Anticipated acquisition by Guardian Media Group of Trader Media Group

Affected market: Market publishing

No. ME/1315/03

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, assessment and the decision.

The OFT's decision on reference under section 33 of the Enterprise Act given on 29 September 2003

PARTIES

Guardian Media Group (GMG) is an unlisted UK based company and all of its ordinary shares are owned by the Scott Trust. It is active in national and regional newspaper and radio. It publishes the Guardian and Observer as well as a number of regional newspapers in the North West of England and the Surrey / Berkshire area. Trader Media Group (TMG) is a joint venture company owned as to 48 per cent by GMG (carrying 50 per cent of the voting rights), as to 47 per cent by BC Partners (47 per cent of votes) and as to 5 per cent by its management (3 per cent of the votes). TMG's principal activity is the publication of specialist advertising only publications, focusing mainly on motor advertising, including Auto Trader and Auto Freeway. In the year ended 30 March 2003, TMG had a UK turnover of £230m.

TRANSACTION

GMG proposes to purchase all the shares in TMG that it does not currently own. The transaction was notified to the Office on 8 August 2003 and the administrative timetable expires on the 6 October.

JURISDICTION

As a result of this transaction GMG and TMG will cease to be distinct for the purposes of section 26(4)(a) of the Enterprise Act 2002 (the Act), since GMG will move from having the ability to control the policy of TMG to that of a controlling interest. The UK turnover of TMG exceeds £70 million, so that the turnover test in section 23(1)(b) of the Act is satisfied. The parties overlap in the supply of advertising space in print and internet formats for vehicles for sale in Greater Manchester and parts of West Surrey and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met in these areas. It is therefore probable that a relevant merger situation will be created.

ASSESSMENT

The transaction qualifies in respect of both the turnover test and the share of supply test under the Act. The parties overlap in the supply of advertising space for the sale of motor vehicles in print and internet formats in Greater Manchester and parts of West Surrey. The parties represent a large proportion of vehicle advertisements in the two areas.

We have considered whether it would be likely that the merged entity would engage in price discrimination in the overlap areas to the detriment of customers. GMG have stated that this would not be possible due to their regional pricing structure and while the continuation of this structure cannot be guaranteed, we note that no such price discrimination occurred in the Greater Manchester area prior to 2000, when GMG previously wholly owned North West Auto Trader. We have no evidence to show that the structure of the vehicle advertising sector in the Greater Manchester area has changed such that price discrimination is any more likely now.

Barriers to entry, while not insignificant, do not appear to be insurmountable, particularly for existing publishers or publications focussed in local areas. There have been a number of instances of successful new entry in recent years usually by established publishers. Moreover, the barriers to expansion by existing publications – extending their coverage of vehicle advertisements – or extending the geographical scope appear even lower. Some of the larger dealers possess buyer power – and have used this to sponsor new entry - but this is not the case for smaller dealers or those placing private advertisements.

To consider the potential impact of this merger it is necessary to look at the move from partial to full control of TMG. GMG has argued that its current holding of 50 per cent of the voting shares and the relative positions of the other shareholders, means that, for all intents and purposes, it is, in effect, in control of the day-to-day management of the TMG business. While BC Partners might be expected to place some constraint on GMG it is accepted that this constraint might be relatively weak. Moreover, the limited area of overlap between the GMG and TMG titles, and the inability of TMG to price discriminate, suggests that co-ordinated behaviour is unlikely to be profitable. The lack of evidence of co-ordination of commercial behaviour at present – nor in the period prior to 2000 - suggests that such behaviour is unlikely to occur following the acquisition.

On balance, therefore, it does not appear that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom for goods or services.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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