VTech could face an in-depth merger investigation over competition concerns arising from its completed merger with LeapFrog.
VTech Holdings Ltd (VTech) and LeapFrog Enterprises Inc (LeapFrog) are 2 of the 3 largest suppliers of toddler electronic learning toys and child laptops/tablets in the UK. The Competition and Markets Authority’s (CMA) initial investigation has found that the companies compete closely in supplying these products to retailers and there are few other competitors.
The CMA also found that, in the absence of the merger, both companies would have been close competitors in the supply of child electronic reading systems, which involve the audio narration of an accompanying physical book. At present, LeapFrog is the only one of the 2 companies supplying these systems.
The CMA therefore believes that the merger could lead to a substantial lessening of competition in the market for these products which could lead to increased prices and a reduction in quality or choice for consumers.
VTech now has until 25 August to offer proposals to resolve the CMA’s competition concerns. If VTech does not offer such undertakings, or if the CMA does not accept the undertakings offered, the CMA will refer the merger for an in-depth phase 2 investigation.
Kate Collyer, Deputy Chief Economic Adviser and decision maker in this case, said:
VTech and LeapFrog are 2 of the largest and best known brands supplying electronic toys and learning products for children. Retailers see them as close rivals and rely on competition between the companies to keep prices down.
We are concerned that the merger could lead to prices rising, the quality of products going downhill or the range on offer being reduced.
Given this, the merger warrants an in-depth investigation - unless VTech is able to offer suitable undertakings to address our concerns.
Notes for editors
- The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. For more information on the CMA see our homepage or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.
- Under the Enterprise Act 2002 (the Act) the CMA has a duty to make a merger reference, resulting in an in-depth phase 2 merger investigation, if the CMA believes that it is or may be the case that a ‘relevant merger situation’ has been created, or arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and that the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
- Under the Act a ‘relevant merger situation’ is created if 2 or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million (‘the turnover test’) or as a result of the transaction, in relation to the supply of goods or services of any description, a 25% share of supply in the UK (or a substantial part of the UK) is created or enhanced (‘the share of supply test’).
- The CMA considers that it is under a duty to make a phase 2 merger reference in this case under the Act. However, the duty to refer is not exercised while the CMA is considering whether to accept undertakings in lieu of a reference. VTech has until 25 August to offer an undertaking to the CMA that might be accepted by the CMA. If no undertaking is offered or accepted, then the CMA will by 2 September refer the merger for a phase 2 merger investigation.
- All the CMA’s functions in phase 2 merger investigations are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision makers on merger investigations. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business; the membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
- The text of this decision will be placed on the case page in due course.
- Media enquiries should be directed to Neil Kernohan (firstname.lastname@example.org, 020 3738 6170).