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OFT decides not to refer travel brochure distributors merger

132/08    14 November 2008

The OFT has decided not to refer the anticipated acquisition of Ocean Park Limited by Orbital Marketing Services Group Limited to the Competition Commission.

The OFT found it would be under a duty to refer the merger as it would combine the only two bulk distributors of tour operators travel brochures to travel agencies and other retail outlets in Great Britain.

However, given the size of the market and the limited impact of the merger, the OFT has exercised its 'de minimis' discretion, deciding that a detailed investigation by the Competition Commission would be disproportionate to the issues raised. In doing so, it relied on the cumulative impact of the following considerations.

First, Thomas Cook and TUI - the two largest tour operators, together accounting for half the value of the total market - will continue to enjoy substantial countervailing buyer power.

Second, while the remaining smaller tour operators do not have such buyer power, the OFT's concerns in respect of this segment of the market, worth less than £5 million annually, were more limited than they otherwise might have been, because:

• Market contraction to a single supplier was likely to occur in any event. Driven by the decline in the number of tour operators, consolidation of brochures, and reduction in the number of bricks and mortar travel agents, there was substantial evidence to suggest that the shrinking distribution market could not sustain two operators that would each have a minimum viable scale of business in the medium term. This conclusion was verified by customer views about the future of the market and their lack of concern about the merger. Although the overall evidence on the future of the market was not sufficient to avoid the duty to refer, it is particularly relevant to the exercise of the de minimis discretion in this case, because any effects attributable to the merger would be of limited duration, after which they were likely to occur in any event. 
  
• The OFT found little evidence of customers currently using competition to obtain better prices by switching supplier or threatening to do so. The magnitude of competition lost as a result of the proposed merger is therefore substantially less than would normally be expected from such a two to one merger.

Simon Pritchard, OFT Senior Director of Mergers, said:

'The OFT would usually consider the direct harm to customers of a '2 to 1' merger, combined with the need to maintain deterrence, as sufficient to justify a reference, even for fairly small affected markets. But all the relevant facts and evidence in this case - the shrinking size of the market segment affected, the likelihood of inevitable market contraction to a single supplier, the lack of customer concern and the limited degree of pre-merger competition - contribute to the conclusion that a reference is not proportionate.'

NOTES

1. The 'de minimis' exception is formally known as the 'markets of insufficient importance' exception to the duty to refer under the Enterprise Act 2002. In this case, as in the five previous 'de minimis' cases, see press releases 180/07 and 16/08 and 90/08 and 107/08, the OFT did not believe that, as a matter of principle, clear-cut undertakings in lieu of reference were available. It reached the opposite conclusion in the Berkshire newspaper case, see press release 15/08. The OFT's approach to the factors it will take into account in exercising its 'de minimis' discretion in this case is in line with its decision in BOC/Ineos (although in that case the OFT ultimately concluded against exercising its discretion, see press release 68/08 and followed in the Nufarm/AH Marks case, see press release 102/08). Download more information on the guidance (pdf 122 kb).

2. The Reference Test - The OFT has a duty to make a reference to the Competition Commission if the OFT believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation, and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

3. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises, and the value of the turnover in the UK of the enterprise being taken over exceeds £70 million, or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
 
4. The full text of the decision will appear in the mergers section.

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