By Stella Miettinen, Law Student at King’s College London
Deal Background
In November 2019, London-based company Viagogo announced it would acquire ticket reselling competitor, and eBay subsidiary, Stubhub. Despite competition concerns and a warning from CMA, the £3.2bn deal composed of half debt half cash, was finalised in February of last year, setting to return the company to its co-founder Eric Baker who left Stubhub in 2007 to launch Viagogo in the European market. Once completed, the merger would cease the distinct operations of the enterprises by directly integrating the acquired company into the existing business model, with a ‘blackout’[1] phase of the Stubhub brand over time.
Beyond personal pride, the acquisition arose as Viagogo moved to penetrate the US online ticketing sector, using Stubhub’s presence and development under eBay to increase supply chains and accommodate prices for buyers and sellers alike within the ‘touting’ industry. With the former company acting as a selling platform between individual ticket buyers and sellers, and the latter as a bulk ‘supplier’ of sold tickets itself, the new entity would consolidate both types of uncapped secondary ticketing platform as a form of market extension. Described as ‘pretty perfect complementary businesses,’[2] according to Viagogo’s managing director, and with the live music industry set to return following the COVID-19 pandemic, the future of the new entity could substantially change how the ticketing industry operates.
CMA Scrutiny
A stage 1 investigation into the potential effects of allowing the acquired companies to further merge began on 14th April 2020, stating concerns over decreased competition within the UK industry. Countering Viagogo’s response that the new entity must still compete against primary ticketing sales, the CMA concluded that where the secondary channel allows for a ‘significant mark-up of tickets’[3], this constitutes a stand-alone market. As such, the merging of Viagogo-Stubhub within the UK would translate to 90% market share in ticket sales, effectively creating a ‘dominant position’ which would allow the firm act independently of competitors. Clearly surpassing guidance of around 50% market share in Chapter II of the Competition Act 1998 and Article 102 TFEU respectively,[4] the merged entity would effectively monopolise the market, and without effective alternatives to drive competition, consumers would likely face higher prices and worse service.[5]
As such, the CMA has ordered either a complete or partial divestiture of Stubhub’s international business outside of North-America, including the ability for the UK arm to be operated with input from Viagogo. This comes as Viagogo’s offer of a ‘divestment to an upfront buyer of StubHub’s European and certain other international legal entities’[6] was rejected by the CMA last year.
Divestitures
A divestiture is where a company sells off some or all of their assets or subsidiaries, either to deliberately streamline operations, or due to regulatory action to decrease their power. The three types of divestiture are spin-offs[7], equity carve-outs[8], or direct sale of assets. Here, a sale of assets has been ordered by the CMA and involves the sale of real estate, equipment, or data owned by the company. This remedy structurally changes the market by modifying allocation of property rights among the players as it creates new rivals from the selling of merging party assets. As such, competition is restored despite the horizontal merger, without the full dissolution of the acquired entity.
Although the scope of a divestiture package will be fully outlined in the CMA’s final report, it is most likely that StubHub will agree to undergo a partial divestiture, fully selling off the arms of its international business outside of North America. This is preferred by the CMA as the businesses can compete effectively on a ‘stand-alone basis’[9] independent of the merger parties and allows for increased competition without the input of the merging entities into their maintained operation.
In forming its decision, the CMA especially focused on possible barriers to entry, which are defined as obstacles which the entrance of new competitors into the market. Most pertinently discussed was the exploitation of indirect network effects, where the larger the pool of resellers on the platform indirectly strengthens the company’s buyer platform and vice versa. This strengthens the new entity’s overall position and thus creates barriers for new entrants who are unable to solidify a buyer-seller base without investing substantial money into advertising. Where a divestiture is enacted, the business is split so as to run independent arms of Stubhub, and without input from Viagogo these indirect network effects minimised, along with continuing monopoly concerns.
Nonetheless, the ability or desire to acquire the international Stubhub businesses is uncertain. As noted by TheTicketingBusiness.com’s Adam Webb, aside from acquisition cost, the value of the company’s business is ‘practically concentrated in the North American operation’[10]. Beyond this, Viagogo will remain a fierce competitor.
The future of online business
Despite these concerns at hand, it is clear the CMA has understood the degree of market control for horizontal mergers, especially within the growing online sector. This comes as the CMA has announced it will launch a new digital market unit (DMU) to police internet companies and have the power to impose fines of billions of pounds.[11] This comes as a relief to ralliers against the likes of Viagogo and even individual artists, who feel the CMA has previously not had enough teeth to stop corporations from exploiting their own market power within the reselling industry. Already controversial for creating substantial price mark-ups, the increased use of AI bots to buy tickets in mass to resell, and the reliance on big tech such as Google search to attract consumers could possibly bring into question their liability in the monopolisation of online markets.
With COVID-19 restrictions lifting and the live event industry set to resume, the presence of a strong online player may allow for efficient and widespread access to ticket resales, but as of yet it is too soon to fully conclude the effects of a finalised Viagogo-Stubhub acquisition and now merger will have for consumers and suppliers alike.
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[7] When a company creates a new independent company by selling or distributing new shares of its existing business
[8] Where the parent company sells some or all of the shares in its subsidiary to the public through an initial public offering (IPO)
KCL Mergers & Acquisitions Society
The KCL M&A Society (KMA) was founded with the goal of providing students with valuable information and opportunities regarding the field of Mergers & Acquisitions. KMA aspires to provide students with a platform to learn and improve their skills whilst delving into the synergies of law and finance.