The £3.2bn ($4bn) acquisition of online ticketing company Stubhub by one of its competitors, Viagogo (together, the Parties), is one step closer to being finalised, with the Parties having reached an agreement with the UK’s competition regulator, the Competition and Markets Authority (the CMA) as to what they need to do to obtain regulatory clearance.
The Parties are giants of the online ticket exchange and resale market, with Stubhub being based in New York, and Viagogo being based in London.
This article considers the requirements of the CMA in order for it to grant clearance for a merger generally, and then looks at the specific case of the Viagogo-StubHub merger and the challenges that it has faced.
CMA Merger Requirements
The CMA is the body that enforces competition regulations in the UK, and has done so since 1 April 2014. As part of its functions, the CMA enforces merger legislation that is contained mainly in the Enterprise Act 2002 (the Act). It investigates mergers and acquisitions to examine whether a proposed deal would have an adverse effect on competition, and then makes a final determination on whether such a deal can go ahead.
In order for the CMA to have jurisdiction over a merger, a “relevant merger situation” must have been created. A relevant merger situation arises when:
- Two or more enterprises cease or will cease to be distinct as a result of being brought under common ownership or control; and
- The “share of supply test” set out at s23 of the Act is satisfied. The test is satisfied if either:
- The UK turnover of the target company exceeds £70m; or
- The merger results or would result in the creation or increase of 25% or more of the supply or consumption of goods or services of a particular description in the UK.
Different thresholds exist for enterprises in certain industries, but those are outside the scope of this article.
Once a relevant merger situation is established, granting the CMA jurisdiction over the deal, a two-stage review process then commences. The first stage – the Phase 1 investigation - considers whether the proposed merger gives rise to any competition issues. At the end of the Phase 1 investigation, the CMA will either (i) issue unconditional clearance, (ii) issue clearance subject to undertakings, or (iii) make a Phase 2 referral.
A Phase 2 referral will be made if the Phase 1 investigation finds that the merger may result in a “substantial lessening of competition” (a SLC) in the UK market. Once a Phase 2 referral has been made, the CMA then has 24 weeks (which can be extended) to conduct its investigation and issue a final decision.
In its final decision, the CMA will either (i) issue unconditional clearance, (ii) issue conditional clearance, subject to remedies, or (iii) prohibit / unwind the merger.
What happened in the Viagogo – Stubhub deal?
This merger (the Merger) was first announced in December 2019 and was actually completed on 13 February 2020, prior to the CMA carrying out its investigation. However, the Act permits the CMA to carry out its investigation post-completion subject to certain conditions being met.
The CMA found that a relevant merger situation existed because the Merger resulted in two enterprises ceasing to be distinct, and that the Parties had a combined share of 80-90% of the Secondary Ticketing Exchange Platforms in the UK (the Relevant Market), thereby easily satisfying the 25% share that is required by the share of supply test.
On 14 April 2020 the CMA notified the Parties that it would be commencing an inquiry into the Merger, and on 11 June 2020 it issued its Phase 1 decision (here).
The Phase 1 investigation found that:
- Viagogo is by far the largest player in the Relevant Market, with StubHub being its only significant competitor;
- The entity created by the Merger (the Merged Entity) would face no other significant competitors post-merger;
- The next largest competitor in the Relevant Market was Ticketmaster, which, post-merger, would have a share of only 5-10% of the Relevant Market; and
- All remaining competitors would have shares of less than 0-5% of the Relevant Market.
The CMA therefore decided that the Merger gave rise to a realistic prospect of substantially lessening competition in the Relevant Market, and referred the Merger for a Phase 2 investigation.
The Phase 2 investigation commenced in June 2020. A provisional report setting out the initial findings of the investigation and inviting interested third parties to provide their input was published on 22 October 2020 (here), and a final report was published on 2 February 2021 (summary here).
The Phase 2 investigation considered the findings of the Phase 1 investigation in detail, and in particular focused on:
- The competitive parameters within the industry and between the Parties for attracting ticket resellers (e.g. access to a large pool of buyers);
- The competitive parameters within the industry and between the Parties for attracting ticket buyers (e.g. the price of tickets);
- The submissions made by the Parties as to why the merger was not an SLC;
- The views of third parties including industry experts and active users of the Relevant Market; and
- The competition that the merged entity would face from third party competitors.
It concluded that the Merger, in its current form, could result in higher prices and reduced choice for customers, and therefore adversely affected competition in the Relevant Market and that an SLC would indeed result from the Merger.
In order to remedy the SLC and obtain clearance, the CMA required that a partial divestiture of StubHub needed to take place – specifically, that all of StubHub’s business outside of North America (StubHub International), including StubHub’s UK business, must be sold off by the Merged Entity. Once this happens, the merger would in effect be a merger of Viagogo and StubHub’s North America business, which the CMA deemed would not give rise to concerns and which it could therefore clear.
In the interim, StubHub has had to act independently from Viagogo (despite the businesses having already merged).
The Parties and the CMA have negotiated draft undertakings, and last week the CMA announced that it “proposes to accept” the undertakings, indicating that finalised undertakings should be published shortly.
The undertakings will set out the deadline by which the divestiture of StubHub International must be completed, the Parties’ reporting obligations to the CMA in respect of the divestiture, and the criteria that any buyer of StubHub International must satisfy. For example, the undertakings can be expected to state that the buyer must be independent of Viagogo, must have the financial resources to run StubHub International, and must have a robust and credible plan to operate as a viable competitor to Viagogo.
It was perhaps clear from the offset that, due to the positions of StubHub and Viagogo in the Relevant Market and the near-monopoly that the Merged Entity would have in that market, the CMA would intervene.
All eyes now will be on whether StubHub is able to find a suitable buyer of StubHub International by the deadline that is agreed. This may not be an easy task and will be “easier said than done” according to an industry spokesman, given the demanding conditions that the buyer is likely to have to satisfy, and given the fact that the ticketing industry has been one of the hardest hit by the COVID-19 pandemic due to the hugely reduced number of events that have taken place around the world over the past year, and the uncertainty of the effects of the pandemic going forward.