COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 102/LM/Dec04
In the large merger between:
Media 24 Limited and Lexshell 496 Investments (Pty) Ltd
and
The Natal Witness Printing and Publishing Company (Pty) Ltd
Reasons for Decision
________________________________________________________________
APPROVAL
On 20 July 2005 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Media 24 Limited and Lexshell 496 Investments
(Pty) Ltd and The Natal Witness Printing and Publishing Company (Pty) Ltd , in
terms of section 16(2)(b) subject to the conditions.
The reasons for the approval of the merger appear below.
The Parties
1. The acquiring firm is Media 24 Limited (“Media 24”) and Lexshell 496
Investments (Pty) Ltd (“Lexshell”). Media 24 is a subsidiary of Naspers
Limited. Lexshell was formed by the Natal Witness shareholders as an SPV
for this transaction.
2. The primary target firm is the Natal Witness Printing and Publishing
Company (Pty) Ltd (“NW”). It’s a subsidiary of The Natal Witness (Pty) Ltd
[what do they do}. NW has a 60% interest in Lincroft Books (Pty) Ltd and a
50% interest in Midlands Media (Pty) Ltd.
The Merger Transaction
3. This is a postimplementation merger as it was implemented by the parties
in 2000 without Commission approval. 1
4. Media 24 is buying 50% of the shares in Natal Witness, which remains
under the management control of the Craib family. The latter hold the
remaining 50% via a new company, Lexshell and have made all the
strategic decisions in the business.
Rationale for the Transaction
5. Media 24 seeks to expand into the English newspaper market and to enter
the KwazuluNatal market. The investment will enable Natal Witness to
purchase the requisite equipment so that it can expand its product base and
generate additional revenue.
The relevant product market
6. Media 24 is involved in publishing and printing magazines and newspapers;
electronic news provision and magazine content via the internet; distribution
of newspapers, magazines and digital products as well as printing works. It
owns four daily newspapers; two weekly newspapers; three Sunday
newspapers and 37 community newspapers nationwide. It’s magazine
division has 33 sectorwide magazine publications. It’s internet business
offers leading brands in news, motoring, property, health and food.
7. NW prints and publishes various regional newspapers and community
newspapers in Pietermaritzburg.
8. There is an overlap in the activities of newspaper publishing and printing.
Newspaper Publishing
9. The Commission in its investigation found that Media24 publishes primarily
Afrikaans newspapers 2, while NW publishes English newspapers. This
causes it to conclude that the newspapers of the two firms do not compete
and we agree with this conclusion.
Newspaper Printing
10. Both parties have printing equipment and are able to print their own
newspaper publications and that of others. The Commission excludes
newspaper publications and that of others. The Commission excludes
magazine and brochure printing from this market because different paper is
1 This failure to notify is being investigated by the Commission .
2 With the exception of City Press, an English newspaper sold nationally.
used for newspaper print; size or runlengths of newspaper and magazine
printing differ; as well as differences in quality, pagination, technology.
Finally, the deadlines vary – newspapers have to meet tighter delivery
schedules than magazines. Furthermore, the Commission’s investigation
revealed that significant retooling would be required to print these sorts of
publications.
Geographic Market for Newspaper Printing
11. Printing presses are located in the primary distribution areas of particular
newspapers because they are typically cumbersome and difficult to move.
The same applies with printed newspapers. It therefore makes sense that
mainstream newspapers are printed in particular areas –either of Gauteng,
Cape Town or Durban.
12. We agree with the Commission’s conclusion that the market is regional.
13. We further agree that there is no horizontal overlap since at the relevant
time, Media 24 had no printing capacity in KZN and NW only had same in
Pietermaritzburg.
Vertical Integration
14. There are no vertical concerns arising from this transaction.
Collusion
15. The Commission highlighted the fact that there is a complaint being
investigated by them against Caxton Publishers and Printing Limited
(“Caxton”).3 In addition, an allegation is being made that Naspers and
Caxton are colluding by allocating markets.
16. Caxton is the only other major participant in the newspaper industry, along
with Media 24. Caxton is a major printing and publishing company
publishing primarily community –based newspapers.
17. The Commission’s concern arises from the fact that these two competitors
– Media 24 and Caxton jointly own a firm, Lincroft Books (Pty) Ltd
(“Lincroft”), Caxton having a 40% shareholding and NW holding a 60%
interest. Lincroft publishes a series of community newspapers and earns its
interest. Lincroft publishes a series of community newspapers and earns its
income by selling advertising space.
3 Caxton had initially noted its concerns to this transaction, describing Naspers’ practice of buyingup small
community or regional newspapers and printing companies as a series of “creeping acquisitions” which the
competition authorities should be concerned about. However, it did not take these allegations further during
the hearing.
18. Since both Media 24 and Caxton compete in the same market, the
Commission raised the concern that this transaction, whereby Media 24 is
acquiring NW, will create a platform for collusion (between Media 24 and
Caxton) via Lincroft.
19. In previous dealings between the two, Caxton and Media 24 had agreed not
to compete in respect of certain geographic markets. The Commission fears
that the same will happen in respect of the community newspaper market,
where the largest publishers account for a 63% market share.
20. To remedy this concern, the Commission suggested a condition, in terms of
which NW would divest its 60% interest in Lincroft. In terms of the Lincroft
shareholder’s agreement, Caxton has a preemptive right to acquire the
shares and the concern was raised that this would entrench Caxton’s
dominance in the broader KwaZulu Natal market.
21. Accordingly, it was agreed between the parties and the commission that
NW’s stake in Lincroft be transferred to Lexshell, which would remove any
structural links as well as any competition concerns.
22. During the merger hearing, the parties advised that NW had set up an
administrative company which offered outsourced administration services
for the various operating companies within the group. The merging parties
were queried as to why the administration service was being paid for by
Lexshell, the shareholder in Linkcroft, as opposed to Linkcroft itself, which
is the operating company. The tribunal was concerned that this might have
been a disguised way of getting around the fact that Media 24 had to
relinquish its share and that the administration agreement was a means to
get back the dividend that might have otherwise come through Linkcroft, by
way of this administration fee paid by Lexshell.
23. The merging parties, assured the tribunal that there was no residual
economic benefit flowing back to Media 24. They explained that the
administrative fee paid to NW was in respect of services rendered to
Lincroft for which Lincroft paid a fee. They dismissed a reference in the
correspondence from Lexshell to NW which stated that Lexshell would pay
NW an annual management fee, as actually being supposed to read that
Lexshell was merely confirming that Lincroft would pay the annual
management fee to NW for services rendered. 4
Public Interest Issues
24. There are no public interest concerns.
4 See record page C44
Conclusion
We are satisfied that the condition addresses any competition concerns arising
from this merger.
The Tribunal therefore approves the transaction subject to the condition attached
to the order dated 20 July 2005.
_____________ 17 October 2005
N Manoim Date
Concurring: Y Carrim, T Orleyn
For the merging parties: Jan S De VilliersAttorneys
For the Commission: M. Worsely and L. Blignaut ,Competition Commission