Irish Competition Authority Decisions

1. This notification relates to an agreement dated 17 May 1995, between Grey Communications Group Limited, (Grey), and Campbell Advertising Limited, (Campbell) and Mr Paul Campbell, Ms Maureen Carrigan, Mr Niall Austin and Mr John Carvil, whereby Grey purchased 40% of the issued share capital of Campbell. The arrangements were notified to the Competition Authority on 29 March 1996 and requested a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4(2).

2. The notification involves arrangements relating to the sale of 40% of the issued share capital of Campbell (the company) to Grey. In addition to the main agreement, a number of related agreements, namely a principal option deed, a pre-exemption agreement, a disclosure letter and a default option deed, were also included in the notification.

(b) The parties involved .

3. Grey is a London based company, its ultimate parent company being Grey Advertising Inc. which is located in New York. It is involved in the provision of marketing and communications services. Campbell is an Irish registered company located in Pembroke Street, Dublin 2, which is involved in the same business as Grey. The entire issued share capital of Campbell is held by Mr Paul Campbell, Ms Maureen Carrigan, Mr Niall Austin and Mr John Carvil. Campbell's turnover for the 18 month period ended 30 September 1994 was IR£2.9 m. approx.

4. The product involved is the provision of advertising and communication services. The market is the State. The services concerned are provided mainly to companies who wish to launch advertising campaigns to promote their products or services. According to Grey there are approximately 40 advertising agencies in Ireland providing marketing and communications services. The main agencies include McConnells, Wilson Hartnell, McCann Erikson, Youngs and DDFHMB (JWT). Advertising and communications services are available from sources internationally and in the case of many of the larger assignments received by Grey the work is done in London. Therefore the market is highly competitive with significant competition from abroad. Companies also have the option of doing their own direct advertising. In addition there are a number of freelance marketing consultants operating in the market. There are no barriers to entry into this market. No particular capital levels are necessary in order to enter the business and there are no licences required.

5. The notified arrangements provided for the sale of 40% of the issued share capital of Campbell to Grey. Campbell's entire issued share capital of 100 shares was wholly owned by four individuals namely, Mr Paul Campbell (80 shares), Ms Maureen Carrigan (10 shares), Mr Niall Austin (5 shares) and Mr John Carvil (5 shares). Under the terms of the share purchase agreement Mr Campbell sold 35 of his shares and Ms Carrigan sold 5 shares. A number of related agreements which were referred to in the sale agreement were also notified to the Authority. They included a principal option deed, a pre-exemption agreement, a disclosure letter and a default option deed. The principal option deed provided for a put and call option whereby Grey has the option to purchase, or may be required by the shareholders to purchase additional shares in two separate tranches in 2001 and 2004. The pre-exemption agreement sets out the manner in which shares may be disposed of after the expiry of the principal option agreement. The disclosure letter gives details of litigation arising from Campbell's departure from Adsel Advertising and Marketing Limited (Adsel). The default option deed provided that Maureen Carrigan, Niall Austin and John Carvil (the executive shareholders) granted Grey Communications Group Ltd and Paul Campbell (the principal shareholders) an option to acquire their shares in Campbell in the manner set out in the agreement.

6. Clauses 9.3 and 9.4 of the share purchase agreement provides as follows:-

Clause 9.3 "Conflict. In order to ensure the most professional service to the clients (actual or potential) of Grey and/or the Company, it is agreed between the parties that if a conflict of interest should arise between Grey and the Company in respect of service to clients, Grey shall have the right to decide whether service should be provided to and whether it or the Company shall serve any new or existing clients."

Clause 9.4 "Grey Compensation . Grey shall, subject to the remaining provisions of this Section 9.0, compensate the Company for the loss of Specified Clients within a period of eighteen months from the date hereof as a result of compliance with Clause 9.3."

Clause 10.3 contains a retention clause as follows:-

‘Mr. Campbell covenants that he will not take any action which leads to his holding of shares in the capital of the Company being reduced at any time between the date of this Agreement and 30th October 2010 to less than 10 Shares.’

7. The parties submitted that the arrangements did not prevent, restrict or distort competition in the State to any significant degree. On the contrary, they argued that the combined resources of both parties increased competition in the relevant market by strengthening each party's ability to compete with larger competitors. There was no alteration in the number of competitors and no distortion of trade in the market as a result of the agreement. Before the execution of the agreement Grey did not operate in the Irish market, therefore the alteration in market conditions would be minimal.

8. It was argued that the conflict clause was not anti-competitive. It was entirely understandable that certain clients would not want to use the same advertising/marketing firm as its competitors. In the case of Campbell, there were certain clients (the 'Specified Clients') whose business would conflict with that of Grey's existing clients. Therefore Grey sought to prevent Campbell from working for those particular clients who were in competition with its clients. There were many alternative providers of the relevant services in the State. Similarly, it was argued that the compensation clause was not anti-competitive and that its object was to ensure that Campbell was adequately compensated for the loss of business of the specified clients. It was argued that the agreement would not result in a diminution of competition in the market concerned and the parties quoted from Authority Decision No. 6, Woodchester / UDT, in support of this claim. Finally the parties referred to the fact that certificates were a more satisfactory method of approving acquisitions as licences were not practical due to the time constraints involved.

9. The parties also advanced a number of arguments in support of their claim for a licence. As these are not relevant in this case they are not dealt with here.

10. Section 4 (1) of the Competition Act 1991 prohibits and renders void all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State.

(b) The Undertakings and the Agreement .

11. Section 3(1) of the Competition Act defines an undertaking as 'a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service'. The parties to the present arrangements are Grey, Campbell and the shareholders of Campbell. Both Grey and Campbell are corporate bodies which are engaged for gain in the provision of communications and marketing services. Mr Paul Campbell, Ms Maureen Carrigan, Mr Niall Austin and Mr John Carvil (the shareholders) were, at the time of the agreement, the beneficial owners of the entire issued share capital of Campbell and were therefore engaged for gain. Consequently all of the involved parties were, at the time of the agreement, undertakings within the meaning of the Act. Therefore the agreement is an agreement between undertakings.

12. The arrangements provide for the purchase by Grey of 40% of the issued share capital of Campbell. In addition the principal option agreement provides for the sale of further shares. In the Authority's opinion these arrangements will not have any adverse effect on competition in the market for communications and marketing services in the State. Prior to its purchase of Campbell, Grey was not directly involved in the Irish market although it was a potential competitor since it is open to Irish companies to source their advertising services on the international market. According to the parties Campbell has only a small share of the Irish market. The number of competitors in the market and the degree of concentration therein remains unchanged by the transaction. In addition the market is highly competitive with 40 advertising agencies operating in Ireland and a large number of potential competitors worldwide who could provide such services in Ireland.

13. The parties have drawn attention to the conflict and compensation provisions in clauses 9.3 and 9.4 respectively. Clause 9.3 provides that, where a conflict of interest arises between Grey and the company in respect of service to clients, Grey shall decide whether a service should be provided to these clients. Clause 9.4 provides that Grey shall, within eighteen months from the date of the agreement, compensate Campbell for the loss of 'specified clients'. The Authority considers that such terms are reasonable given the nature of the service being provided. It would not be practical for Grey to provide services to competing clients. Given the fact that there are many other companies providing similar services, consumers will not be unduly disadvantaged. The Authority considers that the compensation covenant is an internal commercial agreement between the parties and it will not have any effect on competition. Therefore in the Authority's opinion clauses 9.3 and 9.4 are acceptable, and do not offend against Section 4(1).

14. Clause 10.3 provides that Mr Campbell must retain 10% of the shares of the company until 30 October 2010. This provision effectively ties Mr Campbell into the company for a period of 15 years after the agreement and for 6 years after the option agreement has expired. While the Authority considers that the duration of this provision seems to be excessive, it does not consider that it will have any impact on competition. There is no non-compete clause in the agreement which means that Mr Campbell is free to become involved in a competing business although he is unlikely to do so. As there are no significant barriers to entry into the advertising and communications business, it would be relatively easy to establish such a business. Arguably it may not be a practical option to become involved in a competing business while he is still a shareholder in the company, but nonetheless he is not restricted by the agreement from doing so. Therefore in the Authority’s opinion clause 10.3 does not prevent or restrict competition.

15. Grey, Campbell and the shareholders who are party to this agreement are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified arrangements for the acquisition of 40% of the issued share capital of Campbell by Grey constitutes an agreement between undertakings. The Authority believes that the arrangements do not have the object or the effect of preventing, restricting or distorting competition in the State or in any part of the State.

The Competition Authority has issued the following certificate:

16. The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement of 17 May 1995, between Grey Communications Limited, Campbell Advertising Limited and Paul Campbell, Maureen Carrigan, Niall Austin, and John Carvil for the acquisition by Grey Communications Limited of 40% of the issued share capital of Campbell Advertising Limited, (notification no. CA/12/96), notified on 29 March 1996, under Section 7 does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

25 June 1996.