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ACCC knocks back PMP/IPMG merger

Wednesday, 09 May 2001
By Print 21 Online Article

It was always going to be a close call whether the ACCC would allow the two largest print companies to get together. Last year even IPMG went on record, as saying it did not think a merger would be allowed. Industry opposition was strong, especially from the magazine publishers who would have no other place to go for print or distribution.

When the third largest player in the heatset web market, Diamond Press put itself into voluntary liquidation the day after the proposed merger was announced, the grounds disappeared for claiming adequate competition in the sector.

The ACCC found that the $630m merger would contravene section 50 of the Trade Practices Act 1974 which prohibits mergers and acquisitions that will have the effect, or are likely to have the effect, of substantially lessening competition in a market.

“IPMG and PMP are the two largest commercial printers in Australia. They own the majority of heat set web presses in Australia,” said ACCC Chairman, Professor Allan Fels. “These presses are used to produce high volume magazines, newspaper inserts and retail catalogues. The merger of PMP and IPMG would give them more than 75 per cent of this market, worth in excess of $1.5 billion per annum.

“Market inquiries were conducted with a large number of customers with varying printing needs. These inquiries indicated that smaller printers using other printing processes such as sheet fed printing are unlikely to provide a competitive constraint to the merged parties.

“Inquiries also indicated that the potential for magazines, inserts and retail catalogues to be printed overseas is limited.

The ACCC also concluded that the proposed merger is likely to result in a substantial lessening of competition in the Australian market for distribution of magazines to retail outlets.

“Magazine publishers rely on distributors to manage the supply of their publications to the large number of retail outlets which sell magazines,” said Professor Fels. “The merger of the distribution businesses of IPMG and PMP would give the merged firm more than 50 per cent of the distribution market, with much of the remainder controlled by a subsidiary of Australia’s largest magazine publisher, ACP.

“The proposed merger raises significant concerns as to the ability of independent magazine publishers to secure competitive distribution”.

PMP has indicated that it will not seek to appeal the decision and resolved to cease all negotiations aimed at merging the two companies. It concluded that the concessions likely to be required to address the ACCC’s concerns would substantially reduce the value of the merger to shareholders. IPMG on the other hand was of the opinion that the deal could still be struck.

The failure throws the plight of PMP into harsh relief. The largest printing company in Australia is battling low share prices and falling profits. Its magazine stable is consistently under performing and only the printing division is making headway.
Its new chairman, Jim Donnelly, once of R.R. Donnelly in the USA, often touted as the largest printing company in the world, recognised this in a statement after the decision was made to go it alone.

“The Board is acutely aware of PMP’s unsatisfactory share price. The company continues to vigorously pursue the wide range of initiatives arising out of the Strategic Review completed earlier this year. The sale of the European publishing business is proceeding as planned, while the sale of property.com and closure of Pacific Intermedia have been announced as part of the rationalisation of the company’s loss making emerging businesses.”

As part of the interim 2001results announcement, the company disclosed that it would not pay an interim dividend.

Meanwhile IPMG is turning its attention towards Diamond Press, long a rival and a neighbour. Expressions of interest are still being sought under an extended negotiation period granted by creditors and neither the administrators nor IPMG would comment.

The acquisition of Diamond Pres would be in keeping with the vigorous growth strategy employed by IPMG in recent years. Its Sydney/Melbourne axis would complement the company’s activities and the strong skill based of the Diamond Press team would be welcomed by any printing company.

However, interest in acquiring Diamond Press remains high in the industry and a tussle for control is on the cards.

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