Johnston Press Plc and Home Counties Newspapers Holdings Plc: A report on the proposed transfer to Johnston Press Plc of the newspapers of Home Counties Newspapers Holdings Plc

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Summary

We were asked by the Secretary of State for Trade and Industry on 23 February 1998 to investigate and report on whether the proposed transfer to Johnston Press PLC (Johnston) of the newspapers currently published by Home Counties Newspapers Holdings PLC (HCN) and listed in our terms of reference (see Appendix 1.1) may be expected to operate against the public interest.

Johnston made an offer to acquire HCN's share capital on 6 January 1998, valuing HCN at £52 million. This offer lapsed when the Minister for Consumer and Competition Affairs announced that consent to the proposed transfer would not be given without a reference to the MMC. Johnston has since said that, unless there was a material change of circumstances, it would make a new offer if consent was given following the MMC's report. However, on 21 April 1998, the board of HCN announced that it was recommending to shareholders an offer for the company made by Eastern Counties Newspapers Group Limited (ECNG) and that holders of 60.9 per cent of HCN's shares had given irrevocable under-takings to accept the offer. Our reference nevertheless requires us to report on the public interest implications that would arise if the titles were transferred to Johnston.

HCN started as a family business in 1891. It is now a listed company with a turnover of £38 million having expanded, mainly by acquisition, since the early 1960s. Including 'slip editions' (see glossary) of its main titles, HCN publishes a total of 27 paid-for weekly newspapers and 21 free weeklies in Essex, east London, north London, Hertfordshire, Buckinghamshire and Bedfordshire.

HCN considered that it had been achieving an unsatisfactory level of profitability due mainly to losses incurred by its newspaper businesses in Luton and Milton Keynes. It believed that it did not have the resources and capability to improve the profitability of these businesses unaided and that the best course would be to sell the whole of the company. Of the potential purchasers, Johnston was preferred partly because it was considered well placed to secure a viable future for the greatest number of the loss-making HCN titles.

Johnston is a Scottish-based newspaper group with some 145 newspaper titles, most of them weekly publications, and a turnover of £212 million. It made the first of a number of acquisitions in England in 1978. In July 1996 it acquired the newspaper business of EMAP plc, doubling its size and extending its operations into certain of the areas served by HCN newspapers. As to the acquisition of HCN, Johnston considered that HCN's focus on weekly titles and the potential for savings and synergies provided an attractive opportunity for expan-ding its business in the south-east of England.

Measured by shares of circulation and distribution, Johnston is the fifth largest publisher of regional and local newspapers in the UK with a share of around 7 per cent. The transfer would make it the fourth largest with around 8 per cent. Johnston's share of weekly newspapers is slightly higher at 10 per cent and HCN has around 2 per cent but the transfer would not change Johnston's position as the second largest publisher of that type of newspaper. We are satisfied that the increase in concentration at the national level would not give rise to public interest concerns. The transfer could result in changes in agency arrange-ments that involve some further centralization of the handling of sales to national advertisers but that would not be an inevitable outcome and there would be sufficient safeguards to ensure no adverse effects on the interests of national advertisers.

Although the transfer would increase overall concentration in Hertfordshire, Buckinghamshire and Bedfordshire, we do not regard these three counties as a coherent or self-contained market. The transfer would not, in our view, give rise to any regional concerns that are additional to or distinct from the public interest issues arising from its effect in local markets.

Johnston would inherit the position of strength held by HCN's newspapers in certain local markets in Hertfordshire and Essex but we have received no evidence that leads us to believe that Johnston would be more likely than HCN to use this position in a way that would operate against the public interest.

There are five areas where the operations of the two groups overlap-Bedford, mid-Bedfordshire, Leighton Buzzard, Luton and Dunstable, and Milton Keynes. The transfer would increase Johnston's share of total circulation and distribution of weekly newspapers in these areas to between 51 and 72 per cent.

In all the overlap areas there would be some competition from free Sunday news-papers distributed by one other publisher. We are satisfied that these Sunday newspapers would provide local readers with a real choice as far as local news and opinion is concerned. We are also satisfied that, where they are sufficiently established, they would provide effective competition to Johnston's titles ensuring that the interests of advertisers in general are adequately protected. This would be the position in Bedford, mid-Bedfordshire and Leighton Buzzard where the free Sunday newspaper is well established. The position is different in Luton and Dunstable and Milton Keynes where, in our view, the free Sunday newspapers are not sufficiently well established to provide effective competition in the event of the transfer. Nor do we believe that competition from other media or the general threat of entry by other publishers is sufficient by itself to protect the interests of readers and advertisers in these localities.

We therefore considered the consequences if Johnston were not to acquire HCN's titles in Luton, Dunstable and Milton Keynes. We cannot rule out the possibility that a publisher other than Johnston would attempt to make HCN's loss-making businesses in these areas profitable and to maintain some or all of the titles published by those businesses. Such an outcome might be preferable from the perspective of competition. However, the market conditions, and the scale and persistence of HCN's losses in those areas, are such that we do not have an expectation that this would be the outcome. In view of ECNG's offer for HCN we took into account its plans, but these were not sufficiently well formed to alter our assessment. We believe that, if not transferred to Johnston, all HCN's titles in Luton, Dunstable and Milton Keynes would close, producing competitive conditions almost identical to those arising from the transfer to Johnston. Moreover Johnston's plans to retain and develop the majority of HCN's loss-making paid-for weekly newspapers, which generally have greater coverage of local news and are of particular value to readers in rural areas where the distribution of free newspapers may not be economic, would be of benefit to the public interest if implemented. Taking all these factors into account, we do not consider that the increase in local concentration arising from the transfer would, on balance, operate against the public interest.

We received some favourable comment on Johnston's reputation for editorial inde-pendence and no evidence to lead us to doubt its commitment to the accurate presentation of news. Taken together with Johnston's statement of editorial policy and its arrangements with its editors, this evidence leads us to conclude that the transfer would not threaten either the accurate presentation of news or the free expression of opinion.

We also received favourable comment on Johnston's reputation as an employer and we believe that Johnston would be likely to preserve at least as many of HCN's titles as HCN or other publishers would find possible. We do not consider that the consequences of the transfer for efficiency and employment would be against the public interest.

We conclude therefore that the transfer may be expected not to operate against the public interest.

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