Completed acquisition by Pearson plc of Harcourt businesses from Reed Elsevier plc

Affected market: Educational publishing

No. ME/3091/07

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 comments, assessment and decision.

The OFT's decision on reference under section 22 given on 24 August 2007. Full text of decision published on 4 September 2007.

Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES

Pearson plc (Pearson) is an international media and education company listed on the London Stock Exchange. It is comprised of three major operating groups: the Financial Times Group, the Penguin Group and Pearson Education. In the UK, Pearson Education is principally active in providing teaching and learning resources to higher education, primary and secondary schools but also has activities in the vocational sector, home learning and in English language teaching. Pearson also owns Edexcel, which provides academic and vocational qualifications and testing to schools, colleges and employers.

The Harcourt Businesses (Harcourt) were formerly owned by Reed Elsevier plc (Reed Elsevier). They are Harcourt Education Ltd and the UK business of Harcourt Global Library business and Harcourt Assessment. The only material overlap in the UK is between the activities of Pearson and Harcourt Education Ltd.

Harcourt Education Ltd is a provider of teaching and learning resources for use in UK primary and secondary schools through the Heinemann and Rigby and Ginn imprints. It also publishes resources under the Heinemann brand in the vocational sector. Turnover in the UK for the period ended 31 December 2006 was £[ ] million.

TRANSACTION

On 21 May 2007, Pearson acquired the Harcourt businesses and assets from Reed Elsevier. The transaction was notified on 29 June 2007. The administrative deadline is 24 August 2007 and the statutory deadline expires on 21 September 2007.

JURISDICTION

As a result of this transaction Pearson and Harcourt (the parties) have ceased to be distinct. The parties overlap in the supply of teaching and learning resources. They have combined shares of supply in the UK in excess of 25 per cent for the supply of teaching and learning resources for the following subjects: primary Maths; primary Science; secondary Maths and secondary English, so the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

Third party views have been referenced and addressed in the relevant sections of the competitive analysis above.

ASSESSMENT

The parties overlap in the supply of resources for use in primary and secondary schools, the vocational sector and for home learning. In relation to the supply of resources for home learning, the overlap is small and there are a number of other competitors present. Competition concerns do not, therefore, arise in this sector.

For the supply of resources to primary and secondary schools, the OFT has considered the effects of the merger in these sectors separately. In addition, the OFT has considered separately the supply of resources for exam levels (GCSE and A Level).

For the supply of resources to primary schools, although the merger involves the largest supplier, there are a number of competitors present which will continue to act as a competitive constraint. The OFT considers that the constraint imposed by these competitors, combined with the ability of schools to multi-source resources will pose a sufficient constraint on the parties' behaviour post-merger to prevent adverse merger effects.

With regards to the supply of resources to secondary schools (overall and for exam levels), the OFT considered that the number of other competitors remaining in the sector, whose products are substitutes, will act as a strong constraint on the parties' products post-merger.

For the supply of resources for GCSE and A level exams, as Pearson also owns an exam board, third parties raised concerns regarding Pearson's ability to potentially favour the supply of resources for its exam qualifications by exclusive endorsement and to potentially refuse to supply resources for other exam boards. However the OFT considers that the merger does not create or enhance market power at any level; and that the combination of Pearson's position at the exam board level and the alleged foreclosure mechanism - refusal to endorse rival suppliers resources or otherwise favour its own resources for Edexcel qualifications - may present some disadvantage to competitors but will not harm customers.

The OFT believes that, on the evidence available, the prospect of harm to customers is insufficiently material because it does not appear that customers lack the ability or incentive to switch to non-endorsed resources if they perceive a deterioration in the quality of Edexcel-endorsed products relative to the quality of rivals' non-endorsed resources, or indeed to switch from Edexcel to a rival exam board itself.

As for the supply of resources to other exam boards, the OFT believes, on the evidence available, that Pearson would lack the profit incentive to refuse to supply resources for rival exam boards. This is because the losses from this refusal to supply at the publishing level are unlikely to be outweighed by the gains at the exam board level, which would depend on this having the effect of driving customers from other exam boards to Edexcel. The OFT therefore rules out foreclosure effects at the exam board level as too remote to be credible.

With regards the supply of resources to the vocational sector, Pearson is also present at both the publishing and exam board level. However, given the relatively low increment in shares of supply and the number of alternative suppliers at both the publishing and exam board level, the OFT considers that the merger does not give rise to any competition concerns in that sector.

Consequently, the OFT does not believe 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.

DECISION

This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

Back to top