Southern Newspapers PLC and EMAP plc, Pearson plc, Reed International PLC and Trinity International Holdings Plc: A report on the proposed transfer of controlling interests as defined in section 57(4) of the Fair Trading Act 1973

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On 24 July 1991 the Secretary of State for Trade and Industry asked us to investigate and report on whether the proposed transfer of a controlling interest in Southern Newspapers PLC (Southern) to any of EMAP plc (EMAP), Pearson plc (Pearson), Reed International PLC (Reed), Trinity International Holdings Plc (Trinity) and The Thomson Corporation plc (Thomson) might be expected to operate against the public interest (see Appendix 1.1). Thomson subsequently withdrew its application for consent to such a transfer and we therefore did not pursue the investigation into that reference. EMAP, Pearson, Reed and Trinity are referred to below as `the applicants'.

Southern's principal business is the publishing of local newspapers in Hampshire, Dorset, Wiltshire and Somerset, including evening newspapers in Southampton, Bournemouth and Weymouth. It is the 13th largest publisher of regional and local newspapers in the United Kingdom with 2.5 per cent of the market. Within its own circulation area its market share is very high. The applicants also are publishers of regional and local newspapers, Reed being the second largest, Pearson the fifth largest, EMAP the seventh largest and Trinity the twelfth largest in the United Kingdom. Pearson is the only applicant part of whose circulation area is adjacent to, and to a small extent overlaps with, Southern's.

The references arose because Trinity, having failed to persuade Southern to agree to a merger of the two companies, announced its intention to make a hostile bid and applied to the Secretary of State for consent to the transfer of Southern's newspapers to Trinity. EMAP, Pearson and Reed made similar applications in order to preserve their freedom of action. None of the applicants has made a firm decision to bid for Southern even in the event of consent being granted following our report.

We considered the public interest issues arising from the references under three headings: concentration of ownership and competition for readers and advertisers; the accurate presentation of news and free expression of opinion; and employment and other matters.

EMAP, Reed and Trinity do not have a controlling interest in any national newspaper and therefore no issue arises in these cases of concentration of ownership as between national and regional newspapers. Nor are we concerned by the increase in ownership of regional newspapers at the national level which would result from transfers of Southern's newspapers to any of these applicants. No issue arises in these three cases over increased regional or local concentration. So far as the special criteria relating to the accurate presentation of news and free expression of opinion are concerned, we judge that each of these three applicants on its record, reputation and intentions is well fitted to take over Southern's titles without detriment in either of these respects. We consider that the employment consequences in each case will be quite minor and we do not see any likely adverse effects on efficiency or investment.

We therefore unanimously conclude that the transfer of Southern's newspapers to any of EMAP, Reed or Trinity may be expected not to operate against the public interest.

In the case of Pearson the concentration and competition issues raise additional considerations. Pearson owns a specialised national newspaper, the Financial Times. We do not consider, however, that this is any cause for concern in terms of increased ownership spanning the national and regional sectors of the press. Nor do we believe that Pearson's other media interests give rise to concern in connection with its possible acquisition of Southern. Likewise we do not consider that the additional concentration of ownership of regional newspapers at national level presents any concerns.

As regards the local situation Westminster Press Ltd (Westminster Press) (Pearson's subsidiary) is in competition with Southern in several places where the distribution areas of Westminster Press's newspapers overlap with Southern's titles. In four places, there would continue to be at least two significant competing newspapers if Pearson acquired Southern. In a fifth, the Vale of Pewsey, Westminster Press would be the only publisher distributing a free newspaper but there is a competing paid-for weekly. The Vale of Pewsey represents a small proportion of the total distribution of the free newspapers distributed there and in these circumstances we do not believe that Westminster Press could increase its advertising charges in these titles as a result of acquiring Southern. In a sixth place, Devizes, the acquisition of Southern's free title would give Westminster Press 100 per cent of the market for weekly newspapers, both paid-for and free. Southern's title is not strong, in respect of either editorial or advertising. We believe that Westminster Press's acquisition of it would be unlikely to be detrimental to readers and that there would be effective constraints on Westminster Press's ability to increase advertising rates from three factors:

(a) the newspapers concerned are also distributed in surrounding areas where there is competition; regular advertisers with knowledge of competitive rates would resist the imposition of differentially higher rates applicable only to one part of the circulation area;

(b) the possibility of new market entry, for free newspapers in particular, from entrepreneurs or from other adjacent newspaper groups is strong; and

(c) alternatives to local newspapers as channels for advertising are available.

For these reasons we do not believe that Westminster Press would be able to create a zone of high advertising rates in an area as small as Devizes, which represents 0.4 per cent of Southern's total circulation. We received no representations from readers or advertisers in Devizes.

In relation to the special criteria and in relation to employment and other matters we come to the same view as for the other three applicants. The majority of us conclude that the transfer to Pearson of Southern's newspapers may be expected not to operate against the public interest.

One member of the group, Mr J D Keir, takes a different view in relation to the effect in Devizes and the Vale of Pewsey of a possible acquisition of Southern by Pearson. He considers that, in those areas, the effect of such an acquisition would result in a loss of competition and of choice for both readers and advertisers which could be expected to operate against the public interest. He considers that a remedy for this would be a requirement, in any consent which the Secretary of State thought fit to grant to Pearson, that Pearson should dispose of one of the two weekly free titles distributed in those areas. In all other respects he concurs with the conclusions of the majority.

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