Johannesburg - A merger between Primedia@Home and Paarl Media has been prohibited, the Competition Commission said on Wednesday.
"The commission found that this transaction would substantially lessen competition in the market for knock and drop leaflet distribution," it said in a statement.
Primedia@Home is a printed advertisement distribution business of Primedia.
Paarl Media -- jointly controlled by Media 24 Limited and Lambert Phillips Retief -- had already acquired Primedia@Home.
The commission unconditionally approved the transaction in January.
However rival, Caxton, objected and asked the Competition Tribunal to review it.
The tribunal in July found the commission had not properly applied its mind to the facts. It sent the matter back to the commission to reconsider it with a different investigation team.
"The new investigation uncovered further information, including strategy documents that were not previously submitted to the commission by the merging parties.
"This information indicated that there was vigorous competition between the merging parties, being the two main national players in the market for knock-and-drop leaflet distribution," the commission said.
This was contrary to the merging parties' arguments that they competed in a broader market which included community newspapers and other media.
The commission took into account that the knock-and-drop market was highly concentrated with significant barriers to entry.
"[T]he merged entity (through Paarl) has a leading position in printing, particularly heatset printing, and will by virtue of the transaction be in a position to leverage its position in distribution into the printing market, and foreclose its rivals in printing and distribution to the detriment of competition in these markets," the commission said.
In response, Paarl Media and Primedia said in a media release they were astounded by the ruling which would lead to job losses.
"When the competition commission completely reverses its own decision on the same set of facts, the resulting commercial anarchy bodes ill for economic growth and jobs in future," said Stephen van der Walt, CEO of Paarl Media, and Geraint Crwys-Williams, group commercial and legal executive at Primedia.
The merger had already been fully implemented with the approval of the tribunal, they said.
"As the tribunal recognised in its ruling in July 2011, Paarl Media was legally entitled to integrate Primedia@Home into its Shoppers Friend operation after voluntarily notifying the transaction to the commission and receiving unconditional approval from the commission in January this year."
They said it would be impossible to undo the merger.
"In our view the commission's decision is incapable of being implemented -- you cannot unscramble an omelette."
Even if it were possible to reverse the merger, Primedia would not revive the Primedia@Home operation.
"We will close Primedia@Home if it is handed back to us. This means the loss of between 1200 and 1400 jobs," said Crwys-Williams.
"The only other potential buyer for the operation is Caxton, who objected to this merger. If Caxton bought Primedia@Home, significant competition issues would come up. It's a non-starter."
The merging parties' legal teams were studying the decision, and they would probably refer it to the tribunal to reconsider.
* Fin24 is a Naspers [JSE:NPN]