Divestments often constitute the most appropriate remedy to resolve antitrust concerns in the context of merger control. However, behavioural commitments may also have the same commercial effects as a divestment. This was illustrated in a merger control case handled by the United Kingdom Competition Market Authority (the ‘CMA’) in the specialist magazines sector. Another feature of this case pertains to the market definition found by the CMA in this case.
On 11 August 2016, Future plc (‘Future’) filed a notification with the CMA regarding its GBP 14.2 million proposed acquisition of Miura Holdings Limited (‘Miura’), the holding company and ultimate parent company of Imagine Publishing Limited. Both groups are prominent publishers of specialist magazines as well as bookazines, applications and websites. The CMA stated that there were overlaps between some of the companies’ titles. But, whereas the CMA found that – post merger – the companies’ titles in computing, website design, gadgets and photography would be sufficiently constrained by competing products, the CMA concluded that the same did not hold true with regard to sci-fi magazines.
Indeed, the CMA found evidence showing that the merger would result in a significant lessening of competition were the two companies’ sci-fi titles, namely SFX (Future) and Sci-Fi Now (Miura), to be brought under the same roof. This lessening of competition would lead to higher prices or a reduction in quality or choice for consumers since the companies’ titles compete closely in the sci-fi magazines market. It is interesting, but not surprising, that the CMA decided to define a market for sci-fi magazines. It is clear from the CMA’s initial investigation that it constitutes a delimited market with distinct features.
Therefore, on 7 October 2016, the CMA warned the parties to the transaction that it would open an in-depth investigation unless the latter offered an acceptable solution to address the CMA’s competition concerns.
Initial Enforcement Order
On 7 October 2016 the CMA issued an Initial Enforcement Order (‘IEO’), a new tool introduced by the Enterprise and Regulatory Reform Act 2013, the purpose of which is to prevent any further investigation into the parties’ businesses and which is adopted in phase 1 of a merger assessment.
Pursuant to this IEO the completion of the transaction was permitted provided that Miura and Future complied with certain restrictions listed in the IEO.
Future sought the CMA’s consent to derogations to the IEO in order to integrate the Future and Miura businesses. The CMA granted the general derogation requested which only applies to the non sci-fi titles with the objective of permitting their integration and preserving their value.
In exchange, Future committed to ring-fence those parts of the business in relation to which the CMA found that the transaction would lead to a substantial lessening of competition. In a nutshell, the ring-fencing measures would ensure that:
- A part of Miura’s current office in Bournemouth will house all staff, data, servers, and IT for Sci-Fi Now. Such office will not be accessible to Future’s employees with the exception of certain employees to perform back office functions provided that they sign a Non-Disclosure Agreement (‘NDA’);
- Sci-Fi Now will have the necessary staff resources to operate on the market;
- Limited financial information will be shared, subject to the NDAs, for the sole purpose of enabling Future’s board to discharge its fiduciary duties; and
- Sci-Fi Now will not use Future branding or design on its print or digital version or on its website, and Sci-Fi Now material will not be available on any Future website.
It is noteworthy that such ring-fencing obligation requires that Future will not have access to information regarding Sci-Fi Now’s subscription, intellectual property, editing and design, or distribution.
This type of remedy seems to be akin to a divestment of Sci-Fi Now. While Future will maintain ownership it will not be involved in the strategy or any commercially sensitive aspects of the magazine.
The CMA’s decision remains to be published and it is understood that there are reasonable grounds to believe that the commitments undertaken by Future will be accepted by the CMA.
Interestingly, one question also arises from this outcome: by implementing such ring-fencing obligations, how will this form of competition between competing undertakings belonging to the same group be considered in the light of Article 101 TFEU and the single economic entity doctrine?