Gannett UK Limited and SMG plc: A report on the proposed transfers

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Under the reference (see Appendix 1.1) dated 10 December 2002, we were required to investigate the transfer to Gannett UK Ltd (Gannett) of the three newspapers of SMG plc (SMG): The Herald, the Sunday Herald and the Evening Times. Gannett is a wholly-owned subsidiary of the US company Gannett Co., Inc., whose primary activities are the publication of newspapers and operation of television channels in the USA. In 1999 Gannett acquired Newsquest plc, and in 2000 acquired News Communications & Media plc. It is now the UK's third largest publisher of regional and local newspapers. SMG is incorporated in Scotland, and its three titles all circulate within Scotland. Its interests also include Scottish Television and Grampian Television, and local and national radio production and broadcasting.

The majority of sales of the SMG titles are in Strathclyde and Glasgow. The SMG titles are widely regarded as playing an important role in the Scottish newspaper market, particularly valued for their focus on Scottish news and opinions, including coverage of the Scottish Parliament and Executive, but supplemented by wider coverage of UK and international news from a Scottish perspective; their editorial stance; and their liberal, pro-devolution viewpoint.

Gannett does not currently operate within Scotland; hence the transfer does not alter the structure of the Scottish market, nor do we believe that the transfer is likely in any other way adversely to affect competition between newspapers in Scotland.

We are required under the Fair Trading Act 1973 to have particular regard to the need for accurate presentation of news and free expression of opinion. SMG told us that its editorial policy was one of editorial independence but subject to commercial considerations. Concerns were raised with us about the prospects for editorial independence but also for editorial stance, content and quality under Gannett's ownership. We noted first, however, Gannett's reputation for preserving editorial freedom and not interfering on a day-to-day basis in the editorial content of titles. Gannett said that it was committed to maintaining the autonomy of local editors. Gannett's management structure is also locally focussed and it plans to manage the titles in Scotland as a separate regional division with its own managing director. Second, commercial considerations are themselves likely to deter Gannett from adopting a different approach to these titles. Third, such considerations are reinforced by the pressure of competition within Scotland, including competition from Scottish editions of UK national titles. A fourth and final safeguard regarding the performance of the titles under Gannett's ownership is the risk to Gannett's reputation: for example, in any future inquiries into newspaper acquisitions by Gannett, the competition authorities are likely to be alert to its record in operating the SMG titles. We do not therefore expect the transfer adversely to affect the current editorial freedom, the current editorial stance, content or quality of the SMG titles, accurate presentation of news or freedom of expression.

We also do not expect the purchase price paid or any aspect of Gannett's likely financial management of the newspapers to reduce editorial quality. Gannett's bid was not significantly out of line with that of other bidders or SMG's own valuation of the business. We saw no reason to infer that Gannett would require or attempt to bring about a higher operating margin, or that the titles would be put under any greater cost pressure, than would otherwise be the case.

We concluded therefore that the transfer may not be expected to operate against the public interest.

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