Reed Elsevier Plc and Harcourt General, Inc: A report on the proposed merger

CORRECTION

Text of a letter received from Stephen Barr, Managing Director of Sage Publications Ltd about the inquiry into the merger of Reed Elsevier Plc and Harcourt General, Inc

I write to ask if you could correct an error in the published report of this Inquiry. The error in question is on page 58 of the full report, in table 4.1 relating to point 4.30. The footnote to this table states:

RE told us that Taylor & Francis had since acquired Gordon & Breach and Sage.

This may be a correct statement of what the inquiry was told by RE, but it is not a correct statement with respect to Sage, which remains an independent company and has not been acquired by Taylor & Francis. This report is likely to be read by a significant proportion of those involved at a senior level in the STM business and it is highly undesirable for Sage that this misrepresentation should remain in the report.

20 August 2001

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Summary

On 21 February 2001 the Secretary of State for Trade and Industry referred to the Competition Commission (CC) for investigation and report under the merger provisions of the Fair Trading Act 1973 the proposed acquisition of Harcourt General, Inc (Harcourt) by Reed Elsevier plc (RE). Here and elsewhere in this report 'Harcourt' and 'RE' are used to refer to the company and its subsidiaries, unless the context requires otherwise. Our terms of reference are at Appendix 1.1. We are required to report by 28 May 2001.

The CC began this inquiry with a Group of four members under the chairmanship of Arthur Pryor, but ill health forced Mr Pryor to resign after seven weeks. The remaining three members, Anthony Clothier, Dame Helena Shovelton and David Stark, completed the inquiry with Mr Clothier in the chair.

RE is an international company, jointly owned by Reed International PLC and Elsevier NV. Its principal activities include: publishing a variety of academic, legal, business, consumer, accountancy and tax titles; organizing exhibitions and seminars; producing materials for the study of English; and providing services for the travel industry.

Harcourt is a US holding company for a group of publishers that provide a range of titles and other products and services in the fields of education, training and assessment.

The proposed transaction, which is due to be completed later this year, will involve RE ac-quiring Harcourt and immediately selling on some of its businesses to The Thomson Corporation (Thomson). RE will retain Harcourt's science, technical and medical (STM) group, its education group and elements from its corporate and professional services group. Thomson will acquire the rest of that group and Harcourt's higher education group.

We began our task by analysing the operations of RE and Harcourt and concluded that the only parts of their businesses with the potential to give rise to competition concerns were their sales of STM journals-in both print and electronic formats-in the UK.

We then proceeded to examine the STM journal market in detail. Although we looked at a number of aspects-some of which seemed to us to present unusual character-istics-we identified only three that raised potential public interest concerns:

(a) arrangements for providing customers with access to electronic versions of STM journals;

(b) arrangements under which other access mechanisms would be able to establish links with RE's and Harcourt's electronic platforms; and

(c) the pricing of annual subscriptions to STM journals.

Two members of the Group, Mr Clothier and Dame Helena Shovelton, concluded that, while these aspects of the proposed merger did raise concerns, they did not have an expectation that it would operate against the public interest. As they form a majority of the Group constituted to consider this reference their conclusion is to be regarded as the CC's conclusion in this inquiry.

The third member, Mr Stark, whose minority position is set out in a supplementary note to Chapter 2, concluded that the proposed merger might be expected to operate against the public interest.

The Group then went on to record two final points. The first is that the current VAT regime for journals-which accords print versions a zero rating, but subjects contracts to receive journals electronically to the standard rate of 17.5 per cent-threatens to retard further progress in electronic delivery and dissemination of knowledge.

The second is that the inquiry has brought to light a number of features of the market for STM journals that are unusual and may benefit from further examination. Although they lie beyond the CC's terms of reference on the present occasion, if the Director General of Fair Trading believes that there are matters giving rise to wider concerns and are not being resolved, then he may wish to consider whether a wider review is necessary.

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