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The U.K.’s antitrust watchdog says GXO’s acquisition of Wincanton is likely to result in a “substantial lessening of competition” in the supply of warehousing services to the country’s grocers.
GXO completed its $965 million deal to acquire the U.K.-based logistics and services provider last April, outpacing Ceva Logistics in a bidding war for the company.
But that deal has been under a probe from the Competition and Markets Authority (CMA) since May.
After closing its “phase one” investigation into the deal in November, the CMA said the deal would reduce competition for contract logistics services in the U.K. The CMA then extended the probe to “phase two,” before GXO filed its response the next month. Despite the rebuttal, the watchdog concluded that the deal would lessen competition.
GXO has until March 12 to submit its second response to the CMA’s report. The company said it plans to present a response to the authority, and will continue to work towards full clearance of the transaction by the end of April.
The CMA is targeting GXO’s dedicated warehousing services, which refer to facilities that are used exclusively by a single customer.
The regulator is concerned that there are only three major suppliers of dedicated warehousing space for U.K. grocers—GXO, Wincanton and DHL. Following the transaction, customers could still turn to DHL or establish their own in-house warehouses, the CMA said.
But the watchdog noted that while in-house warehousing is viewed as an alternative in certain circumstances, the “evidence shows that this is not the case for a significant number of customers and/or tenders. This is consistent with the fact that five out of eight grocery customers expressed concerns to us regarding the merger.”
“These remaining alternatives would not be sufficient to prevent fees rising,” the CMA said in its assessment. “The deal could raise costs for grocers that rely on dedicated warehousing services as part of their logistics.”
The inquiry group said its evidence indicated that customers often prioritize reputation, reliability and track record when choosing contract logistics services providers. According to the CMA, the evidence shows that customers’ preference for suppliers with a track record creates a barrier to entry and expansion for smaller logistics providers.
Brian Templar, chairman of U.K.-based logistics consultancy Davies & Robson, told Sourcing Journal nearly a year ago that the deal could run into problems with the CMA.
“They are simply using scale to reduce choice and push up prices rather than extend the range of services to customers,” Templar argued at the time. “Also, the desire by these major players to be ‘asset light’ means that small-to-medium sized players land up as subcontractors to the major players with constant pressure on margins.”
The contract logistics provider disagreed with CMA’s initial assessment, retorting that “there is no cost impact to U.K. customers or consumers” if the transaction is approved.
“The CMA has found no competition concerns with the vast majority of the Wincanton business. Its focus is limited to a very small group of large and sophisticated companies, which will represent less than 10 percent of Wincanton revenue,” said a GXO spokesperson. “These companies have substantial pricing power, demonstrated ability to do this work themselves and the choice of a wide range of logistics players that are more than capable of servicing their needs.”
The spokesperson also called the assessment “disproportionate” for a business whose total revenue in 2024 exceeded 1.4 billion pounds ($1.76 billion), saying it does not accurately reflect the totality of evidence presented.
In the fourth quarter, Wincanton generated $538 million in revenue for GXO, helping push the company’s revenue growth from an organic 3.9 percent increase to a total 25.5 percent jump.
With the deal now on thin ice, that could put a chunk of GXO’s future expansion possibilities in doubt across various growth verticals in Europe, including industrial, defense and aerospace.
CEO Malcolm Wilson said during an earnings call last week that GXO was “very pleased with how the Wincanton business is trading,” but recognized that the CMA process has “gone longer than we would have originally expected.”
GXO’s stock declined 3 percent by noon Wednesday.
The company is closing two Pennsylvania warehouses over the next two months. One in Mechanicsburg will shutter March 12, impacting 85 employees. A second in Middletown is set to close April 15, affecting 91 employees. The company filed Worker Adjustment and Retraining Notification (WARN) Act notices with the state confirming the closures.
The contract logistics provider has seen some warehouse pullback among three large customers, but the firm said in the earnings call that these companies are all still clients.
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