Completed acquisition by Dunfermline Press Limited of the Berkshire Regional Newspapers business from Trinity Mirror plc

Affected market: Local newspapers

No. ME/3315/07

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 views, assessment and decision.

The OFT's decision on reference under section 22(1) given on 4 February 2008. Full text of decision published on 18 February 2008.

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

PARTIES

Dunfermline Press Limited (DPL) publishes 23 local and regional newspapers in the United Kingdom (UK) including three titles in Berkshire, England [see note 1]. 

The Berkshire regional newspaper (BRN) business of Trinity Mirror plc (Trinity Mirror) comprises a portfolio of free and paid-for local and regional titles that  [see note 2] circulate in the Berkshire area. Its 2006 UK turnover was [ ].

TRANSACTION

DPL completed the asset acquisition of BRN on 29 July 2007. The OFT examined this merger on its own-initiative. It accepted initial undertakings on 28 November 2007. The extended statutory deadline expires on 4 February 2008.

JURISDICTION

As a result of this transaction, DPL and BRN have ceased to be distinct. Pre-merger the merging parties overlapped in the publication of weekly local newspapers and the provision of advertising space in local newspapers in Berkshire.

Post-merger, DPL supplies more than 25 per cent of all local weekly newspapers in the areas in which BRN's titles were circulated. These areas include Slough, Windsor, Reading, Wokingham, Maidenhead, Bracknell and Ascot. The combined population of these areas accounts approximately to 1 per cent of the UK's population, representing a substantial part of the UK. 

Therefore, the OFT believes that the share of supply test pursuant to Section 23(3) of the Enterprise Act 2002 (the Act) is met and a relevant merger situation under Section 23(2) of the Act has been created. DPL has not contested jurisdiction.

THIRD PARTY VIEWS

The OFT received comments from around 20 advertisers and five publishers. Almost half of advertisers raised unilateral effects concerns (that advertising prices might rise) which have been discussed in detail above.

ASSESSMENT

Pre-merger the merging parties overlapped in the supply of weekly local newspapers and advertising space in local newspapers in Slough, Windsor and some smaller nearby towns.

DPL submitted that the OFT should not take the pre-merger situation as being the correct counterfactual in this case. While DPL did not argue the failing firm defence, it maintained that the pre-merger situation with respect to BRN's Express series was commercially unsustainable and that this title would cease or would continue in considerably less significant form. The OFT has not been presented with sufficiently compelling evidence to depart from its starting position that the correct counterfactual is pre-merger conditions of competition. Thus, the counterfactual applied to this case is the pre-merger situation.

DPL argued strongly that the product market should be broadened to include at least advertising on the Internet and advertising via direct mail and leaflets. On the basis of the evidence available, the OFT considers that the Internet and advertising via direct mail and leaflets do provide some constraint, but it was uncertain whether, on balance, either was sufficiently strong to be included in the market. In any event, market definition is not an end in itself, and so the OFT did not consider it necessary to conclude on the precise scope of the market, and in particular whether advertising on the internet and via direct mail and leaflets should be included in the relevant product market. The critical question is to assess the loss of competition arising from the merger in the context of the competitive pressures facing DPL post-merger.

The balance of evidence suggests that the parties have been each other's closest competitor in Slough and Windsor and that the presence of other forms of advertising locally are not sufficient to constrain the possibility of adverse effects arising from the merger by way of higher prices for both advertisers and readers. As an indication, in Slough and Windsor, the parties' combined share of supply of local newspaper circulation is 95 per cent (increment 45 per cent), and so the transaction would be close to a merger to monopoly in these areas; looking at the overlapping areas in aggregate, the parties' combined share is 75 per cent (increment 36 per cent). Customers have told us that the parties are each other's closest competitor.

The loss of close competition between the parties raises unilateral effects concerns: the OFT has concerns that the merged firm will still have significant latitude to increase cover prices and/or advertising rates, and reduce circulation areas (which might be expected to indirectly increase advertising rates) post-merger, even if - as the critical loss analysis tends to suggest - it may not be able to act like a monopolist facing no constraints other than its own demand curve. The OFT considers that these commercial decisions would not have been profitable absent the merger, given the loss of business diverted to the other party's newspaper title.

The parties have argued that local newspaper publishers (especially those in the South East) face a significant constraint from other media - notably the Internet and direct mail/leaflets.

In order to support this point, DPL commissioned a survey of 337 advertisers and 300 readers in the Slough, Windsor and Maidenhead area. The survey shows that over 80 per cent of advertisers consider that they have at least one other alternative to local newspaper advertising. However, only 13 per cent said that they would switch away from local newspapers altogether (in the event of a 10 per cent price increase) - most said that they would simply reduce their spend in some way (reduced frequency or smaller size of advertisement).

The responses with respect to the Internet and direct mail/leaflets suggest that these media provide a constraint of some extent on local newspaper advertising. The survey results provided the OFT with valuable insights into the role advertising in other media plays in giving advertisers choices, but it did not analyse the strength of the constraint placed on local newspaper publishers. Given the available evidence, the OFT cannot properly conclude that the constraint imposed by Internet and direct mail/leaflets on local newspapers advertising is sufficiently close and immediate to prevent the anticompetitive unilateral effects resulting from this merger.

New entry and the threat of entry can also represent important competitive constraints on the behaviour of the merged entity. However, the entry must be timely, likely and sufficient in scale or character to replicate the competition lost by the merger. Based on the evidence before the OFT, entry in this case might be timely and sufficient, but was not considered, on the evidence available, to be suitably likely.

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 that is: the supply of local weekly newspapers and advertising space in weekly local newspapers in Slough and Windsor.

UNDERTAKINGS IN LIEU

Where the duty to make a reference under section 22(1) of the Act is met, pursuant to section 73(2) of the Act the OFT may, instead of making such a reference, accept from such of the parties concerned undertakings as it considers appropriate for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned or any adverse effect which has or may result from it.

The OFT's guidance states that in order to accept undertakings in lieu of reference '[…] the OFT must be confident that the competition concerns identified can be resolved by means of undertakings without the need for further investigation. Undertakings in lieu of reference are therefore appropriate only where the competition concerns raised by the merger and the remedies proposed to address them are clear cut, and those remedies are capable of ready implementation […]' [see note 3].

Prior to making its decision, the OFT explored with DPL [  ]. DPL was not prepared to make such an offer, but did propose on a 'without prejudice basis' the divestment of the Express series to an up-front buyer, that is, a named purchaser to be identified.

This proposed undertakings removes the overlap resulted from this merger. Thus, the OFT believes it constitutes a clear-cut remedy, rendering it appropriate for the OFT to suspend its duty to refer. The OFT considers that, in the circumstances of this case, in particular given the loss-making nature of the Express series, a necessary requirement to suspend the duty to refer and consider undertakings is that divestiture of the Express should be to a suitable purchaser approved by the OFT before the OFT consults on the undertakings publicly prior to acceptance. 

In light of these considerations, the OFT is currently of the view that the proposed undertakings in lieu - assuming they are capable of being implemented - will restore competition to pre-merger levels, and that the undertaking offered is sufficiently clear cut to remedy the concerns identified, namely the substantial lessening of competition in the supply of weekly local newspapers and the supply of advertising space in local newspapers in Slough and Windsor.

Therefore, the OFT has decided to exercise its discretion under section 73(2) of the Act to consider whether to accept undertakings in lieu of a reference.

DECISION

The OFT's duty to refer the completed acquisition by DPL of BRN to the Competition Commission pursuant to section 22 of the Act is suspended because, on the information currently available, the OFT is considering whether to accept appropriate undertakings in lieu of reference from Dunfermline Press Limited pursuant to section 73 of the Act.

NOTES

1. Slough and Langley Observer series, Midweek Observer and The Villager.

2. Reading Chronicle series, Bracknell News series, Slough/Windsor/Maidenhead Express series, Chronicle Extra series, Midweek News series and Newbury & Thatcham Chronicle with other series of publications under the titles Great Days Out, Classified Directory, Best of Berkshire, Weddings and Exclusively Yours.

3. See paragraph 8.3 of OFT Mergers Substantive Assessment Guidance.

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