On the 1 June 2020, following a detailed Phase 2 investigation, the Competition and Markets Authority ("CMA") published a notice of acceptance of final undertakings in relation to the completed acquisitions by Bauer Media Group ("Bauer") of four different radio businesses from Celador Entertainment, Lincs FM Group, Wireless Group, and UKRD Group.
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- The CMA has concluded that the acquisitions resulted, or may be expected to result, in a substantial lessening of competition ("SLC") in the market for the supply of representation for national advertising to independent radio stations in the UK.
- When the CMA reaches such a conclusion, it typically opts for divestment remedies rather than behavioural remedies. Occasionally, it opts for outright prohibition. Divestment remedies would have required Bauer to sell off all or some of the businesses it had acquired (or potentially pre-existing Bauer businesses) with the aim of restoring a sufficient level of competition.
- Behavioural remedies, which are designed to exclude or reduce the ability of the merged entity to exploit increased market power, are generally viewed as sub-optimal, because they rely on ongoing regulation to restore competition, rather than allowing the market to take its natural course.
- However, in the specifics of this case, the CMA felt that requiring a divestment would have involved certain risks and therefore preferred to go down a route of requiring Bauer to provide sales representation services to independent radio stations on the same terms as they received previously, for 10 years.
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On 7 August 2019, the CMA referred the following four completed acquisitions by Heinrich Bauer Verlag KG, trading as Bauer, for a detailed Phase 2 investigation:
- the acquisition of 16 local radio stations and associated local FM radio licences from Celador Entertainment;
- the acquisition of 9 local radio stations and associated local FM radio licences, an interest in an additional local radio station and associated licences, and interests in the Lincolnshire and Suffolk digital multiplexes from Lincs FM Group;
- the acquisition of 12 local radio stations and associated local FM radio licences, as well as digital multiplexes in Stoke, Swansea and Bradford from The Wireless Group ("Wireless"); and
- the acquisition of the entire issued share capital of UKRD Group ("UKRD") and all of UKRD’s assets, namely ten local radio stations and the associated local FM radio licences, interests in local multiplexes, and importantly, UKRD’s 50% interest in First Radio Sales Limited ("FRS"). FRS is a sales house that sells national advertising, sponsorship and promotion and digital campaigns on behalf of independent local radio stations. As at 19 September 2019, it represented 118 local radio stations across the UK. The remaining 50% of FRS is owned by Wireless.
The four acquisitions were concluded separately and with different sellers in early 2019, but the Phase 2 reference related to the cumulative effect of the acquisitions.
The CMA published its Phase 2 final report on 12 March 2020. In the report, the CMA panel noted that the radio stations that Bauer had acquired through the four acquisitions accounted for the majority of FRS’ business. It considered that FRS would be significantly loss-making without the commission revenue it receives from those stations. Therefore, it expected that FRS would be closed by Bauer and Wireless in due course.
Without FRS, independent local radio stations would only have two options for sales representation- one of these being Bauer, and the other being a third party which might impose unwelcome conditions to act in this capacity. This would leave stations with insufficient choice when trying to sell radio advertising airtime. This could lead to higher commission rates or the quality of service offered to those stations deteriorating.
When considering appropriate remedies, in the specific circumstances of this case, the CMA concluded that imposing a full divestment remedy would have raised significant risks. These principally related to uncertainty regarding the incentives, likely appetite and strategic focus of any purchaser to maintain FRS as an active competitor to represent independent stations, and the diverse set of radio stations which would make up the divestiture package. The CMA also did not consider that a partial divestment would work as divestment of Bauer’s 50% share in FRS as well as all four of the acquired businesses was thought necessary in order to provide a sufficient scale of customer base to ensure FRS’s long-term viability.
The CMA therefore concluded that a behavioural remedy would be more effective in this case. As a result, amongst other things, for a 10-year period, Bauer will be required to provide sales representation services to independent radio stations on the same terms as the stations are currently receiving those services from FRS.
The final form of the undertaking can be found here.
With thanks to Catrin Southgate of Ashurst for her contribution.
