March UK Ltd and the home shopping and home delivery businesses of GUS plc: A report on the merger situation
On 25 September 2003, the Secretary of State for Trade and Industry referred to the CC for investigation and report (under the merger provisions of the Fair Trading Act 1973) the acquisition of the home shopping and home delivery businesses of GUS plc (GUS) by March UK Ltd (March), a body corporate under the control of Sir David and Sir Frederick Barclay, who also control Littlewoods Ltd (Littlewoods). We were asked to report by 23 December 2003. Our terms of reference are at Appendix 1.1.
The last time that we or our predecessors considered home shopping was in 1997, when the Monopolies and Mergers Commission produced a report (Cm 3761) on the proposed merger between The Littlewoods Organisation plc and Freemans plc (a subsidiary of Sears plc).
Littlewoods, which was acquired by Sir David and Sir Frederick Barclay in November 2002, owns a number of subsidiary companies that operate principally in the areas of home shopping (including agency and direct mail order), home delivery and high street retailing.
GUS is a broadly-based retail and business services group, which, at the start of this year, controlled three major businesses: Experian, a large information services company; Burberry, a high street retailer (in which it had a controlling shareholding); and the Argos Retail Group, a business that incorporated catalogue retailing, home shopping—again including agency and direct mail order—and home delivery.
On 27 May 2003, GUS entered into a sale and purchase agreement with March—a newly incorporated UK company controlled by Sir David and Sir Frederick Barclay and under the Chairmanship of David Simons, who was also Chairman of Littlewoods. Under the agreement, March agreed to acquire, inter alia, all of the issued share capital of the GUS subsidiaries that made up its UK home shopping and home delivery businesses, in return for £550 million, which was paid partly in cash (£410 million) and partly in the form of convertible loan stock (£140 million) payable in three years.
Having established our jurisdiction in this case, we began our inquiry by analysing the operations of Littlewoods and March, and concluded that the parts of their businesses with the potential to give rise to competition concerns were home shopping and home delivery within the UK.
We then proceeded to examine both of these activities in detail. For home shopping, we concluded that the relevant economic market for our inquiry was a wide one in which the companies owned by Littlewoods and March were constrained by competition from other forms of home shopping and high street retailing; and that the geographic market should be the UK. For home delivery, we concluded that the relevant economic market for our inquiry was all UK-wide business-to-consumer (B2C) services delivering parcels in the weight range between 350 g and 32 kg—though we accepted that the degree of competition might vary at different levels within that range.
We then went on to consider whether the acquisition operates, or may be expected to operate, against the public interest. On home shopping, we considered:
(a) the implications for consumers, particularly those who were credit constrained;
(b) prices, particularly in agency mail order; and
(c) the longer-term prospects for the continuation of agency as a retail channel, given its rate of decline in recent years.
On home delivery, we looked at:
(a) the implications of the merger for customers, including those of Littlewoods’ and March’s home delivery businesses, Business Express Network Limited and Reality Group Limited;
(b) the prospects for others entering the B2C market from outside, or for those already within it expanding their operations; and
(c) the potential offered by the process of liberalization within the postal service that is now under way.
We also examined the synergies and other benefits that might be expected to result from the acquisition and from the eventual integration of Littlewoods and March, and to whom they might be expected to accrue.
On home shopping, we reached the unanimous conclusion that the merger situation that has been created may be expected to benefit customers and may not be expected to lead to a significant lessening of competition when compared with the expected alternative scenario, which is the former GUS businesses being wound down or otherwise ceasing to be effective competitors. On home delivery, four of us concluded that the merger cannot be expected to lead to a significant lessening of competition, by comparison with the expected alternative of a declining and disappearing Reality. Having regard to the benefits to consumers that we identified, we all concluded that the merger as a whole does not, and may not be expected to, operate against the public interest.
