Affected market: Distribution of travel brochures
Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.
The OFT's decision on reference under section 33(1) given on 14 November 2008. Full text of decision published 9 December 2008.
Please note that square brackets indicate figures or text which have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.
Orbital Marketing Services Group Ltd (OMSG) carries out marketing services operations in the travel, tourism, education and healthcare sectors. It also has a general direct mail and fulfilment business. BP Travel Marketing Services (BP), a trading division of OMSG, provides brochure distribution and mailing services to tour operators, supplying brochures and information to travel agents.
Ocean Park Ltd (OP) is the holding company for AU Logistics (AU). OP was founded in 2002 with support from tour operators, Thomas Cook and First Choice. AU provides brochure distribution and mailing services to tour operators, servicing travel agents with brochures and information. OP's UK turnover for the year ended August 2007 was £5.3 million.
OMSG has signed a conditional agreement to acquire 100 per cent of the share capital of OP. The parties notified the proposed transaction on 19 September 2008 and the administrative deadline for a decision is 14 November 2008.
The OFT believes that as a result of this transaction OMSG and OP will cease to be distinct. Both parties are involved in the bulk distribution of travel brochures to UK travel agents and at least one quarter of all services of that description would be supplied by one and the same person following the merger. Therefore the share of supply test in section 23(2) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.
THIRD PARTY VIEWS
Third party views have largely been discussed above in the text of the decision. Customers noted that the merger would result in just one supplier of the service, however the general view was that this was inevitable given the market shrinkage in tour operators, travel agents and the number of brochures, which are points discussed further in the counterfactual section, below. Only two small customers considered that the merger itself would result in competition concerns.
As noted, there was some evidence that switching pre-merger, and therefore the potential for merger effects as marginal customers become infra-marginal to the merged firm, was relatively modest: for example, a smaller customer commented that they did not expect any major changes as a result of the merger and were happy to support the merger. Another customer said that even with a choice of supplier it would not switch.
The merger combines the only two bulk distributors of travel brochures on behalf of tour operators to travel agents in Great Britain.
As discussed above, only the Top Two customers possess countervailing buyer power, with the volumes of business enabling them to encourage entry by a potential competitor or sponsor new entry in the event of dissatisfaction with the service of or prices charged by the merged entity. Smaller customers, in contrast, do not have sufficient purchasing scale to sponsor new entry and would not be protected by the 'umbrella' of the buyer power of the Top Two if the latter do not sponsor new entry, but merely discipline the merged firm by threatening to do so, as is likely to be the case in at least the near term.
The merger is therefore more likely than not to result in a substantial lessening of competition for small customers (even if the period for which any adverse effects are attributable to the merger may be more limited than ordinarily the case).
Consequently, the OFT believes that it is the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
Overall, the OFT considers that the evidence points towards the impact of the merger being relatively limited both in scope and time. In particular, the size of the market after the removal of the Top Two customers is well below the £10 million threshold, the scale of any anti-competitive effects arising from the merger is likely to be limited by the relatively low level of customer switching and, in turn, competition between the parties, the shrinking market and the potential constraints from demand side substitutes suggested by third parties, as well as the parties. In addition the duration of any harm is considered to be of a relatively short term nature. The OFT therefore has decided to exercise its discretion not to refer this transaction to the Competition Commission on the grounds that the market is of insufficient importance.
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.