COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No.: 65/LM/May00
In the large merger between
Nasmedia
and
Paarl Post Web Printers (Pty) Ltd
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Reasons for the Competition Tribunal’s Decision
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Approval
1. The Competition Tribunal issued a Merger Clearance Certificate on 26 Ju ly 2000
approving the merger between Newprint (a company to be formed) and Paarl Post
Web Printers (Pty) Ltd without conditions. The reasons for our decision to
approve the merger are set out below.
The Transaction
2. Paarl Post Web (“PPW”) and Nasmedia Limited (“Nasmedia”) are, through a
series of transactions, forming a new printing company to be known as New Print
which will own –
a) The business of PPW (acquired through a purchase of 100% of its shares)
b) The printing interest of Nasmedia’s NTD division (acquired through a
purchase of assets)
3. It is envisaged that the shareholding in Newprint will be:
Naspers 65%
Eagle Media (PPW’s Holding company) 25%
MICEF (Mineworkers Investment Company Empowerment Fund) 5%
Employees 5%
4. Nasmedia will appoint 50% of the Board members of Newprint, with a maximum
of four including the chairperson who will not have a casting vote. PPW will
appoint two directors and MICEF shall appoint one director. One further
independent, nonexecutive director shall be appointed by the directors
representing Nasmedia, PPW and MICEF and will hold office for a period of two
years, with a possibility of reappointment. Lambert Retief, currently the
chairman of PPW, shall be the Chief Executive Officer and shall be responsible
for managing Newprint. He will report to the Newprint Board.
Background
5. PPW who initiated the merger gave two different reasons for the transaction.
Firstly a recent change in PPW ‘s shareholding had led to the introduction of an
empowerment shareholder backed by an institution. The institution was reluctant
to back an investment in an unlisted company but feared that PPW was to o small
to list.
6. Moreover PPW felt vulnerable because excess capacity already existed in this
market. It was aware that Nasmedia was planning to introduce additional printing
capacity in the form of a 48page lithoweb press, which would have enabled
Nasmedia to print some of its inhouse magazines itself, thereby affecting
approximately 13% of PPW’s business.
7. In light of the above PPW then decided to approach Nasmedia with a view to
merge their printing facilities. This coincided with Nasmedia’s process of re
evaluating its business in order to focus on publishing, which it regards as its core
business.
The Relevant Market
8. This transaction represents the merging of two printing facilities, NND and PPW.
NND is the inhouse printer for Nasmedia, which, apart from its inhouse
publications, is also a publisher, printer and distributor for several independent
publications, is also a publisher, printer and distributor for several independent
publishers and other clients. PPW is an independent printer.
9. According to the Commission the product overlap in this transaction occurs in the
printing of magazines, advertising inserts and catalogues. However, argues the
Commission, within this broad market one needs to distinguish between the
different print processes used by printers. Some printing processes, such as
gravure, are more cost efficient for long run, high pagination commercial quality
publications and others, such as sheet fed and commercial web, are best suited for
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shorter run, low pagination niche publications with higher quality demands.
10. According to the parties factors such as print order (quantity) and pagination (total
number of pages) are taken into account when deciding which printing process
should be used. Furthermore sheetfed uses sheets of paper, prints one side at a
time and delivers flat sheets at the end of the printing process, which needs to be
folded offline before binding. Web and gravure use reels of paper, print on both
sides of the paper in one process and deliver folded sections at the end of the
printing process.
11. The Tribunal was provided with a price matrix, which illustrated that sheet fed is
the dominant printing process used for quantities of less than 10 000. At 30 000
lithoweb is dominant because the sheet fed price becomes uncompetitive.
Gravure will typically not quote for quantities below a 100 000 because from 100
000 gravure offers the best pricing structure. As the quantities increase the price
differential between web and gravure will increase.
12. There are only two firms in South Africa, NTD and Republican Press, the in
house printing facility of CTP , that use gravure presses. PPW only uses litho web
whilst neither PPW nor NTD use sheetfed presses. The product overlap is
therefore only in products printed on lithoweb presses.
13. According to the parties CTP has four 32page lithoweb presses, nine 16page
lithoweb presses and five 8page lithoweb presses. NTD has only one 16page
lithoweb press and PPW has one 32page lithoweb press and four 16 page litho
web presses.
14. Based on the above the Tribunal regards the relevant market as the printing
market for magazines, brochures and advertising inserts printed on lithoweb
presses. The geographic market is South Africa since the consumers of the
products and the merging parties’ competitors are based across the entire country.
Impact on Competition
15. With regard to the printing of advertising inserts and brochures the Tribunal is
satisfied that the merger will not substantially reduce competition since there is
adequate printing capacity apart from Newprint in this sector of the market.
16. However, since magazine printing constitutes a major component of the print
businesses of NTD and PPW (59,49% of NTD’s total revenue and 49,75% of
PPW’s total revenue) as well as of printing in general, competition in this segment
of the market needs to be analyzed in greater detail.
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17. Apart from NTD, Paarl Post Web also competes with CTP, Derrick Butcher,
Seculo Triweb and Universal Web in the litho web magazine print market.
18. In the absence of adequate turnover data the Tribunal followed the Commission
and based its analysis of the market shares on magazine circulation data, collected
by The Audit Bureau for Circulation of South Africa (ABC). The inhouse
publications of Caxton and Naspers are excluded since it is argued that these
publications, except in unusual circumstances, do not form part of the market for
print for which independent printers can compete.
19. Based on the above, the percentage magazine market shares, premerger, are as
follows:
Printer Total copies per title,
per issue (%)
Total copies per title,
per annum (%)
NTD 18 16
CTP 35 51
PPW 30 21
Others 17 12
Total 100 100
20. Newprint’s postmerger market share in terms of copies printed per issue will,
therefore, be 48% and CTP’s 35%. If one considers the total copies printed per
title per annum , Newprint’s market share will be 37% and CTP’s 51%.
21. It is argued that CTP has a geographic advantage in the market because it is
represented in both Gauteng and the Western Cape. According to the parties CTP
(Gauteng) is currently printing some of Nasmedia’s publications because this
facility is closer to its specific end market.
22.
23. I t is clear from the above that Newprint and CTP are competitors of similar siz e
with CTP being the large r of the two. Newprint would, therefore, not be able to
control prices , exclude competition or behave to an appreciable extent
independently of its competitors in the magazine printing market .
24.
25.
26. M oreover, the Tribunal was also told that there is a trend towards proliferation of
magazine titles because niche markets are identified and increasingly catered for
magazine titles because niche markets are identified and increasingly catered for
by specific publications. According to the Printing and Publishing Handbook,
1999, there were 180 consumer magazine titles in 1977 in South Africa, by 1987
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this number had increased to 200, and by 1999, there were 510 titles.
27. The increase in the number of titles in the market has lead to a decline in
circulation of the largevolume titles, which means that consumers of magazines
are becoming more discerning, moving away from the general magazine and
demanding more focused, specialisttype magazines. For printers, the result of
this trend will be that short print runs and thus competition in the shorterrun
segment of the market (litho web offset) will be increasing.
28. Furthermore, although the magazine printing market is presently concentrated the
dynamic characteristics is such that publishers who wish to enter the market can
easily be accommodated by smaller printers such as Dereck Butcher in Cape
Town, Universal Web in Durban, Sekulo Triweb and Quick Colour in Gauteng
that currently compete with PPW and Caxtons in the lithoweb market. There are,
therefore, strong indications that concentration could in future decrease as
competition increases , which would also lessen the possibility of collusion .
Vertical integration
29. Nasmedia’s main competitor is Caxton, which is, like Nasmedia, vertically
integrated into magazine publishing, printing and distribution. In light of this fact
the Tribunal asked the Competition Commission to enquire from PPW’s clients,
specifically the independent publishers, whether they were concerned about the
effect that the proposed merger would have on their freedom to choose with
whom they wanted to print and distribute their magazines. In addition the research
division of the Tribunal also contacted the independent publishers to ask them
whether the merger would prohibit them from introducing new magazines to the
South African market and whether there are sufficient competitors in the printing
South African market and whether there are sufficient competitors in the printing
and distribution market that could print and distribute new magazines.
30. The Tribunal was, subsequent to these further inquiries, not presented with any
evidence to indicate that independent publishers were worried about introducing
new magazines to the market or that the merger would impair their freedom of
choice. To support this the parties mentioned that four new magazines published
by independent publishers had entered the magazine market in the recent past
namely House and Garden, GQ, FHM and Men’s Health and that they were
aware of two new magazines that would enter soon namely Shape and Maxim.
31. All the independent publishers did, however, indicate that distribution was a
problem but that this problem had existed before the merger and would not be
exacerbated by the transaction. However, while not providing grounds for
imposing conditions on the transaction, the Tribunal is concerned about the
possible impact of vertical integration, in particular on the ability of the large
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integrated companies to use their dominant position in distribution to exclude new
competitors in publishing.
Control
32. The parties made much of the fact that the merger agreements did not give
Nasmedia, the largest shareholder with 65% of the shares, management control of
the company because in terms of the agreements Mr. Retief of PPW would b e
employed for a minimum of five years as the Managing Director of Newprint.
The agreement gives him a large measure of autonomy in the running of the
company. This they say means that Mr. Retief and not Nasmedia controls the
company and any concerns over Nasmedia’s dominance is alleviated because Mr.
Retief would not allow the company to be run in a manner contrary to the best
interests of Neswprint where those interests conflicted with those of Nasmedia.
This may be so but to argue that a 65% shareholder does not have control for the
purposes of the Act is hardly credible more especially as the Act in section 11(2)
(a) states categorically that a person controls a firm if they beneficially own more
than half of the issued share capital of the firm. We have proceeded to analyse this
transaction on the assumption that Nasmedia controls Newprint.
Conclusion
33. In light of the above the above the Tribunal is satisfied that the merger does not
substantially prevent or lessen competition in the relevant horizontal or vertical
markets, nor does it raise any of the public interest concerns listed in section 16(3)
of the Act.
22 August 2000
D. Lewis Date
Concurring: N.M. Manoim and U. Boohla
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