Completed acquisition by Vue Entertainment Holdings (UK) Limited of A3 Cinema Limited (including its subsidiary, Ster Century (UK) Limited)

Affected market: Cinema exhibition of films

No. ME/1858/05

Please note that the full text of the decision can be downloaded by using the link on the right of this page . What follows are extracts regarding the parties, the transaction, jurisdiction, assessment and decision.

The OFT's decision on reference under section 22 given on 23 September 2005. Full text of decision published on 30 September 2005.

PARTIES

Vue Entertainment Holdings (UK) Limited (Vue) is a cinema exhibitor with forty two cinemas across the UK. It also operates and manages five UK cinemas for the independent entity, Village Roadshow.

A3 Cinema Limited (A3) is a holding company commercially active through its wholly owned subsidiary, Ster Century (UK) Limited, which owns and operates six cinemas in the UK under the 'Ster Century' brand (see note 1).  The UK turnover of A3 for its most recent audited financial year was approximately [ ] (see note 2). 

TRANSACTION

On 29 April 2005, Vue acquired sole control of A3. The administrative deadline expires on 23 September 2005 and the extended statutory deadline expires on 26 September 2005. Vue gave initial 'hold separate' undertakings under section 71 of the Enterprise Act 2002 (the Act) on 11 August 2005.

JURISDICTION

As a result of this transaction, Vue and A3 have ceased to be distinct. The parties overlap in the supply of cinema exhibition services and the share of supply test in section 23 of the Act is met as post-merger Vue supplies more than a quarter of all cinema seats and screens in a substantial part of the UK (Edinburgh). Vue has contested jurisdiction on this basis, arguing that there must be a nexus between the reference area used for the share of supply test and and the area to which a duty to refer relates. The OFT does not accept that the Act imposes such a requirement. It is clear from section 22(1) of the Act that a relevant merger situation can result in a substantial lessening of competition in 'any market or markets in the United Kingdom for goods or services'. There is no requirement that the market or markets in question should form a substantial part of the UK nor that they should be connected with the area in which the share of supply test is met. We note in passing, however, that the share of supply test is equally met on the basis of aggregating all local areas in which the merger created an overlap (see note 3),  and which includes areas in which the duty to refer applies (discussed below). The OFT therefore believes that it is, or may be the case, that a relevant merger situation has been created.

ASSESSMENT

Vue, which operates forty seven (including Village Roadshow) cinemas in the UK, has acquired A3, which operates six UK cinemas through its wholly owned subsidiary Ster Century (UK) Limited. The OFT considers that cinema exhibition is the relevant frame of reference for competition assessment in this case.

The OFT believes competition concerns arising from the merger are local rather than national. The localities in which competition concerns arise are identified by the use of assumptions using a method based on isochrone analysis, adjusted to take account of population centres, which was also applied by the OFT in the previous Decisions (see note 4). Barriers to entry do not appear to be sufficiently low generally at the local level to dispose of local competition concerns. Cinema goers do not appear to have buyer power vis-à-vis exhibitors.

On the basis of this analysis the OFT has identified grounds for concern about a loss of competition in relation to Ster Century cinemas at Basingstoke and Romford. In relation to Leeds, the OFT did not reach the requisite standard of belief on the available evidence that it may be the case that there may be a substantial lessening of competition in relation to Leeds because the primary isochrone raised no concerns consistent with the method described above, population re-centring does not give rise to a credible theory of competitive harm in this case, and there is little evidence available that Leeds city centre should be a treated as a separate frame of reference. The CC may, however, wish to undertake further empirical scrutiny of this area based, for example, on diversion ratio analysis.

Consequently, the OFT believes that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore be referred to the CC under section 22(1) of the Act.

NOTES

1. A3's wholly owned subsidiaries are: Aurora Holdings Limited; Aurora Cinema Limited; Aurora Cinema (Ireland) Limited; and, Ster Century (UK) Limited.

2. Information excised at the request of the parties for reasons of commercial confidentiality. 

3. Isochrone-based methodology is used to determine overlaps: see paragraph 12 in the full text below.

4. Acquisition by Terra Firma Investments (GP) 2 Ltd of United Cinemas International (UK) Limited and Cinema International Corporation (UK) Limited and Completed acquisition by the Blackstone Group of UGC Cinemas Holdings Limited.

Back to top