meant that the business model of some advisers just wasn’t sustainable,” he explained.

“The advisory fees on their own are actually quite low if you look at what you are getting for them. At one stage we looked at getting the credit ratings direct from the agencies and that was going to cost a lot more than taking the treasury advisory service which gives you the credit rating anyway.” It would be preferable, however, to have more than two consultancies to chose from, added the treasurer.

Arlingclose was unable to comment on this article due to the ongoing nature of the OFT’s investigation.