July/August 2018 UK Competition Law Newsletter —

Highlights

——Secretary of State accepts undertakings in Fox/Sky

——CMA provisionally clears SSE Retail/ in Phase 2

——CMA publishes final report on market study into domestic heat networks

——High Court rejects jurisdictional challenge to power cables cartel damages claim

Fox/Sky TIMELINE

15 December 2016 On 12 July, the newly appointed Secretary of State for Digital, Culture, Fox announces its intention to Media and Sport (DCMS), MP, announced the acquire the shares in Sky not already owned by Fox and its acceptance of undertakings given by 21st Century Fox (Fox) and affiliates. (Disney) that Fox would divest Sky 3 March 2017 Fox notifies the European News to Disney as a condition of its acquisition of Sky, clearing the Commission of the proposed way for Fox’s bid to be put to Sky’s shareholders. transaction. 16 March 2017 The Secretary of State’s decision is the culmination of what he termed Secretary of State, Karen Bradley, issues European Intervention a “scrupulously clear, fair and transparent process” of review, and one Notice. that The considered would be “the first major test of 7 April 2017 UK media regulation since became prime minister.”1 The European Commission approves the transaction. decision, which has its genesis in a European Intervention Notice 29 June 2017 issued by the former Culture Secretary, Karen Bradley, on 16 March publishes report on media plurality and broadcasting 2017, clears the way for Sky shareholders to consider competing standards. offers for the company that have been made by Fox and , 14 September 2017 and which have both satisfied their regulatory pre-conditions. Secretary of State announces deci- sion to refer Fox/Sky to CMA for Phase 2 investigation on grounds We consider the background to the investigation, the CMA’s role of media plurality and commitment in reviewing the transaction on media plurality grounds, and the to broadcasting standards. Secretary of State’s decision. 14 June 2018 Secretary of State, , publishes CMA Phase 2 report Background (issued on 1 May 2018). 12 July 2018 On 15 December 2016, Fox made a public offer for the 61% of Sky that Secretary of State, Jeremy Wright, it did not already own. The Sky business includes , one accepts undertakings relating to the divestment of Sky News.

1 Financial Times, Murdoch’s Fox returns to Sky with post- vote approach, 9 December 2016.

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of only three providers of wholesale TV news, at amount to significant corporate failure, alongside the BBC and ITN, in the UK. The […] the overall evidence available to date does not offer was pre-conditional on the UK Secretary provide a reasonable basis to conclude that if Sky of State’s not intervening in the merger on public were 100% owned and controlled by Fox, it would interest grounds, or intervening but allowing the not be fit and proper to hold broadcast licences.” transaction to proceed on terms satisfactory to Fox. Ofcom’s decision in respect of the “fit and proper European Intervention Notice and person” test was the subject of judicial review by Ofcom Review the Avaaz Foundation, which argued that Ofcom had erred in law, acted irrationally, failed to As it met EU Merger Regulation (EUMR) juris- take account of earlier findings in respect of dictional thresholds, the transaction was notified James Murdoch, and that its assessment of Fox’s to the European Commission on 3 March 2017. purported governance failings in connection Even in respect of transactions that are subject to with allegations of inappropriate conduct was the Commission’s exclusive jurisdiction, Member inadequate. The High Court rejected these allega- States are empowered under Article 21(4) of the tions, dealing with the grounds of challenge “more EUMR to apply their respective national laws to shortly” than usual because the issues had been protect “legitimate interests,” which include media rendered academic by the time of the hearing. plurality. In the UK, this power is exercised by the Secretary of State under Chapter 2 of the Enterprise The CMA’s Report Act 2002 through the issuance of a European Karen Bradley, then Culture Secretary, stated Intervention Notice, which triggers a Phase 1 initially that she would refer the transaction to review by Ofcom, the broadcasting regulator. the CMA only on media plurality grounds, in On 29 June 2017, Ofcom published its advice to accordance with Ofcom’s advice. In September the Secretary of State in respect of two public 2017, however, she decided to refer the transaction interest considerations: whether the transaction to the CMA for a Phase 2 review to assess the com- would “result in insufficient plurality in the number mitment of Fox and Sky to broadcasting standards of persons with control of media enterprises in the as well as the impact of the transaction on media UK;” and whether Fox and Sky would “remain plurality. The CMA’s review was limited to these genuinely committed to broadcasting standards.” two questions of public interest. Ofcom advised that the Secretary of State refer the With respect to media plurality, the CMA transaction to the CMA for a Phase 2 investigation examined whether the Murdoch Family (via the in respect of media plurality, “as a result of the risk Murdoch Family Trust (MFT)) would, by virtue of increased influence by members of the Murdoch of the transaction, exercise a heightened degree Family Trust over the UK news agenda and the of control over the UK’s and, if so, political process, with its unique presence on radio, whether such control would raise public interest television, in print and online.” While Ofcom found concerns. The figure below provides an overview “serious and disturbing” allegations of harassment of the MFT’s media holdings, showing its interest at Fox News, and considered there to be “signifi- in Fox (and, through Fox, Sky and Sky News) and cant failings of corporate culture,” it found there a similar stake in News Corp, which controls UK to be no clear evidence that senior executives at including and . Fox had been aware of these issues. Accordingly, Ofcom identified no grounds for a reference in The CMA used as its analytical starting point respect of broadcasting standards. Ofcom’s definition of media plurality: first, ensuring diversity in the viewpoints available and consumed On the same day, Ofcom published its decision on across and within media enterprises; and, secondly, the distinct question as to whether, following the preventing any one media owner having too much proposed merger, Sky would be a “fit and proper influence over public opinion and the political person” to hold a broadcasting licence. Ofcom agenda. The CMA went on to identify a number concluded that although “the behaviours alleged of concerns.

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Murdoch Family Trust

38.9% 39.4%

21st Century Fox News Corp

39.14% News UK Various • The Times Australian media (37.19% voting rights) • companies • The Sun • The Sun on Sunday • The Scottish Sun Sky • 18 UK radio stations

Harper Collins

——The transaction could reduce the indepen- to select the same stories and issues to be pre- dence of Sky News. The CMA was concerned sented on Sky News, leverage Sky News’ highly that the transaction could allow the MFT to trusted position, and access different customer exert its influence (even indirectly) to increase groups. The combined group’s unmatched the editorial alignment between the positions cross-platform presence across newspapers, TV, and story selection of Sky News and News Corp online and radio would provide the MFT with titles following the transaction, resulting in a a “unique position from which to influence the single media owner having too much influence news agenda.” over public opinion. For example, the CMA ——No other provider could mitigate or moderate considered that the MFT could, via Fox, have the MFT’s increased influence. The BBC and a greater ability to set the strategic direction, ITN have no presence and face limi- commercial objectives, and budget of Sky News, tations in their ability to counter positions put and more easily influence the appointment of forward by News Corp and Sky News – the BBC senior staff. is under particular pressure to provide impartial ——Increased editorial alignment would news coverage, and there is a commercial need materially reduce the diversity of viewpoints for ITN to reflect the preferred approaches of consumed by the public. The CMA found that ITV, , and Channel 5. The CMA found the combined titles of Sky News and News Corp that other providers were unlikely to achieve the reached 31% of adults in the UK and accounted same reach and share of consumption as News for at least 10% of total news consumption. Corp/Sky News. The merged entity would on these metrics be The CMA concluded that the transaction would the third most significant news source behind result in an insufficient plurality of persons with the BBC and ITN, with significantly higher control of the media and would, on the balance of reach and consumption than the fourth largest probabilities, operate against the public interest. provider. The CMA further found that around In making its assessment, the CMA noted that a third of the combined group’s customers concerns relating to media plurality “may arise at consumed only between one and three sources lower levels of concentration than would be considered of news, and so were relatively reliant on each problematic in the context of a competition assessment”. individual news source. This is due to the fact that media plurality () “goes ——Increased alignment would also increase to the of our democratic process” such that the MFT’s influence over public opinion and parliament has attached “considerable importance” the political agenda. The CMA considered to its preservation, (ii) is not subject to continual that the MFT’s already significant influence regulatory scrutiny, and (iii) once lost, may be through its News Corp titles would be difficult or impossible to restore. strengthened post-transaction by the abilities

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With respect to broadcasting standards, the CMA The Secretary of State’s Decision examined Sky’s and Fox’s past compliance in the In a statement of 4 June 2018, the Secretary of State UK (including, in Sky’s case, benchmarked against accepted the substantive findings of the CMA, but comparable UK broadcasters) and elsewhere, as considered that there were “some important issues well as their and News Corp’s wider regulatory on the draft undertakings” that required further compliance and corporate governance. The CMA discussion with the parties. At the same time, the considered that Sky, Fox, and the MFT had a Secretary of State announced his conclusion that genuine commitment to adhering to broadcasting the rival bid for Sky by Comcast would not raise standards objectives. public interest concerns. These undertakings Remedy Recommendation were published on 19 June 2018 and finalised, with minor amendments following public consultation, To address its media plurality concerns, the CMA on 12 July 2018. considered three remedy approaches: prohibition of the transaction; structural remedies (the spin- Conclusion off or divestiture of Sky News); and behavioural The case demonstrates the difficulties faced by remedies (to “insulate Sky News from the MFT’s the CMA in seeking to measure “sufficient” media influence”). The CMA concluded that the most plurality using a set of analytical tools very differ- proportionate effective remedy would be the ent to those used in exercising its competition law divestiture of Sky News to Disney or another functions. The CMA’s wide-ranging analysis had suitable purchaser independent of the MFT. The regard for quantitative evidence of the influence CMA found that prohibition would have been a of media sources over public opinion and the more intrusive (and so less proportionate) remedy political agenda, as measured by readership or than divestiture. The CMA also considered the viewing figures, as well as a variety of qualitative possibility that prohibition could ultimately lead factors. These included the effect on plurality to the closure of Sky News as a means to ensuring of an ability to exercise influence across various clearance of a subsequent Fox/Sky acquisition platforms, the disproportionate influence of more“ attempt, which would also result in a loss of media trusted” news providers on public opinion, the plurality. nature of a news provider’s audience (and whether The CMA, in considering divestiture, noted combining multiple providers might increase the that the sharing of resources between Sky and demographic scope of a provider’s audience), and Sky News, as well as the fact that the Sky News the interaction of various platforms – TV, online, business was loss-making, “would necessitate print, and radio – in setting the news agenda. In the identification of a suitable, well-resourced examining, in particular, the MFT, the CMA and committed purchaser.” The CMA therefore set out what it considered to be evidence of the examined Disney’s incentives and ability to Trust’s influence on the political agenda, including maintain the business. The CMA determined that through the findings of the , data Disney – which has significant experience in news on direct contact between NewsCorp representa- broadcasting through its ownership of ABC News tives and minsters, and qualitative evidence from in the US, but does not broadcast news in – those involved in political decision making. would be a suitable purchaser. Although the CMA The transaction attracted significant public and did not require a financial commitment from political attention. The CMA and the DCMS Disney, the undertakings given by Disney and received a large number of comments from promi- Fox provide that Fox would make funds available nent commentators, NGOs, and parliamentarians. to ensure that operational investment would be As well as the complexity and novelty of the maintained at levels comparable to those prior to substantive analysis outlined above, the case had the transaction. The CMA noted Disney’s offer to many unique features, including the prominent acquire Fox, which would remove media plurality individuals and businesses concerned, and the concerns over Sky, but could not assume that this number of parties involved. It also highlights the transaction would complete.

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interplay between competition law and political in the UK under security and invest- considerations, which is likely to become an ment regime proposed by the Government on 24 increasingly prominent feature of merger review July 2018.2 Judgments, Decisions, and News

Court Judgments Market Review Into Card-Acquiring Services. On 24 July, the Payment Systems Regulator (PSR) ASDA, Arcadia and others v MasterCard. published draft terms of reference for a market On 5 July, in a joint appeal from three different review into the supply of payment card-acquiring first instance judgments, the Court of Appeal services in the UK. The PSR expressed concerns ruled that multilateral interchange fees (“MIFs”) that the reductions made by acquiring banks charged by MasterCard and Visa to UK retailers from the interchange fee caps introduced by the on debit and credit card transactions had an Interchange Fee Regulation had not been passed adverse impact on competition. The defendants on to smaller merchants. It also expressed concern have an opportunity to persuade the CAT that the over a general lack of transparency surrounding MIFs should benefit from exemption. If the MIFs fees. The PSR intends to issue final terms of refer- cannot be justified, UK retailers will be able to ence by the end of the year. pursue their various follow on damages claims. Heat Networks Market Study. On 23 July, the Vattenfall v Prysmian and NKT. On 4 July, the CMA published its final report on its market study High Court dismissed jurisdictional challenges into domestic heat networks. The CMA found that brought by Prysmian and NKT following a cartel due to a lack of information about potential heating damages claim by Vattenfall AB. The defendants solutions, frequency and access to bills and pos- sought to have the claim struck out on the basis sibilities for consumer redress, some consumers that non-UK domiciled defendants could not be were not receiving adequate value for money from sued in the High Court and that their UK-based their providers. Amongst other concerns, the CMA subsidiaries should not have been recognized found that the ability of consumers to switch to an as “anchor defendants” since neither of them was alternative heating network was very limited. The an addressee of the Commission’s infringement CMA has recommended that the heat network decision, neither sold the cartelized products sector be regulated by an appointed public sector to the claimant directly and therefore neither regulator as well as the introduction of new “knowingly implemented” the cartel. The court cited “principles-based” guidance. examples of modest indirect supply by the compa- nies (among other factors) as arguably amounting Consultancy Market Investigation. On 18 July, to implementation of the cartel, and found that the CMA published its provisional findings in its the claim had a “reasonable prospect of success.” market investigation into investment consultancy services and fiduciary management services. In Antitrust/Market Studies particular, the CMA has concerns with the low Parcel Delivery Services Market Investigation. level of engagement by customers of pension On 13 August, Ofcom opened an investigation schemes in monitoring their providers, and the under the Competition Act 1998 in relation to difficulties they face in evaluating the quality of suspected market sharing and customer allocation providers. The CMA has also expressed concern arrangements between operators in the business over the incumbency advantage of management parcel delivery sector. firms, and the fact that investment consultants typically steered customers towards their own fiduciary management providers. The CMA will

2 See https://www.clearygottlieb.com/-/media/files/alert-memos-2018/uk-government-proposes-national-security-and-investment-regime.pdf.

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consult on its provisional findings before issuing Vanilla Group/Washstation . On 10 August its final report. 2018, the CMA published provisional findings in its Phase 2 investigation into the completed Investment Platforms Market Study. On acquisition by Vanilla Group Ltd of Washstation 16 July, the Financial Conduct Authority (FCA) Ltd. The CMA has provisionally concluded that published its interim report on its market study the merger has resulted, or may be expected to into the market for investment platforms. The result, in a substantial lessening of competition FCA found that there were barriers to switching in the market for the supply of managed laundry platforms – particularly because of a lack of clear services to higher education customers in the UK. information available to consumers. The FCA has proposed monitoring developments during Experian Limited/Credit Laser Holdings. the implementation of MiFID II and left open On 31 July, the CMA referred the acquisition by the possibility of introducing new guidance if Experian of Credit Laser Holdings for a Phase 2 necessary. The FCA is due to publish its final investigation. The CMA found that the parties conclusions in the first part of 2019. were two of the largest credit-score checking services in the UK, and that the merged entity Merger Developments might be less likely to innovate in providing credit PHASE 2 INVESTIGATIONS check services to consumers.

Motor Fuel Group/MRH. On 31 August, the CMA Ausurus Group/Metal & Waste Recycling. announced that it would refer the acquisition by On 19 July, the CMA published supplementary Motor Fuel Group of MRH for a Phase 2 investiga- provisional findings that the transaction between tion unless acceptable undertakings in lieu of two recycled metal processors would not result reference are offered. The CMA has identified in a substantial lessening of competition in the concerns at 29 locations where Motor Fuel Group market for the purchase of ferrous and non-ferrous and MRH are close competitors and where the metal in . The supplementary provisional acquisition could result in price rises for motorists. findings reversed the CMA’s earlier findings, as a result of additional evidence gathered following SSE Retail/Npower. On 30 August, the CMA the publication of provisional findings on 4 June. provisionally cleared the merger between SSE Retail and Npower. The CMA provisionally found PHASE 1 CLEARANCE DECISIONS that the merger was not expected to result in a Restore plc/TNT UK Limited merger inquiry. substantial lessening of competition in the supply On 16 August the CMA announced the clearance of electricity and gas to domestic customers in the of the acquisition by Restore plc of certain busi- UK. The CMA considered that the merger would nesses of TNT UK Limited. The CMA found that not impact the setting of standard variable tariffs, the parties were not close competitors and that the most common tariff in the UK. TNT did not impose a strong competitive restraint Menzies Aviation (UK)/Airline Services. On on Restore. The CMA found that a sufficient 14 August, the CMA announced that it would number of records management services provid- refer the completed acquisition by Menzies ers would continue to exist and compete with the Aviation of part of Airline Services for a Phase combined entity post-merger. 2 investigation. The companies both supply UK Moneysupermarket.com Financial Group airlines and airports with support services such Limited/Decision Technologies Limited. On as ground handling and de-icing of aircraft. The 7 August, the CMA announced the clearance of CMA has found the parties are close competitors the anticipated acquisition by Moneysupermarket. at London Gatwick and airports and com of Decision Technologies Limited and its the merger could reduce competition leading to subsidiaries. Moneysupermarket.com is a price higher prices and lower quality services. comparison website specialising in financial services, including mortgages, credit cards and

6 UK COMPETITION: MONTHLY REPORT JULY/AUGUST 2018

loans. Decision Technologies Limited provides Arla /Yeo Valley Farmers. On 11 comparison services in the broadband, mobile July, the CMA announced the clearance of the phone and television industries. acquisition by Arla Foods Limited of Yeo Valley Dairies Limited. The parties supply organic milk ION Investment Group/Fidessa. On 3 August, and organic butter. The CMA found that the the CMA announced the clearance of the acquisi- parties did not materially compete in the supply tion by ION Investment Group Limited of Fidessa of own-brand organic milk or butter and that, Group plc. ION supplies sell-side front office trad- where they supplies branded organic milk, they ing software for fixed income financial products would continue to compete with other suppliers and exchange traded derivatives, while Fidessa post-merger. supplies sell-side front office trading software for equities and derivatives. Flogas/Countrywide LPG. On 9 July, the CMA announced the clearance of the acquisition by Gardner Aerospace Holdings/Northern Flogas Consumer Limited of the LPG supply Aerospace. On 20 July, the CMA announced the business of Countrywide Farmers plc. Flogas and clearance of the acquisition by Gardner Aerospace Countrywide each supply LPG to consumers for Holdings of Northern Aerospace on competition heating, and to businesses for various applications. grounds. The parties produce fuselage and wing components, including for military applications. ONGOING PHASE 1 INVESTIGATIONS The Secretary of State for Business, Energy and Parties Decision due date Industrial Strategy had issued a public interest John Swire & Sons Limited/ 26 October intervention notice on 17 June on national security Simadan Group grounds, requiring the CMA to prepare a report on J Sainsbury PLC/ 19 October the competition and national security aspects of Asda Group Ltd (but fast track the proposed transaction. The report was delivered process requested) on 14 July, and the Secretary of State announced Post Office Limited/ 19 October his decision not to refer the merger to Phase 2 on Payzone UK Limited public interest grounds on 19 July. Stars UK/Sky Betting 18 October and Gaming Bain/Cordenons. On 19 July, the CMA announced Hempel Holdings/JWO 28 September the clearance of the acquisition by Bain Castle Water Holdings/ 19 September Investors LLC of Gruppo Cordenons S.p.A. Bain Invicta Water Limited is an internationally active private equity house. Gruppo Cordenons is a producer of fine and speciality paper products based in .

ATG Media/Lot-tissimo. On 12 July, the CMA announced the clearance of the acquisition by ATG Media Holdings of S.P.H. Softwarepartner GMBH & Co KG (trading as Lot-tissimo). The Parties both provide live online bidding auction platform services to auction houses and bidders. While ATG is active in the UK, USA, and Canada, Lot-tissimo is primarily active outside of the UK (in Germany, Austria, Switzerland and five other European countries). Given Lot-tissimo’s limited UK presence, the CMA found no competition concerns.

7 UK COMPETITION: MONTHLY REPORT JULY/AUGUST 2018

LONDON TEAM Maurits Dolmans Romi Lepetska London Office +44 20 7614 2343 +44 20 7614 2292 2 London Wall Place [email protected] [email protected] London EC2Y 5AU

Nicholas Levy Alexander Waksman +44 20 7614 2243 +44 20 7614 2333 [email protected] [email protected]

Romano Subiotto QC Wanjie Lin +32 22872092 +44 20 7614 2359 [email protected] [email protected]

Paul Gilbert Alexandra Hackney +44 20 7614 2335 +44 20 7614 2371 [email protected] [email protected]

David Little John Kwan +44 20 7614 2338 +44 20 7614 2293 [email protected] [email protected]

Richard Pepper Xuyang Zhu +32 22872181 +44 20 7614 2265 [email protected] [email protected]

Paul Stuart Shahrzad Sadjadi +44 20 7614 2207 +44 20 7614 2235 [email protected] [email protected]

John Messent Nina Fischer +44 20 7614 2377 +44 20 7614 2244 [email protected] [email protected]

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