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Facts relating to the merger between J-F. Lemvig-Müller Holding A/S and Brdr. A & O Johansen A/S

14. maj 2008

About the companies

  • On 5 december 2007, J-F. Lemvigh-Müller Holding A/S’ (hereinafter LM) notified to the Danish Competition Authority the take over of the majority of stocks in Brdr. A & O Johansen A/S (hereinafter AO).
  • Both companies are active on, inter alia, the wholesale market for plumbing and heating materials and on the wholesale market for electricity materials to professional customers, i.e. to plumbers and electricians.
  • The concentration concerns primarily the wholesale market for plumbing and heating materials and on the wholesale market for electricity materials to professional customers (hereinafter the ”plumbing/heating materials-market” and ”electricity materials-market” respectively).
  • LM had a turnover of app. 7 billion DKK (app. 940 million Euro) in 2006 and had almost 1.900 employees.
  • AO had a turnover of app. 2.7 billion DKK (app. 360 million Euro) in 2006 and had app. 850 employees.

The expected effects of the proposed merger

  • On the plumbing/heating materials-market the merger would reduce the number of large nation-wide wholesalers from 4 to 3 with a combined market share above 80 pct.
  • On the electricity materials-market the merger would reduce the number of wholesalers with a nation-wide network of outlets from 3 to 2 with a combined market share above 85 pct.
  • The concentration would increase the likelihood that the few remaining companies with significant market strength would raise prices and compete less vigorously for the customers on both markets due to the highly concentrated markets and a high level of transparency. The 3, respectively 2, remaining large wholesalers on the two markets could after the concentration relative easily monitor each others prices and other market behavior.
  • The companies would after the merger know that it would not pay to try to win market shares by reducing prices. The close customer contact and the high level of transparency mean that the competitor quickly will detect price changes and follow suit. An aggressive pricing strategy would therefore be expected to result in retaliation by the remaining 1-2 large companies end therefore lower earnings rather than a volume growth. Therefore the merger would lead to a situation where it pays for the companies to raise prices and compete less vigorously for the customers.
  • The large majority of the customers on the relevant markets are minor companies that make frequent use of day-to-day delivery of minor orders. They have little buyer power that can be used to counterbalance the large wholesalers, e.g. by demanding lower prices or try to get deliveries from supplies outside Denmark.
  • The entry barriers are already, before the merger, high. This makes it difficult for new competitors to enter the market. It is, inter alia, caused by high customer demand of service level, geographical coverage, and to the breadth and depth of the product range. The barriers is exemplified by the fact that new wholesalers have not been able to take significant market shares during the last 5-10 years unless it happened as part of a merger with already existing wholesalers. The concentration would further raise entry barriers because an interesting subject for a take over from a new entrant would disappear.
  • All in all, it is the conclusion that the likelihood that the few remaining companies with significant market strength would raise prices and compete less vigorously for the customers on both markets increases compared to the situation where the concentration is blocked. 

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