The Competition Commission announced this week that it had prohibited the acquisition of Primedia@Home, a printed advertisement distribution business of Primedia, by Paarl Media, associated with the Media 24 Group. The Commission said it a statement that they had found that this transaction would substantially lessen competition in the market for knock and drop leaflet distribution.
Paarl Media and Primedia@Home lawyers are unpacking the judgment, but haven’t ruled out that they might refer the matter back to the Competition Tribunal to reconsider the Commission’s decision.
Here, Chris Charter, director in the Competition practice at Cliffe Dekker Hofmeyr business law firm, gives his opinion on the ruling and its impact.
I think the decision of the Tribunal to refer the matter back to the Commission will have negative implications for the expeditious investigation of mergers. The Commission will be apprehensive that its decisions can be taken on review, and will be painstaking in its process. It will also embolden disgruntled bidders, targets of hostile takeovers and competitors with an agenda to use the review process to upset the commercial implementation of a deal.
None of this provides much comfort for merging parties who notify a merger and require certainty that their deal can be implemented without the risk of having the rug pulled out from under them. It also gives objectors to the merger a second opportunity to have the merger impugned, even if their concerns are taken into account at investigatory level (although the Act does not allow third parties to appeal a merger, a carefully drafted review application can have the same effect).
In this case, the merging parties are faced with having to unwind a merger almost a year after its completion. It will be interesting to see how this is achieved in practice. It is also probable that the merging parties will appeal the Commission’s prohibition. This leads to the rather absurd notion that the Tribunal is faced with a request to approve a merger, where it had already suggested (through the review) that it should not be approved. Presumably, a panel will need to be convened that did not sit on the review, which may prove administratively challenging.
One must assume that the Commission did not lightly take the decision to reverse its previous decision (by granting the review, the Tribunal did not find that the merger was wrongly decided, only that the Commission did not appear to take all of the evidence into account, or failed to call for certain evidence that may have had a bearing) especially given the commercial, practical and employment implications. The Commission refers to the new investigation turning up “further information”.
The Commission suggests that the merging parties held back on providing certain strategy documents – if that is so, they have themselves to blame and future merging parties should take note that all relevant documents should be provided, even if not supportive of the merger. However, to the extent that the new investigation turned up information from other sources, this clearly brings into question the quality of the Commission’s initial investigation, which the merging parties are now paying the price for, despite having notified the merger up front.
Where does this leave merging parties who wish to rely on a merger approval, but cannot be certain that the investigation will not be picked-apart at some later stage? A solution may be to limit the time within which a review application can be brought (currently, the Promotion of Administrative Justice Act caters for a default 180 days to bring a review of an administrative decision) so that at the very least, there less of a danger that the merger would have been implemented for many months before it is sought to be overturned.
One would hope (and must assume) that this case is an example of the system of review working effectively so as to ensure that type one errors (approving a merger that ought not to be approved) are corrected. The concern is that it will lead to more type two errors, whereby mergers that should be approved, are not because of a reluctance at the Commission to make the call.
The Commission is typically under resourced, and neither it nor merging parties can afford to have the process bogged down. The Commission can reasonably only collect so much information in the course of an investigation, and the concern may be that a culture of review will lead to “paralysis by analysis.” It seems the Commission continues to be bombarded from all fronts, which cannot be good for morale.
MEDIA STATEMENT: Competition Commission prohibits knock and drop distribution merger
The Competition Commission has prohibited the acquisition of Primedia@Home, a printed advertisement distribution business of Primedia (Pty) Ltd, by Paarl Media (Proprietary) Limited (“Paarl”), jointly controlled by Media 24 Limited and Lambert Phillips Retief. The Commission found that this transaction would substantially lessen competition in the market for knock and drop leaflet distribution.
This transaction was previously approved by the Commission on 25 January 2011; however, Caxton and CTP Publishers and Printers Ltd (“Caxton”) asked the Competition Tribunal (“Tribunal”) to review it. On 25 July 2011, the Tribunal set aside the Commission’s decision to unconditionally approve the merger and the matter was sent back to the Commission for its reconsideration.
The new investigation uncovered further information, including strategy documents that were not previously submitted to the Commission by the merging parties. This information indicated that there was vigorous competition between the merging parties, being the two main national players in the market for knock-and-drop leaflet distribution. This is contrary to the arguments made by the merging parties that they competed in a broader market which included community newspapers and other media. The Commission’s investigation concluded that the merger will thus substantially lessen competition.
The Commission further took into account that this market is highly concentrated with significant barriers to entry which makes it difficult to enter the knock-and-drop distribution market and be an effective competitor at a national level. Consideration of the ability of those in other distribution modes, like newspapers, to perform knock-and-drop distribution nationally indicates that this constraint is not significant and highly unlikely to materialise.
In addition, the merged entity (through Paarl) has a leading position in printing, particularly heatset printing and will, by virtue of the transaction, be in a position to leverage its position in distribution into the printing market, and foreclose its rivals in printing and distribution, to the detriment of competition in these markets.