Competition Bureau statement regarding the acquisition by Transcontinental of Quebecor Media’s community newspapers in Quebec
OTTAWA, May 28, 2014 — The Competition Bureau announced today that, following an extensive review of Transcontinental Inc.’s (Transcontinental) proposed acquisition of Quebecor Media Inc.’s (Quebecor Media, and together with Transcontinental, the Parties) community newspapers in Quebec, it has reached a Consent Agreement with Transcontinental aimed at preserving competition in the sale of advertising in community newspapers in several areas in Quebec by requiring the implementation of a sale process for 34 local community newspapersFootnote 1.
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Pursuant to a Share Purchase Agreement entered into and announced on December 5, 2013, Transcontinental agreed to acquire all of Quebecor Media’s 74 community newspapers in Quebec, including web, mobile and printed formats, as well as regional offices and pre-press hubs located in Rimouski, Saint-Georges and Val-d’Or (the Proposed Transaction). On December 9, 2013, Quebecor Media also announced that it was ceasing door-to-door distribution of community newspapers and flyers in Quebec.
The vast majority of the Parties’ community newspapers in Quebec are free weeklies that are distributed door-to-door. They generally include local and regional news and advertising, as well as limited national advertising. Since 2009, the Parties have engaged in aggressive direct competition, including launching or acquiring newspapers in certain local markets in Quebec where the other Party was the historical incumbent. In 2009, Quebecor Media also established a province-wide door-to-door distribution network to deliver its newly created Sac Plus bag (which contains newspapers and flyers) to doorsteps in direct competition with Transcontinental's network and associated Publisac bag.
Many of the Parties’ Quebec community newspapers have faced serious financial difficulties in recent years. This is consistent with the general decline in the print newspaper industry in Canada and in other parts of the world. Accordingly, the Parties submitted that a number of their community newspapers were effectively failing (particularly in areas already serviced by other community papers) and because of their lack of long-term sustainability, they should not be considered vigorous and effective competitors going forward. As a result, the Bureau’s analysis focused on assessing the extent and nature of competitive rivalry between the Parties’ operations and the extent to which any such loss in competition should be attributed to the merger. In particular, the Bureau considered whether, in the absence of the merger, business failure was probable and, the competing assets in question would have likely exited the market.
Part 13 of the Merger Enforcement Guidelines (MEGs) provides guidance as to how the Bureau approaches failing firms and failing division arguments. In the case of failure-related claims concerning a division or wholly-owned subsidiary of a larger enterprise, the Bureau assesses substantially similar factors to those analyzed in the case of a failing firm, while taking into account the specifics of the particular case at hand.
Ultimately, in the present case, the Bureau is satisfied that the Consent Agreement negotiated with the Parties provides for a potential remedy to be implemented in all local markets in which the Parties’ community newspapers compete to a significant degree.
The Bureau’s review assessed two main theories of harm:
- The potential enhancement of market power by Transcontinental in door-to-door distribution of third-party community newspapers and flyers; and
- The potential enhancement of market power by Transcontinental in the sale of advertising in community newspapers, which could lead to higher prices for advertisers.
In assessing these theories of harm, the Bureau conducted interviews with a large number of market participants, such as advertisers, flyer customers, independent newspaper owners and independent distributors. The Bureau also reviewed the Parties’ internal documents and retained financial experts to assist in assessing the financial viability of the Parties’ businesses.
Transcontinental has been involved in door-to-door distribution of community newspapers and flyers for over 30 years with its Publisac product, a bag that contains both community newspapers and flyers and is distributed door-to-door across the province on a weekly basis. In 2009, Quebecor Media launched a similar product, the Sac Plus, to compete against Publisac. Quebecor Media announced that it was ceasing its door-to-door distribution activities shortly after announcing that it intended to sell its Quebec community newspapers to Transcontinental and ultimately shut down its distribution network in January 2014. The Bureau examined this decision to exit the market in the context of its merger review.
Large retailers generally require door-to-door distributors with extensive networks that are able to distribute their flyers within a certain radius of each of their stores across the province, whereas independent newspapers generally require distribution over a particular set of area codes in a municipality or region. The Bureau concluded that the Parties were the only affordable options for national retailers, and in many cases, for independent newspaper owners who lacked alternative options.
The Bureau determined that barriers to entry in the door-to-door distribution business are significant due to the fixed costs associated with reaching each door in a region and the importance of reputation. While there are few physical assets required for distribution, costs related to contracts with distribution personnel must be incurred regardless of the volume of distribution business. Consequently, a minimum number of high-volume clients are essential for long-term viability. The Bureau analyzed the impact of Quebecor Media’s exit from distribution in accordance with Part 13 of the MEGs. After an extensive review of Quebecor Media’s internal documents and consultation with its financial expert, the Bureau concluded that Quebecor Media’s distribution network is in a state of financial distress, despite past strategic changes aimed at getting the business to a break-even level. The evidence also clearly indicated that there was no likely buyer for the distribution network (alone or in concert with the sale of certain newspapers) due to the network’s current financial state, high fixed costs, and the need for a strong reputation. Further, it was determined that liquidation was unlikely to spur or facilitate entry due to the limited assets available for sale. Therefore, the Bureau concluded that Quebecor Media’s exit from distribution was unlikely to result in a substantial lessening or prevention of competition as a result of the Proposed Transaction.
Sale of newspaper advertising
The Bureau assessed the degree of substitutability between newspaper advertising and other modes of advertising (radio, television, internet, out-of-home). The extent to which advertisers could switch to other modes of advertising in response to a change of the relative price of community newspaper advertising depends on several factors, including the nature of the products or services being advertised and the location and socio-demographic profile of the potential customers being targeted by the advertisements. Due to advertising needs and functionality differences between advertising media, many of the community newspaper advertisers contacted by the Bureau have indicated that they had limited ability to switch between media. As a result, for the purposes of the present merger review, the Bureau determined that the relevant market was comprised solely of advertising in community newspapers. However, the Bureau recognizes that the degree of substitutability between advertising in community newspapers and online advertising is evolving, particularly as technology and advertisers are becoming more effective in targeting consumers in specific geographic locations, and should be considered on a case-by-case basis.
The Parties’ community newspapers are generally distributed over a specific set of postal codes and include local or regional news and advertising, as well as some national advertising. The Bureau examined the degree of substitutability for advertisers between newspapers distributed in both overlapping and neighbouring areas. The Bureau determined that community newspapers distributed across similar geographic areas were in the same geographic market, as advertisers were more likely to substitute between them.
The Bureau concluded that the Parties were each other’s closest competitors in the areas where they both own a community newspaper. Since 2009, Transcontinental and Quebecor Media have engaged in aggressive competition for advertisers, entering markets where the other Party was the historical incumbent and cutting advertising prices. While a few independents remain in certain markets, Transcontinental and Quebecor Media own the only community newspapers in many of Quebec’s local communities and, as such, the Proposed Transaction may allow Transcontinental to have the only community newspaper(s) in numerous local markets.
In order to assess the financial viability of the Parties' newspapers in local markets, the Bureau carefully reviewed the Parties' financial statements, and retained the expertise of an accounting firm. The Bureau determined that at least one of the Parties' newspapers was in financial distress in the vast majority of markets where the Parties compete. These were typically the newspapers that had been launched in recent years.
Although the focus of the review was primarily on advertisers, the Bureau also considered the impact of the Proposed Transaction on the quality of the content offered to readers, a perspective that has been considered by foreign competition agencies. In the present case, the Consent Agreement provides the opportunity for third-party purchasers to acquire and operate a newspaper in each market where the Bureau concluded that Transcontinental and Quebecor Media compete against each other for readers and advertisers. As such, it offers an opportunity to remedy any potential competitive harm that may result from the Proposed Transaction.
The Consent Agreement provides a remedial framework to address any potential substantial lessening or prevention of competition in a number of local markets. It provides a remedial framework to address the specific circumstances of this case, including the fact that many of the overlapping newspapers are in financial distress. Under the terms of the Consent Agreement, an independent trustee has been appointed to immediately implement a specified sale process that will actively seek out interested potential buyers for the community newspapers. This sale process is to occur at no minimum price and any buyers are subject to prior approval by the Commissioner of Competition. The 34 community newspapers that must be offered for sale are the following:
- Chambly Express
- Chateauguay Express
- Édition Beauce Nord
- Express Rouyn-Noranda
- Express Val-d’Or
- Journal de Joliette
- Journal de Magog
- L’Echo du Nord
- La Voix de la Matanie
- La Voix Gaspésienne
- Le Courrier du Fleuve
- Le Courrier du Saguenay
- Le Journal de Saint-Hubert
- Le Point du Lac-Saint-Jean
- Le Progrès Écho
- Le Réveil
- Le Rimouskois
- Le Riverain
- L'Écho de la Rive-Nord
- L'Écho de Laval
- L'Écho de Repentigny
- L'Écho de Shawinigan
- L'Écho de Saint-Jean-sur-Richelieu
- L'Écho de Trois-Rivières
- L'Écho de Victoriaville
- L'Impact de Drummondville
- Point de Vue Laurentides
- Pub Extra Magazine
- Rive-Sud Express
- Roussillon Express
- Sorel-Tracy Express
- Vallée Richelieu Express
- Valleyfield Express
The Bureau recognizes that the newspapers to be offered for sale need support in order to maximize their viability. The Consent Agreement requires that Transcontinental supply distribution and printing services to any potential purchaser for a specified period, at terms and conditions equivalent to those provided to the newspaper to be sold prior to the Proposed Transaction. Following the completion of the sale period defined in the Consent Agreement, if no potential purchaser is identified for a particular paper, Transcontinental will be entitled to retain ownership of the newspaper.
In light of the financial distress of many of the newspapers to be offered for sale and the ongoing transformation of the community newspaper industry, the Bureau is satisfied that the sale process will market-test the potential economic viability of the divested newspapers, test the existence of a competitively preferable alternative to the Proposed Transaction, and provide for the opportunity for the implementation of any available remedy in all local markets in which the Parties’ community newspapers compete against each other.
The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.
This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.
However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.
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