UPDATE 2-UK consumer watchdog clears newspaper distributors
* OFT says has not given sector clean bill of health
* Industry body says decision does not benefit consumers
* Equities analyst says it fosters economies of scale
* Shares in Smiths up 0.9 pct, Menzies gains 3.1 pct
(Adds comment from analyst, companies, industry body)
LONDON, Sept 24 (Reuters) - Britain's consumer watchdog said it would not refer magazine and newspaper distributors to the Competition Commission, after new deals were struck that could benefit consumers, but left the door open for a further review.
John Menzies Plc (MNZS.L) and Smiths News Plc (SNWS.L) dominate the news distribution market in Britain.
An analyst with Altium Securities said the holding by the Office of Fair Trading (OFT) would benefit competition, but the National Federation of Retail Newsagents (NFRN) industry body said it in no way helped consumers.
The OFT on Thursday cited publishers retendering distribution agreements and the exit of Dawson Holdings Plc (DWN.L) from the sector as reasons why no referral was needed, adding there was a chance of further market changes that would benefit consumers.
However, the OFT said it had not given the sector a clean bill of health.
"It has found that there are reasonable grounds for suspecting that some features of the newspaper and magazine distribution markets prevent, restrict or distort competition," it said in a statement on Thursday.
BETTER PRICES
Newspaper distributors Smiths and John Menzies welcomed the decision, with Menzies saying it would have "knock-on benefits for consumers."
Karl Green of Altium agreed, saying that reducing the number of distributors brought about savings via economies of scale.
"The regulator is recognising that the increased regional density that both of these players have achieved as a result of taking over the Dawson business is going to lead to better service, better prices for the customers," he said.
However, David Daniel, trade relations manager at the NFRN, said the OFT's decision did not affect the exclusive agreements between some distributors and newspaper publishers that effectively disadvantage independent retailers.
"There aren't any benefits to consumers," he said. "Retailers don't get any choice whatsoever of who supplies them."
In October 2008, following an investigation requested by the NFRN, the OFT held there was scope for more competition in the newspaper and magazine distribution market.
The review prompted Dawson, once the UK's third-largest wholesaler, to sell parts of its distribution business to Smiths and Menzies and to exit the market. [ID:nL3725418]
Shares in Smiths were up 0.9 percent by 1337 GMT, while those in Menzies rose 3.1 percent.
(Reporting by Catherine Bosley; Editing by Simon Jessop)
