Bundeskartellamt issues warning letter in Holtzbrinck / Berliner Verlag merger case

According to the Bundeskartellamt’s current evaluation the planned acquisition of control of Berliner Verlag KG, Berlin (publishing among others the daily newspapers Berliner Zeitung, Berliner Kurier and city magazine Tip) by Holtzbrinck KG, Stuttgart, (publishing the daily newspaper Tagesspiegel, city magazine Zitty and others) notified on 10 October 2003, will lead to the creation of a dominant position held by Holtzbrinck in the reader market for regional subscription dailies in Berlin as well as in the Berlin reader market for city magazines. Accordingly on 18 December 2003 a warning letter was issued to the parties concerned.

The President of the Bundeskartellamt, Ulf Böge stated: "The warning is not a final decision. However based on the current stage of its examinations the Bundeskartellamt assumes that the shares in Tagesspiegel which are to be sold to Dr. Gerckens by Holtzbrinck can still be classified as belonging to Holtzbrinck. The effects on competition of this particular case largely correspond to those of the merger project examined and prohibited by the Bundeskartellamt in 2002 (see press releases of 22 November and 12 December 2003.) The allocability of Tagesspiegel is determined on the base of the economic assessment of the purchase contract concluded between Holtzbrinck and Dr. Gerckens and in consideration of all the circumstances of the case.”

The arrangement of a call option in itself showed that there were no plans to permanently split Holtzbrinck from Tagesspiegel. With the call option Holtzbrinck had secured for itself the opportunity to reacquire 75 per cent of the shares in Tagesspiegel by 31 December 2006 should a reform of the media merger control result in a change in the legal framework. Furthermore, according to Böge, the purchase price to be paid by Dr. Gerckens to Holtzbrinck, which in addition involves long-term instalments up to 1 October 2008, was not a real payment in return for the transfer of shares in Tagesspiegel but precisely serves to allow for the retransfer of the shares to Holtzbrinck through the call option facility. In the event of the sale of Tagesspiegel by Dr. Gerckens to a third party Holtzbrinck, although formally no longer its owner, would continue to have a share of the proceeds from the sale over a period of 10 years after expiry of the call option.

Within the framework of ministerial authorisation proceedings Bauer Verlag had offered a purchase price of 20 million euro for Tagesspiegel and had guaranteed to continue operating the newspaper for 20 years. Dr. Gerckens is to pay a considerably lower purchase price for a larger and also debt-free object (in contrast to the ministerial authorisation proceedings this also involves Zitty Verlag GmbH and a 40 per cent stake in Zweite Hand Verlag GmbH) without having to calculate in the value of a guarantee to continue operations.

Within the terms of the purchase contract Dr. Gerckens runs no economic risk as regards the acquisition of shares in Tagesspiegel. The price which Dr. Gerckens could achieve by selling his shares to Holtzbrinck or a third party is many times higher than the purchase price which he has to pay Holtzbrinck.

According to Dr. Böge the factors which also speak in favour of classifying Tagesspiegel as still belonging to Holtzbrinck are the circumstances, i.e. the close sequence of events between Holtzbrinck’s withdrawal of application for ministerial authorisation and the sale of its shares in Tagesspiegel to Dr. Gerckens, the background which led to the acquisition, Dr. Gerckens’ close professional and personal connections with Holtzbrinck and the von Holtzbrinck family and the planned cooperation between Dr. Gerckens and Holtzbrinck in the areas of advertising and editorial content.

At the current stage of examination by the Bundeskartellamt the project would not be eligible for approval even if Dr. Gerckens’ shares in Tagesspiegel were not classified as still belonging to Holtzbrinck  because it would create a joint dominant position held by Holtzbrinck (then Berliner Zeitung) and Dr. Gerckens (Tagesspiegel) in the reader market for regional subscription dailies in Berlin. In view of the common interests documented in the purchase contract and which are clear from the overall circumstances no internal competition is expected between these two companies.  From Holtzbrinck’s point of view it would not make good business sense to compete against Tagesspiegel with Berliner Zeitung during the call option period. Holtzbrinck would then be taking competitive measures against a company in which it plans to invest. On the other hand neither does Dr. Gerckens have any interest in entering into competition against the Berliner Zeitung with Tagesspiegel. If the call option is exercised Dr. Gerckens is to be involved in a merged Berlin newspaper concern. The economic interests of Dr. Gerckens and Holtzbrinck would exclude substantial internal competition even after expiry of the call option because the proceeds expected from a sale to a third party would thus be reduced, to Holtzbrinck’s disadvantage. Finally, it is unlikely that its sole competitor, Axel Springer AG with Berliner Morgenpost can effectively restrict the scope of action of the Holtzbrinck / Dr. Gerckens duopoly.

The companies have until 13 January 2004 to comment on the matter before a final decision is made.