Commission publishes full text of conditional approval in New Eurostar joint venture between SNCF and LCR


The European Commission published on 5 October 2010 the full text of its decision to grant conditional approval to the creation of a new joint venture by Société Nationale des Chemins de fer Français (“SNCF”, France) and London & Continental Railways Limited (“LCR”, United Kingdom). The Commission had previously identified concerns that the transaction would make market entry more difficult and enhance Eurostar’s existing dominant position. The joint venture was approved by the Commission subject to commitments by the parties to ensure access for new entrants to the joint venture’s facilities including access to railway stations services, non-Schengen zone, maintenance services, and pathways.

Until the end of 2009 under EU law, Directive 91/440/EEC only granted a right of access to the national networks for passenger rail transport to international groupings of railway undertakings. Until now, Eurostar UK Limited (“EUKL”, LCR’s business in the UK Eurostar), SNCF and Société Nationale des Chemins de fer Belges (“SNCB”) had been jointly operating the Eurostar on their respective national railway networks.

However, as of 1 January 2010, the liberalisation of international rail passenger traffic has led SNCF, LCR/EUKL and SNCB to decide to consolidate the existing Eurostar services into a single railway undertaking and full-function joint venture, Eurostar International Limited (“EIL”, United Kingdom). Thus, on 26 April 2010, the European Commission received a notification of the proposed concentration pursuant to Article 4 of the Merger Regulation by which the undertakings SNCF and LCR acquire joint control of EIL by way of purchase of shares in a newly created a joint venture company. EIL’s shares will be held by SNCF and its wholly owned subsidiary French Railways Limited (“FRL”) (55%), LCR (40%) and SNCB (5%). The Commission confirmed that the notified transaction constitutes a concentration within the meaning of the Merger Regulation.

As with all cases relating to merger control, it is necessary to evaluate what the relevant product and geographic markets are and to carry out a competitive assessment. The Commission concluded that the relevant product and geographic markets may be defined as international high-speed rail services between London and Paris, on the one hand, and London and Brussels on the other hand. The competitive assessment included analysing Eurostar’s market position and examining the framework for the assessment of the proposed transaction.

The competitive analysis focused on the relevant counterfactual of the transaction. The Commission therefore needed to conduct a prospective analysis in order to compare the competitive conditions that would result from the notified merger with the conditions that would have prevailed absent the merger.

The Commission identified concerns that the transaction would significantly impede effective competition as Eurostar’s dominant position would be strengthened, thus making market entry more difficult. In order to remove the competition concerns, the parties submitted a package of commitments on 27 May 2010 and an improved set of commitments on 4 June 2010, designed to ensure access for new entrants to the railway station services, the non-Schengen Zone, the maintenance services, and the pathways. Those include commitments to provide passenger information services (timetable information, etc), to make space available for e.g. the installation of ticket machines or counters and to ensure that a new entrant is able to have access to the services provided in the non-Schengen zone (e.g. access to the security and passport control zone). The set of commitments also allows any new entrant access to maintenance depots, light maintenance services and stabling, receiving train paths (one train in each direction during the morning peak hours and one train in each direction during the evening peak hours), even if that means for the parties to give up train paths during the peak hours if the request of a newcomer for train paths cannot be accommodated. The commitments are entered into for a ten year period with a possibility of review after five years. The Commission stated that these commitments went beyond the requirements of EU and national sectoral regulation.

The Commission’s market test demonstrated that the commitments removed the competition concerns and will be effective in ensuring that the possible obstacles that new entrants could face when establishing its services on the two routes are considerably reduced. Full compliance by the parties with their commitments will ensure that the merger operation is compatible with the internal market. Therefore, the Commission has granted its approval to the creation of this new joint venture, subject to the commitments accepted from the parties.