OFT accepts sale of four cinemas to remedy merger concerns
11/13 25 January 2013
The OFT has today accepted undertakings from Vue Entertainment International Limited (Vue) to sell four cinemas to remedy competition concerns raised by its completed acquisition of Apollo Cinemas Limited (Apollo).
As a result, the acquisition will not be referred to the Competition Commission.
Pre-acquisition, Vue ran 68 cinemas in the UK. As a result of this deal Vue acquired an additional 14 cinemas, as well as two opportunities to open cinemas in the UK.
The OFT's investigation found the acquisition raised competition concerns in four local areas in England and Wales where there was a risk that the cinemas could raise their prices, or reduce film choice and quality of service to customers. As Vue offered to sell one Apollo cinema in each of these four areas, the OFT announced on 24 August 2012 that it was suspending its duty to refer the acquisition to the Competition Commission because it was considering whether to accept undertakings in lieu of a reference.
In order to meet the OFT's concerns, Vue offered to sell all four Apollo cinemas to Reel Cinemas Limited (Reel). These cinemas are located in Fareham, Port Talbot, Morecambe and Burnley. Before accepting the undertakings, the OFT carefully assessed and consulted publicly on the proposed undertakings, including on the suitability of Reel as buyer.
Amelia Fletcher, OFT Chief Economist and Decision Maker in this case, said:
'The OFT was concerned that, as a result of Vue's acquisition of Apollo, cinema goers in four local areas could face higher prices and a reduction in choice. The OFT believes that the sale of all Apollo cinemas in these areas to Reel will now ensure there continues to be effective competition in these areas.'
- The Reference Test - The OFT has a duty to make a reference to the Competition Commission if the OFT believes that it is or may be the case that a relevant merger situation has been or will be created, and as applicable, 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.
- Under the Enterprise Act 2002 a relevant merger situation is or will be created if two or more enterprises have ceased or will cease to be distinct enterprises, and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
- Undertakings in lieu of a reference - Section 73 of the Enterprise Act 2002 provides for the option of accepting undertakings, instead of making a reference, 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. The Act provides that for such a purpose, the OFT may accept from such of the parties concerned as it considers appropriate undertakings to take such action as it considers appropriate. In doing so, the OFT will have regard in particular to the need to achieve as comprehensive a solution as is reasonable and practicable to the substantial lessening of competition and any adverse effects resulting from it. The OFT is required to consult publicly before accepting any such undertakings.
- Upfront buyer requirement - the OFT considered in this case that a necessary precursor to accepting undertakings in lieu was that the divestiture should be agreed up-front to a suitable buyer approved by the OFT. This meant that the OFT has consulted publicly on the suitability of the proposed buyer, as well as all other aspects of the draft undertakings, during the public consultation period.
- The undertakings will come into effect from 25 January 2013.
- The text of this decision and a copy of the accepted undertakings will be placed in the mergers section as soon as is reasonably practicable.
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