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CAPITA / IBS OPENSystems Update
September 2009
In February, we reported on the OFT’s concerns about the acquisition by Capita Group of IBS OPENSystems and its decision to refer the deal for a full investigation by the Competition Commission (“CC”).
Related Short Lines article (Feb 2009):
Capita / IBS OPENSystems (and why being a big fish in a small pond isn’t always easier....)
The CC published its final report in June. It agreed that the merger may be expected to result in a substantial lessening of competition (“SLC”) in the UK market for the supply of revenue and benefits (“R&B”) software and related services by the same supplier as a single system, and adverse effects in terms of prices, service levels, and innovation.
The CC felt that behavioural remedies would be inadequate and therefore considered whether Capita should be required to divest all or part of the IBS business. Full divestiture would have remedied the SLC effectively. However, in choosing between two remedies which are equally effective, the CC is obliged to select the remedy that imposes the least cost or is the least restrictive. It therefore agreed that Capita should be given the opportunity to sell the IBS R&B division, given that this is the less intrusive of the two available remedies and the SLC identified only related to the R&B market.
Capita has now given formal undertakings to the CC to remedy the SLC and the adverse effects considered likely to arise from it. In particular:
- Capita is to sell the IBS R&B division to a suitable purchaser, who is to be approved by the CC; the sale must be completed before Capita can progress with further integration of the rest of the IBS business;
- if a successful divestiture is not achieved by Capita within a reasonable period, the CC will review whether it needs to widen the scope of the divestiture package to a full divestiture of the whole IBS business; and
- the CC may also appoint a divestiture trustee at any stage in the process, to bring about an effective disposal – whether of the whole or part of the IBS business (this is in addition to the trustee who is already appointed to monitor the level of integration between Capita and IBS and Capita’s compliance with the hold separate undertakings it has previously entered into).
The divestiture package includes assets, such as property, relevant equipment, and customer/supply contracts, intellectual property (including an assignment of the OPEN brand name and of all rights and knowhow used in providing R&B products and services), business information (such as outstanding orders, customer records, details of bids for new contracts, financial records and business plans), as well as staff, working capital and work in progress.
An Approved Purchaser must satisfy the CC that (i) it is independent of the Capita Group; (ii) it has the incentive, financial resources and expertise to operate the IBS revenue and benefits division as a viable and active business in competition with Capita; (iii) no competition concerns would arise if it were to take over the divested division; and (iv) it will obtain all necessary approvals and consents.
Susannah Sheppard and Rachel Iley
Useful URLs
- Competition Commission’s Final Report dated 4 June 2009:
http://www.competition-commission.org.uk/rep_pub/reports/2009/547capita.htm - Notice of acceptance of final undertakings by the Competition Commission on 20 July:
http://www.competition-commission.org.uk/inquiries/ref2008/ibs/notice_acceptance_final_undertakings.htm
Kemp Little LLP Solicitors, Cheapside House, 138 Cheapside, London, EC2V 6BJ
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