Following a reference from the OFT to the Competition Commission, Getty Images has abandoned its acquisition of Rex Features. In a deal that looked to form an editorial superpower, where did it all go wrong? Zoe Hare reports.
Who: Getty Images Ltd and Rex Features Ltd
When: 21 July 2010
Where: Office of Fair Trading and Competition Commission
Law stated as at: 27 August 2010
On 8 July 2010, the Office of Fair Trading ("OFT") announced that it had decided to refer the acquisition of Rex Features Limited ("Rex") by Getty Images ("Getty") to the Competition Commission ("CC"). However, shortly after on 21 July it was announced that the acquisition had been abandoned and thus the CC's investigation was no longer necessary.
Getty and Rex are two of the largest suppliers of photographic images for editorial use by publications in the UK.
Under UK merger control, the OFT may claim jurisdiction to investigate a merger where:
(a) the target's turnover exceeds £70 million; or
(b) as a result of the transaction and considering the newly merged companies, in relation to the supply of goods or services, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
While Rex's turnover did not satisfy the £70 million threshold, the OFT considered that, post-merger, the parties would have a combined share in the UK of more than 25 per cent in the supply of archive images.
"Substantial lessening of competition" risk
Having investigated the merger, the OFT considered that there was a realistic prospect that the merger may result in the substantial lessening of competition within the market in the UK, on the following basis:
(a) Getty and Rex are close competitors;
(b) Getty has significant market power in the supply of both archive and current editorial images;
(c) the exit of Rex, an independent competitor, from the market could enable Getty to increase its prices for customers; and
(d) the OFT received a number of concerns from third parties, including key publishers and customers, regarding the impact of the transaction.
Where the OFT considers there to be potential for the lessening of competition, under UK law, the OFT has a statutory duty to make a reference to the CC for further analysis. Accordingly, on 8 July, the merger was referred.
The process of investigation by the CC is a lengthy one. The CC is given a 24 week statutory deadline within which to investigate, analyse and report on the merger. Therefore, in this case, the deadline was set at 23 December 2010.
However, on 21 July it was announced that the proposed acquisition had been abandoned. The CC has therefore stopped its investigation, having received assurances from Getty that the transaction will not be going ahead. A spokesperson for Getty said:
"Given the distraction that this next phase could potentially bring to both Getty Images and Rex Features and the parties' desire to focus their business resources on the production and delivery of high-quality services to their customers, we have decided not to pursue this acquisition any further."
Why this matters:
The OFT’s initial investigation raised concerns over whether the transaction would lessen competition in the market. It considered that there may not be sufficient constraint from existing agencies or new entrants into the market to replace the loss of a competitor, and thus Getty would be able to extend its already strong market position.
However, in the end, Getty decided to pull out of the deal rather than face a long and in-depth investigation by the CC. A spokesperson for Rex stated:
"Although the [CC] may ultimately have cleared the deal, we feel that the six- to eight- month process… would be too disruptive and unsettling for our loyal staff and suppliers who have already had to endure weeks of uncertainty."
This outcome is becoming increasingly more common. Parties wishing to merge are often unaware of the considerable delay and uncertainty a merger notification can cause.
As this case demonstrates, the OFT remains active is all sectors and is committed to the preservation of competition and fair prices for consumers. Companies wishing to join forces with competitors need to be aware that deals which benefit them may not benefit consumers and, in those circumstances, the competition authorities are not afraid to investigate.
Osborne Clarke, London