Summary of transaction: | (i) The names of the merger parties: Times Publishing Limited (“TPL”) as the acquirer. TPL is a wholly-owned subsidiary of Fraser and Neave, Limited (“F&N”). Penguin Random House Limited (“PRH”) as the vendor of the Penguin Group Companies (as defined below). PRH is a joint venture between Bertelsmann SE & Co. KGaA (“Bertelsmann”) and Pearson Plc (“Pearson”), with respective shareholdings of 53 per cent. and 47 per cent.; and
Penguin Random House Pte. Ltd. and Penguin Books Malaysia Sdn. Bhd. (the “Penguin Group Companies”) as the Target,
(collectively, the “Parties”). (ii) A description of the transaction:
This sole notification by TPL, a wholly-owned subsidiary of F&N, relates to: the proposed acquisition by TPL of the entire issued and paid-up capital of each of the Penguin Group Companies, which are wholly-owned subsidiaries of PRH ( the “Proposed Acquisition”); and upon completion of the Proposed Acquisition, the entry into an exclusive distribution agreement by the Penguin Group Companies with Penguin Books Limited, The Random House Group Limited, Dorling Kindersley Limited and Penguin Random House LLC (the “Publishers”), subject to the terms and conditions of the distribution agreement to distribute the English books titles (in physical format) published by the Publishers (or its subsidiaries) or in which the Publishers control rights, and products containing the Publishers’ brands in Singapore, Malaysia and Brunei,
(the “Proposed Transaction”)
(iii) A description of the business activities of the merger parties worldwide and in Singapore:
TPL, an Asian-based media company, is active worldwide in the publishing, printing, distribution and retail services through its subsidiaries. The PRH group of companies (“PRH Group”), a joint venture between Bertelsmann and Pearson, is a global trade book publishing group. The Penguin Group Companies were formed in 2013 following the formation of the joint venture between Bertelsmann and Pearson. The Penguin Group Companies provide sales and marketing services for the international lists they currently represent, i.e., the lists of Penguin Australia, India, US and UK as well as several other prominent English-language publishers.
(iv) A description of the overlapping goods or services, including brand names:
TPL (through Pansing and Pansing Malaysia) and the Penguin Group Companies overlap only in the provision of marketing and distribution of English-language trade books via physical platforms in Singapore and Malaysia. (v) A description of substitute goods or services:
TPL submits that from a demand-side perspective, in light of recent developments in industry practice, publishers have the following alternative options to engaging integrated distributors and marketers: readily accessible online book sales platforms such as Amazon and The Book Depository; UK and US book wholesalers, who have accounts with the major book retailers, and actively solicit their business; tying-up with a third party logistics provider (“3PL””) for the full marketing and distribution services; and/ or carrying out the marketing function in-house, and engaging a 3PL for the distribution function.
(vi) The applicant’s views on:
a. the definition of the relevant market(s);
TPL submits that the relevant market for the Proposed Transaction is the intermediary market for marketing and distribution of English-language only print trade books via physical and online platforms globally. In any event, the relevant market is no narrower than the intermediary market for marketing and distribution of English-language only print trade books via physical platforms in Singapore and Malaysia.
b. the way in which competition functions in this market;
TPL submits that the relevant market is highly competitive, in view of the multitude of vertically-integrated publishers, independent distributors, online platforms and overseas wholesalers.
c. barriers to entry and countervailing buyer power; and
TPL submits that barriers to entry and expansion are low and declining. Requirements to obtain the necessary distribution rights are not unduly restrictive or prohibitive. The cost of entry is also low as publishers have the following options: tying-up with a 3PL for the full marketing and distribution services; or carrying out the marketing function themselves, and engaging a 3PL for the distribution function.
In addition, there is a credible threat posed by online book sales platforms which are not bound by territorial limits. Apart from supplying books directly to end-customers, they can also supply to retailers and dealers located in Singapore and Malaysia as an alternative to physical distributors.
With respect to countervailing buyer power, publishers and retailers/dealers have strong bargaining power relative to distributors, as publishers hold the publishing rights to the trade books, and for retailers and dealers, the sale of trade books typically constitutes only a part of the products sold. Accordingly, publishers and retailers/dealers are able to exercise strong countervailing buyer power and impose downward pressure on pricing and terms. d. the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).
Non-coordinated effects
TPL submits that non-coordinated effects will not arise as a result of the Proposed Transaction because of the following reasons: the market is highly competitive, in view of the multitude of vertically integrated publishers, independent distributors, online platforms and overseas wholesalers. distributors are essentially the “middle-men” between publishers and retailers/dealers, who are able to exercise strong countervailing buyer power and impose downward pressure on pricing and terms; the ability of publishers and retailers/dealers to switch easily to other integrated distributors and marketers; publishers and retailers/dealers are also able to, and do, procure (i) marketing and distribution services; and (ii) English-language trade books, respectively, from more than one supplier; barriers to entry and expansion are low and declining; and the presence of major publishers who are able to, or can credibly threaten to internalise demand by establishing their own operations.
Coordinated effects
TPL submits that the characteristics of the relevant markets preclude the possibility of anti-competitive coordinated effects, as: there are numerous competitors of varying sizes, including vertically integrated publishers, independent distributors, online platforms and overseas wholesalers, such that the merger entity will not be able to align or coordinate its behaviour with competitors post-Proposed Transaction; there are strong pressures placed from the upstream and downstream players constraining the margins that distributors can make on the sale of each trade book, which would make it extremely difficult for the merged entity to monitor compliance with any coordinated activities; barriers to entry and expansion are low and declining. Any coordinated behaviour may be easily disrupted by an opportunistic new entrant, in particularly 3PLs; publishers and retailers/ dealers have strong bargaining power relative to distributors, and are able to exercise strong countervailing buyer power and impose downward pressure on pricing and terms in response to any observed coordinated behaviour.
Vertical Effects
TPL submits that the Proposed Transaction does not give rise to any vertical concerns, as: TPL will not gain, through the Proposed Transaction, any market power in the upstream market for the acquisition of publishing rights for English-language only print trade books which it can leverage on downstream; similarily, TPL will not gain, through the Proposed Transaction, any market power in the downstream physical book retail space as there remain a multitude of larger competitors in the downstream retail space and market foreclosure effects are not likely; within the intermediary space for marketing and distribution services, the Proposed Transaction does not inhibit the ability of other publishers and retailers/ dealers to switch freely and easily to other distributors without any significant switching costs; publishers and retailers/ dealers overall will continue to be able to exercise strong countervailing buyer power and impose downward pressure on pricing and terms; there remains the presence of major publishers who are able to, or can credibly threaten to, internalise demand by establishing their own operations; and barriers to entry and expansion continue to be low and declining.
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