Qioptiq logo Raytheon

OFT TO REVIEW BAE SYSTEMS UNDERTAKINGS

09 Feb 06. The OFT is to review undertakings given by BAE Systems plc following its acquisition of Marconi Electronic Systems from the General Electric Company plc in 1999.

The undertakings were accepted by the Secretary of State for Trade and Industry on 28 March 2000 in lieu of a reference to the Monopolies and Mergers Commission (now the Competition Commission) to address competition and other public interest concerns arising from the acquisition. These included measures to safeguard competition at prime contractor and subcontract level and to address national security concerns arising in the defence sector.

BAE Systems questions the continued relevance of a number of the undertakings given the changes that have taken place in the defence sector since the undertakings were accepted.

The OFT will examine whether, for example as a result of changes and developments in the market, the undertakings are still appropriate or need to be varied or superseded, or whether BAE Systems can be released from them. The OFT is particularly interested in views on whether changes in the sector since March 2000, such as international bidders more firmly establishing their presence in the UK market, make the undertakings or some of them no longer appropriate.

Representations should be made in writing by 24 February to David
Blocksidge, Mergers Branch, Office of Fair Trading, Fleetbank House,
2-6 Salisbury Square, London EC4Y 8JX, telephone 020 7211 8933, email
david.blocksidge@oft.gsi.gov.uk

BACKGROUND

In 1999 the proposed merger of British Aerospace plc (subsequently re-named BAE SYSTEMS plc) and the Marconi Electronic Systems business of the General Electric Company plc came within the jurisdiction of the EC Merger Regulation (ECMR). Article 296 (formerly Article 223) of the EC Treaty permits Member States to take measures necessary to protect their essential security interests. British Aerospace was requested, under Article 223 (1) (b) of the EC Treaty, not to notify the military aspects of the proposed merger to the EC Commission (see DTI Press Notice P/99/354). The military aspects of the merger weretherefore considered under national merger control law. The Commission announced on 28 June 1999 that it had approved the non-military aspects of the merger.

Section 75G of the Fair Trading Act 1973 (FTA) (inserted by section 147 of the Companies Act 1989 and amended by the Deregulation and Contracting Out Act 1994) enabled the Secretary of State to accept undertakings as an alternative to making a merger reference to the Competition Commission if he considered that such undertakings would remedy or prevent adverse effects of the merger specified by the (then) Director General of Fair Trading (whose functions were subsequently transferred to the OFT by section 2(1) of the Enterprise Act 2002). On 28 March 2000, undertakings were accepted from BAE Systems to address competition and public interest concerns arising from the transaction (see DTI Press Notice P/2000/220).

Under section 75J of the FTA, the OFT has a duty, in respect of undertakings accepted under section 75G, –
(a) to keep under review the carrying out of undertakings, and from time to time to consider whether, by reason of any change of circumstances, the undertakings are no longer appropriate and either the parties to them can be released from them, or the undertakings need to be varied or superseded by new ones, and
(b) if it appears to the OFT that the undertakings have not been or are not being fulfilled, that any person can be so released or that the undertakings need to be varied or superseded, to give such advice to the Secretary of State as it may think proper in the circumstances.

Section 75J of the FTA continues to apply for the purposes of these undertakings by virtue of the Enterprise Act 2002, section 276(1) and Schedule 24 paragraph 13(1).

Back to article list