COMPETITION TRIBUNAL OF SOUTH AFRICA
Case NO: 60/LM/May08
In the matter between
Media 24 Limited Primary acquiring firm
And
Uppercase Media (Pty) Ltd Primary target firm
Panel : D Lewis (Presiding Member); Y Carrim (Tribunal Member) and N
Manoim (Tribunal Member).
Heard on : 06 August 2008
Decided on : 07 August 2008
Reasons Issued : 12 September 2008
Reasons for Decision
Approval
[1] On 06 August 2008 the Competition Tribunal issued a Merger Clearance Certificate
unconditionally approving the merger between Media24 Limited and Uppercase Media (Pty)
Ltd. The reasons appear below.
Parties
[2] The primary acquiring firm is Media24 Limited (“Media24”). Media24 is 85% owned
by Naspers1 and the remaining 15% shares are owned by Yizani representing Black
Economic Empowerment interests.
[3] Media24 is involved in the business of publishing and distribution of newspapers,
magazines and the internet, commercial, newspaper and magazines printing and the
publishing and distribution of books. 2 Media24 is a prominent role player in the South
African magazine industry and publishes a significant percentage of magazines sold at news
1 Naspers is a public company listed on the JSE. It controls various entities including Paarl Media Holdings (Pty)
Ltd (“Paarl”), Touchline Media (Pty) Ltd (“Touchline”), Multichoice South Africa Holdings (Pty) Ltd, Media24
Holdings (“Media24 Holdings”) and M-Web Holdings (“M-Web”). 2 Media24 is also integrated into printing market through its subsidiary Paarl Media and is actively involved in the
print distribution market through its division, NND24.
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stands nationally.3 It currently publishes more than 60 titles, several of them in conjunction
with other publishers or in terms of licensing agreements with international titles. Media24’s
subsidiary Touchline Media (Pty) Ltd (“Touchline”) also publishes Men’s Health through a
joint venture with Rodale INC (“Rodale”).4
[4] The primary target firm is UpperCase Media (Pty) Ltd (“UCM”). UCM is a joint
venture established between Media24 and Emap Overseas Ltd (“Emap”) during 2000.5
UCM is active in publication of consumer interest magazines in South Africa, with titles such
as Heat and FHM published under a licence granted by Emap Consumer Media Ltd. UCM
also has a digital business which attached to the titles which was launched in 2006.6
Transaction
[5] Media24 owns 50% of the issued share capital of UCM. The merger involves the
acquisition by Media24 of the remaining 50% in UCM from Emap. In terms of the proposed
transaction Emap sells to Media24 all of its claims against and shares in UCM. The effect of
the agreement is that UCM that was previously under the joint control of Emap and Media24
will be under the sole control of Media24.7
Rationale
[6] In terms of the joint venture agreement entered into between Emap and Media24
effective from 2000, a mutual pre-emptive right was agreed to between Emap and Media24
regarding the sale of their shareholdings. Media24 is therefore exercising its right as it does
not wish to own UCM jointly with another firm.
[7] For Emap the parties submit that it has reviewed its group structure and portfolio of
assets which includes radio, consumer magazines and business to business assets and has
decided to sell its entire consumer facing businesses and focus on other media markets.
The parties further submit that the Emap stake in UCM no longer has a strategic fit with the
Emap business and it was decided that it should be sold.8
Emap business and it was decided that it should be sold.8
3 Media24 is also integrated into the printing market through its subsidiary Paarl Media and it is actively involved
in the print distribution market through its division NND24. Naspers is involved predominantly in the media
sector. Its South African business operations include pay television subscriber platforms, pay television channels,
internet platforms, publication of magazines, books and newspapers and the provision of printing and distribution
services.4 Rodale is a company registered in accordance with the laws of the United States of America.5 Emap is a private company incorporated in accordance with the laws of England with its registered address at
40 Bernard Street London England.6 The license allows UCM to publish and distribute the mentioned titles in South Africa (and neighbouring
countries, for example Zimbabwe, Namibia, Botswana, Swaziland and Mozambique).7 At all material times UCM has been the exclusive licensee of Emap for “FHM”, “ZOO” (the publication which has
been stopped) and Heat magazines titles and content in South Africa.8 The Emap board had initially decided to sell its entire consumer facing business to Bauer (a German company),
but Bauer declined.
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The Commission’s Recommendations
[8] As will be discussed later, the Commission concluded that the proposed transaction
is likely to substantially prevent or lessen competition as it is likely to result in unilateral
effects and co-ordinated conduct in the general men’s interest magazines post merger. In
order to mitigate these concerns the Commission has recommended that we approve this
transaction subject to the following conditions:
For as long as Media24 has control over both UCM and Rodale and Touchline Publishers,
and has a right through these or any other entities to publish FHM and Men’s Health:
1. The merged entity (“UCM”) shall operate as an independent and distinct entity from
other Media24 (Pty) Ltd (“Media24”) business units responsible for publishing
magazines in the market for general men’s interest magazines. There shall be no
sharing with or disclosure to any other Media24 business unit of any FHM’s ideas,
strategies, launch plans, unpublished editorial, financial information or similar
confidential or proprietary information and vice versa;
2. The editorial and publishing offices of the South African editions of Men’s Health and
FHM shall be physically located in two different buildings.
3. UCM shall not offer employment or engagement as a freelancer to any person
formerly employed by or rendering freelance services to Men’s Health and vice versa
for a period of two years.
4. The Competition Tribunal may on good cause shown lift, revise, or amend these
conditions upon being approached either by the Commission or by the merging
parties.9
Market Definition
[9] According to the Commission there is an overlap in the activities of UCM and
Media24 in the market for the publication of consumer magazines, in particular the market
for general men’s interest magazines and celebrity magazines. In the market for general
men’s interest magazines the overlap occurs with respect to Men’s Health and FHM and in
men’s interest magazines the overlap occurs with respect to Men’s Health and FHM and in
celebrity magazines the overlap occurs between Heat and People.10 When assessing the
general men’s interest market the Commission looked at several markets but narrowed the
9 See page 32 of the Commission’s report.
10 Men’s Health, FHM and Heat are published under a license from international companies EMAP and Hearst
respectively.
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market to consumer magazines and further narrowed it to general men’s interest magazines.
The Commission is of the view that, on the basis of information received from customers,
competitors and strategic documents of the merging parties, there is recognition of the
broader market of “men’s interest magazines” that includes Men’s Health, FHM, GQ, Sports
Illustrated, Popular Mechanics and others. The Commission however found that it is also
evident that the market can be further delineated into the general men’s interest magazine
segment, a market that includes only the closest competitors of FHM, namely Men’s Health
and GQ.
[10] The Commission also examined the narrowest celebrity market where Heat’s closest
competitor in this niche market is a Caxton publication, People magazine. At the hearing the
Commission submitted that the purpose for narrowing this market was to look at where
competitive rivalry occurs. According to the Commission if there is any competitive constraint
on Heat it is not from a broader market, which contains more Media24 titles, but from People
a Caxton publication. 11 The Commission however did not conclude on the definition of the
relevant market but concluded that on the basis of evidence gathered during its
investigations, the most direct competition to Heat magazine comes from the Caxton
publication People.
[11] The Commission defines the geographic market as national. We agree with this
definition.
Competition Analysis
[12] As outlined above the Commission found that the merger would increase the
likelihood of both unilateral and co-ordinated effects. We examine these below.
[13] The Commission further found that barriers to entry are high and that advertising
customers have some degree of countervailing power.
[14] The prima facie indicators of likely unilateral effects are pre and post merger market
shares. In this case the Commission relied on modified HHIs 12 in order to assess the
shares. In this case the Commission relied on modified HHIs 12 in order to assess the
likelihood of unilateral effects. The Commission’s calculations revealed an increase of the
MHHI from 2,746 pre merger to 3,949 post merger, which represents an accretion of 1,203.
The Commission calculated pre merger MHHI by assigning 50% of the market share of each
11 See page 7 of the transcript.
12 HHI refers to the Herfindahl- Hirschman Index which is defined as the sum of the squared market shares of all
firms in the market. It was developed to measure concentration ratios in a relevant market. If a merger results in
a change in HHI of more than 100 basis points, the South African competition agencies take a closer look at the
possible competition effects of such a transaction. Timothy F Bresnahan and Steven C Salop developed
modifications to the standard HHI for analysis of some types of partial ownership acquisitions. See “ Quantifying
the competitive effects of production joint ventures” 4 INT’L J. INDUS. ORG.155 June 1986
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joint venture to each participant in the joint venture. Media24’s pre merger market share is
37.35%, Rodale’s is 21.25%, UCM’s is 16.1% and Conde Naste has 25.3%. Therefore the
Commission concluded that the merging parties post merger market share is 54% in the
market for general men’s interest magazines with a market share accretion of 17%. In the
market for celebrity magazines, the Commission found that the merged entity would have a
post merger market share of approximately 50%. The Commission argues that the pre and
post merger MHHI would be 3742 and 5000 respectively, which represents a change in
MHHI of 1258. The Commission found that the proposed transaction would lead to the
creation or enhancement of market power for the merged entity. The Commission also
concluded that the affected markets are highly concentrated.
[15] The Commission also avers that another potential consequence of this merger is that
the merger will make the market more conducive for co-ordinated effects. In order to dispel
concerns that the proposed transaction will result in co-ordinated conduct involving Media24,
the parties submit that Media24 magazines are independently run by management through a
cluster system. As an alternative argument, they contended that the merger would not make
the possibility of unilateral or co-ordinated effects any more likely than it was pre-merger. 13
The Commission however, argues that this structure may result in ineffective rivalry between
the clusters for advertising and circulation revenues. The Commission submits that, this
transaction would provide Media24 with the opportunity to place FHM and Heat in clusters
which could include close competitors of both. For example Media24 could place FHM in a
cluster with Men’s Health, its closest competitor. The Commission argues that this could
undermine the rivalry between these two titles as information about discounts to advertisers
undermine the rivalry between these two titles as information about discounts to advertisers
for placing adverts could be shared, reducing the potential for advertisers to play the titles off
against one another. However the parties submit that Media24 does not have a free hand
regarding the publication of “ FHM” and “Heat” as it remains constrained by the terms of the
licence agreement with the licensor of these titles. The licensee in this case was UCM and
not Media24. The parties submitted that the licence agreement provides that the quality of
the licensee publications with respect to editorial content, advertising, form and presentation
of material shall be in accordance with the standards set out, from time to time, by the
publisher of the title in the brand book. Furthermore the licence also prescribes
specifications in terms of the book size, paper stock and advertising: editorial ratio. Post
merger the licence agreement will still be in place and UCM will continue to be bound by it
irrespective of whether Media24 was in joint or sole control of UCM. Therefore, Media 24
would not, post merger have a free hand to do as it pleased regarding the publication of
13 See page 16 of the transcript.
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FHM and Heat as it would remain constrained by the terms of the licence agreement with
the licensor of these titles.14
[16] In our view this merger is unlikely to increase the likelihood of co-ordination in the
general men’s interest market since post merger the business of UCM will be conducted as
before. Although Media24 will have sole control by virtue of the fact that it would own 100%
of the share capital in UCM, Emap or its successor would still be there and the licence
agreements would continue to exert sufficient constraints on Media24. We are therefore of
the view that this transaction does not warrant the imposition of the condition by the
Commission.
[17] The Commission also found that the merger has a vertical effect, but none that raises
any competition concerns. According to the Commission the vertical integration occurs in
that Media24 renders administration, HR, IT, advertising, printing, circulation and
subscription services on behalf of UCM. Furthermore NND24 and Paarl, the divisions of
Media24 provide printing and distribution services to UCM. An examination of the vertical
integration by the Commission revealed that the relationship between the merging parties
existed pre merger and will continue unchanged post merger. According to the Commission
the target firm did not utilize the said services from any other firm except for the acquiring
group. We therefore agree with the Commission’s conclusion that no foreclosure concerns
arise as a result of the proposed transaction.
[18] In our view the Commission’s concerns appear to be driven less by the effects of this
particular transaction, than by Media 24’s pre-eminent position in the magazine market.
While these concerns may be well-founded and may dictate that the Commission pays close
attention to Media 24’s conduct in this market, we do not believe that this transaction
materially enhances that established position and so there is no warrant for finding that it will
substantially lessen competition
Conclusion
[19] There are no public interest issues. Accordingly the transaction is unconditionally
approved.
___________________ 12 September 2008
14 See page 38 of the record.
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Y Carrim Date
Tribunal Member
D Lewis and N Manoim concurring
Tribunal Researcher : Jabulani Ngobeni
For the merging parties : Jan S. De Villiers
For the Commission : Edwina Ramohlola (Mergers and Acquisitions)
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