95-08    8 August 2008

The OFT is considering undertakings proposed by Global Radio UK Ltd (Global) in lieu of a reference to the Competition Commission following Global's acquisition of GCap Media plc (GCap).

Global has offered to divest a package of radio stations to purchasers approved up-front by the OFT. In principle, this would resolve the OFT's concerns by restoring competition to pre-merger levels in the Midlands.

Most of GCap's 71 local stations across the UK do not compete with Global for the same audiences or advertisers.  In the Midlands, however, Global had a substantial pre-merger presence through its regional stations - Heart in the East Midlands and Heart and Galaxy in the West Midlands. Those advertisers trying to reach a regional radio audience in the East Midlands had a prime choice between airtime on Global's Heart regional station or a region-wide package of airtime based on local GCap stations - Leicester Sound, Trent and RAM. Similar circumstances applied in the West Midlands.

The OFT has meanwhile cleared the London aspects of the transaction. Although each party had a 20-30 per cent share of radio advertising, the OFT has concluded that there is no realistic prospect of harm to London advertisers or listeners because:

• neither Heart nor LBC (Global) were close competitors to any of Capital, Choice or X Fm (GCap), due substantially to differences in audience demographics
• Global will have to continue to compete hard against its closest competitor, Bauer - owner of Magic and Kiss - as well as others such as Virgin, Smooth and, for audience, the BBC, and
• the OFT expects the deal to generate significant efficiencies that will benefit advertisers and listeners, for example, by delivering cheaper prices for multi-station advertising packages and programming changes capable of attracting larger and more focused radio audiences, thereby enhancing rivalry in the London market.

In first-phase UK merger review conducted by the OFT, this is the first time that efficiencies evidence has made a material difference to the outcome in a 'horizontal' merger case between competitors.

Simon Pritchard, OFT Senior Director of Mergers said: 'Merger efficiencies benefit customers and put pressure on rivals. In this case, they tipped the balance in favour of clearance in London. This shows that with the right facts, efficiencies can make a difference, even at first phase, and even in a horizontal merger with high market shares. The divestment remedies in the Midlands, where efficiencies were not sufficient, are about restoring competition to make sure customers will not be harmed.'

NOTES

1. For reasons of confidentiality, the OFT will not currently disclose which stations Global has proposed to divest. Details will follow in the full text of the decision and in public consultation.

2. In the West Midlands, Global's Heart and Galaxy stations competed closely for regional advertising campaigns against GCap, which could offer packages based on its local BRMB Birmingham, Wyvern, Beacon and Mercia stations.

3. The reference test - the OFT has a duty to make a reference to the Competition Commission if it believes that it is or may be the case that a relevant merger situation has been created, and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

4. Under section 73 of the Enterprise Act 2002 the OFT may, instead of making a reference, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned, or any adverse effect which has or may have resulted from it or may be expected to result from it, accept from such of the parties concerned as it considers appropriate undertakings to take such action as it considers appropriate. The OFT is required to consult publicly before accepting any such undertakings.

5. Upfront buyer - the OFT considered in this case that a necessary requirement to suspend the duty to refer and consider undertakings is that the divesture of the radio station packages in the East and West Midlands should be to a suitable purchaser or purchasers approved by the OFT before the OFT accepts the undertakings. This means that the OFT will consult publicly on the suitability of the proposed purchaser(s), as well as any other aspects of the draft undertakings, during the public consultation period.