Newsroom

OFT prefers undertakings to 'de minimis' exception in Berkshire newspaper merger

15/08    4 February 2008

The OFT is considering whether to accept undertakings instead of referring the completed acquisition by Dunfermline Press Ltd (DPL) of eight Berkshire newspaper titles from Trinity Mirror plc. If satisfactory undertakings are not given, the merger will be referred to the Competition Commission (CC).

The OFT opened its own inquiry into this completed merger and put in place 'hold-separate' undertakings as the deal gives DPL control over the only two local newspapers in the Slough/Windsor/Eton area. While the OFT believes that DPL may lack monopoly power over local advertising - because of internet competition - it may still be able to raise prices and reduce service as the merger eliminates close competition between the parties' Observer and Express series of newspapers.

The OFT's use of its discretion to accept undertakings in lieu of reference has resolved competition concerns in 22 merger cases in less than five years under the Enterprise Act regime. Following publication of its revised merger guidance last November, the OFT has revitalised another means to spare a CC reference - the 'de minimis' exception.

As the affected market size in this case is below the revised de minimis threshold of £10 million per year, the use of this exception to a CC reference was also considered. However, the OFT has today explained that as a general policy matter it will not exercise its discretion via the de minimis exception when the harm to competition could, in principle, clearly be remedied by clear-cut undertakings in lieu of reference.

Only one out of the eight acquired Berkshire newspaper titles creates a problematic overlap in this case. Unlike in the three previous de minimis cases, the OFT has judged that in principle it was open to DPL to offer a clear-cut - that is, effective and proportionate - undertaking. The OFT will now consider remedies further, as DPL has chosen to offer to divest relevant assets to a specified purchaser instead of a CC reference.

Simon Pritchard, OFT Senior Director of Mergers, said:

'In an obvious case like this, our aim will still be to spare the costs of reference while restoring the benefits of competition lost by the merger. We owe it to consumers to make clear-cut remedies the preferred exception to reference in all suitable cases. Equally, UK business has strongly encouraged the OFT to solve cases via undertakings in lieu, and clarity on this issue helps companies plan merger activity with the right incentives in mind.'

NOTES

1. Own-initiative merger inquiries - while the majority of mergers reviewed by the OFT arise from voluntary notification by the parties, the OFT's own-initiative inquiry programme has led to remedial action by the OFT or CC in eleven cases under the Enterprise Act regime. In some of these cases, it is always possible that the parties would have voluntarily notified the OFT of their merger at a later date; in other cases, it was clear to the OFT that this would not have been the case.

2. Initial or 'hold-separate' undertakings - under the UK's voluntary notification regime, the OFT nevertheless has a power to accept initial undertakings (or impose an initial order) to prevent pre-emptive action by the parties - such as integration of assets, closure of facilities and staff redundancies - that would prejudice possible remedial action by the Competition Commission (or by the OFT in an undertakings in lieu case).

3. Undertakings in lieu - 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 that 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. In doing so, the OFT will have regard 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. OFT Guidance specifies that undertakings should be clear-cut, which means they must be effective and proportionate, and capable of ready implementation. Before accepting any such undertakings under Schedule 10 of the Enterprise Act 2002, the OFT shall give notice of the proposed undertakings and will consider any representations made in accordance with that notice.

4. Undertakings in lieu cases - the OFT's undertakings in lieu cases include among others, divestitures of supermarkets (Co-operative Group Ltd/United Co-op), pharmacies (Boots/Alliance Unichem, Lloyds/IPCC), cinemas (Terra Firma/Odeon/UCI, Blackstone/UGC), betting shops (William Hill/Stanley, Ladbrokes/Jack Brown), car dealerships (Pendragon/Reg Vardy, Inchcape/EMH) and funeral homes (Co-operative Group Ltd/Fairways). For a full list, see the undertakings in lieu section.

5. De minimis guidance and early cases - for more details of the OFT's revised de minimis guidance of 15 November 2007, and its use of the exception in three cases since, see today's parallel decision, press release 16/08, and earlier press releases 180/07 and 156/07.

6. The reference test - the OFT has a duty to make a reference to the CC if the OFT 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.

7. Merger jurisdiction - under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased 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.

8. The full text of the decision will appear in the mergers section.

Back to:2008