Commission lists worries over Smith purchase of Linpac

The Competition Commission has revealed a list of issues central to its investigation of the £170m acquisition of Linpac Containers, the cardboard box business bought by DS Smith in March.

The Competition Commission has revealed a list of issues central to its investigation of the £170m acquisition of Linpac Containers, the cardboard box business bought by DS Smith in March.

The Commission began an investigation into the deal in May and published an issues statement yesterday that details the main areas of its investigation.

A spokesman for DS Smith, which makes Basildon Bond writing paper as well as cardboard boxes, said the company was "disappointed" that the acquisition had been referred to the Commission by the Office of Fair Trading but that it continued to work with the inquiry.

The Commission said it was looking at a number of underlying factors, including "whether the recent [April 2004] price rise in corrugated sheet and cases was a direct result of increases in raw material costs, or whether it could be viewed as related to the merger, or was for some other reason".

If the deal is blocked it will be a severe blow to DS Smith, which last month predicted a challenging year ahead after delivering a 2 per cent rise in annual profits in the year to the end of April. The Linpac deal, which was not conditional on regulatory approval, was part funded by a £71m rights issue underwritten by Cazenove.

Linpac Containers is the number four in the market for corrugated boxes, while DS Smith is the third-largest player. The pair will occupy the UK's number two position with a market share of 24 per cent.

The inquiry will also look into the competitive effects of the deal and whether the merger might create or increase market power and lead to even higher prices. The statement yesterday said the Commission would also look at whether customers might suffer a reduction in levels of service.

The study will also focus on Linpac and its role in the market before the deal. The Commission said it would be looking at whether and to what extent Linpac was an independent and vigorous or effective competitor before the merger, with an influence greater than indicated by its market share.

The Commission will also examine whether the merger gives rise to any efficiency gains which might enhance rivalry among the remaining firms in the relevant markets.