Completed acquisition by Archant Limited of the London regionals Division of Independent News & Media plc

Affected market: Supply of free and paid for local newspapers in various areas of North and East London

No. ME/1618/04

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, assessment, and decision.

The OFT's decision on reference under section 22 given on 29 April 2004.

PARTIES

Archant Limited (Archant) publishes local and regional newspapers and magazines in the UK, mainly in the south-west of England, East Anglia and the Home Counties. Prior to the merger it was the sixth largest publisher of weekly paid-for local and regional newspaper in the UK. Its UK turnover in the year to 31 December 2002 was £146 million. Independent News & Media plc (INM) is an Irish-based international communications group with operations in countries including the UK, Australia, New Zealand and South Africa. In the UK it owns The Independent and the Belfast Telegraph. Its five London local newspaper divisions that are the subject of this transaction formed the London Regionals Division, which had a turnover of £16.5 million in the year to 31 December 2002. They were: Post, East London, North London, North West London and Kent.

TRANSACTION

Prior to this transaction, INM's London Regionals Division was the subject of an anticipated acquisition by Newsquest (London) Limited, which was referred to the Competition Commission (CC) under the Fair Trading Act 1973 (FTA). That transaction was abandoned following the CC's Report in October 2003 (the CC Report) (see note 1) which found the transfer of a number of INM London Regionals Division titles to be against the public interest. Archant then acquired three of the five divisions within INM London Regionals Division (i.e. Post (covering outer East London), East London and North London) on 11 December 2003 and agreed an option to acquire the North West London and Kent divisions. Having exercised the option, it acquired the two latter divisions on 30 December. On 29 December, the Communications Act 2003 repealed the special newspaper regime of the FTA and amended the Enterprise Act 2002 (the Act) such that all newspaper mergers now fall to be considered under the Act.

The OFT has exercised its discretion under Section 27(5) of the Act to treat the acquisitions of 11 and 30 December as having occurred simultaneously on the 30 December. As a result, the statutory deadline for consideration of this merger is 29 April.

JURISDICTION

In making this reference to the CC, the OFT believes that it is or may be the case that a relevant merger situation has been created. The OFT believes the jurisdictional requirements of s 23 of the Act to be met on the basis that (i) Archant and the London Regionals Division of INM are enterprises that have ceased to be distinct; and (ii) the share of supply test is met. As a result of the acquisition, Archant now supplies more than 25 per cent of free and paid-for local newspapers in a substantial part of the UK. The parties questioned the OFT's rationale for believing that the share of supply test has been met in a 'substantial part' of the UK.

The OFT's approach on this issue takes into account a ruling of the House of Lords, past CC practice and OFT guidance (see note 2). In terms of past CC practice, under the FTA, the Mergers and Monopolies Commission, now the CC, has considered population among other factors as relevant, finding an area representing 1.1 per cent of UK population as a 'substantial part' of the UK (see note 3). In this case, the parties' overlapping local newspaper activities exceed 25 per cent of supply (see note 4) in the contiguous London boroughs of Havering, Barking & Dagenham and Redbridge, which together represent just under 0.5 million residents over 15 years of age, or more than 1.1 per cent of the over 15 population of the UK, and as such represents an area of economic significance for local newspaper advertising. The parties' combined share of supply also represents more than 25 per cent of total circulation of free and paid-for local newspapers of a wider contiguous area of north-eastern Greater London which covering the following boroughs: City, Islington, Haringey, Hackney, Tower Hamlets, Newham, Waltham Forest as well as Havering, Barking & Dagenham and Redbridge. This wider area covers [3 per cent] (see note 5) of residents over 15 years of age in the UK. It also has the international economic significance of both the City and the Docklands area and, as the parties have noted in another context, the large-scale urban renewal in the Stratford area, representing areas of significant potential growth for local newspaper advertising. These areas may also be regarded as having social significance due to the distinctive multicultural communities of East London, represented in the editorial and advertising content of some of the newspapers circulated in the area.
 
The OFT believes it is reasonable to consider any delineation of a contiguous area – whether restricted to three London boroughs (Havering, Barking & Dagenham and Redbridge) or broadened to the wider area of north-eastern London identified above – as being of sufficient size, character and importance to be worth consideration for the purposes of UK merger control and, accordingly, a substantial part of the UK. As the purpose of merger control here relates to protecting competition in local newspapers, the OFT considers its finding consistent with Archant's view that the acquisition of INM's North, East and Post divisions was of a 'significant strategic importance given the geographic proximity to our existing areas of publication and the enhancement it gives to our coverage in and around North and East London' (press release of 11 December 2003).

ASSESSMENT

The merger creates a relevant merger situation by virtue of Archant having ceased to be distinct with the London Regionals Division of INM and by virtue of Archant's resulting share of supply of free and paid for local newspapers in a substantial part of the UK. Consistent with previous inquiries, the frame of reference in this case concentrates on local markets and on local newspapers. The term 'local newspaper' generally excludes those titles not carrying a mixed range of news and advertising focussing on a local area, and those operated by a local authority.

The OFT has analysed the transfer of individual INM titles to Archant from both the perspective of Archant's post-merger share of circulation in the footprint of former INM titles, and from the perspective of advertisers wishing to reach customers in one or more JICREG areas. The transfer of three titles (Stratford Express, Barking and Dagenham Post and Romford and Havering Post) present significant share increments, and each results in a post-merger share of circulation within the footprint in excess of 60 per cent, with more than 80 per cent of the acquired title's circulation in JICREG areas where the post-merger share exceeds 50 per cent. The CC recently found the anticipated transfer of various INM titles that may be characterised in these terms to be against the public interest. Moreover, the transfer of these three titles and four further titles (Islington Gazette, North London Herald, East London Advertiser and the Ilford and Redbridge Post) either confer a monopoly on Archant of JICREG-registered newspapers in a significant number of JICREG areas, or reduce from three to two the number of apparently profitable competitors. Newspapers already appear to enjoy substantial price discrimination as between advertiser customers. Such discrimination might well increase in the absence of INM as a strong competitor. The merger may therefore have resulted in the elimination of an important competitive constraint on advertising rates in those areas.

The parties proposed that the alternative purchasers would lead to a more substantial lessening of competition. Even if this were an argument against reference, we note that transactions involving alternative buyers identified by the parties have been considered by the CC and the Department for Business, Enterprise and Regulatory Reform. Although the parties believe such decisions were in error, with appropriate divestments to specified alternative purchasers, both transactions were cleared by the CC and Department for Business, Enterprise and Regulatory Reform. Any assessment of this transaction in the light of those decisions would therefore require a similar level of scrutiny.

In considering the merger we have also considered the efficiencies said to enhance rivalry, which were proposed by the parties. Whilst we acknowledge that the merger creates a third major supplier of local newspapers in London and potential rival on a regional scale it is not clear that enhanced regional rivalry across London would outweigh any lessening of competition in the local areas covered by existing titles.

Consequently, the OFT believes that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

There are a number of exceptions to the OFT's duty to refer, which were cited by the parties, namely that a market is of insufficient importance to warrant reference, that customer benefits outweigh any detriments created by the merger, or that undertakings offered in lieu of reference remedy the detriments created.

The markets at issue are of sufficient importance to warrant reference (see note 6). The annual revenue of each of INM's North, East and Post Divisions alone exceeds[] (see note 7).

Customer benefits, in terms of lower prices from synergies and increased investment in publishing technology, must be clear, quantifiable and merger specific for the OFT to rely on them (see note 8). These criteria were not met on the basis of the evidence presented to us, nor is it clear that any customer benefits that could be shown would outweigh any substantial lessening of competition.

The parties offered undertakings in lieu of reference. [Our analysis] (see note 9) precludes a finding that the proposed remedy [] (see note 10) is clear-cut and capable of ready implementation. The proposed remedy package fails in any event to resolve the competition concerns identified in relation to transfer of [] (see note 11) other INM titles. Accordingly, the remedies proposed cannot be accepted as undertakings in lieu of reference.

DECISION

This merger will therefore be referred to the Competition Commission under section 22(1) of the Act.

NOTES 

1. Cm 5951, Report on Newsquest (London) Limited and Independent News and Media PLC, October 2003.

2. There is no statutory definition of 'a substantial part'. The House of Lords has ruled in the context of similar provisions in the FTA that, while there can be no fixed definition, the area(s) considered must be of such size, character and importance as to make it worth consideration for the purposes of merger control: see Regina v MMC and another ex-parte South Yorkshire Transport Limited [1993] 1 WLR 23. See further OFT substantive assessment guidance, May 2003, paragraph 2.25.

3. Report on Stagecoach Holdings plc/Chesterfield Transport (1989) Ltd, January 1996.

4. Based on circulation data from the industry organisation, the Joint Industry Committee for Regional Press Research, JICREG; see www.jicreg.co.uk

5. Typographic error.

6. OFT Mergers Guidelines: Substantive Assessment, p44.

7. Business secret excised at the request of the parties.

8. OFT Mergers Guidelines: Substantive Assessment, p47.

9. Business secret excised at the request of the parties. Explanatory text added.

10. Business secret excised at the request of the parties.

11. Business secret excised at the request of the parties.

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