Introduction
Joint dominant market position
Combination of remedies
FCA approval
In August 2011, following an in-depth investigation, the Finnish Competition Authority (FCA) proposed that the Market Court prohibit the proposed acquisition of the asphalt paving business of Destia Oy and Destia Kalusto Oy (jointly Destia, the former Finnish Road Administration) by NCC Roads Oy. On November 2 2011 the Market Court decided that the transaction could be cleared with conditions. The court confirmed the view of the FCA that the acquisition would lead to a joint dominant market position in the asphalt mix market in the capital area between the largest remaining contractors, NCC and Lemminkäinen Infra Oyj. Due to the conditions imposed, NCC and Destia negotiated a new acquisition agreement, which was approved by the FCA on November 24 2011.
Joint dominant market position
There are only three companies with fixed asphalt stations in the capital area: Lemminkäinen, NCC and Destia. According to the Market Court, contractors in the capital area depend on the asphalt mix bought from these three suppliers in order to compete with them. The situation is markedly different compared to the rest of Finland. Therefore, the court held that the production and sale of asphalt mix in the capital area formed a relevant market which is separate from the asphalt paving work market.
The court approved the FCA's arguments that as a result of the acquisition, NCC and Lemminkäinen could control the asphalt paving market through the production of asphalt mix, either by refusing to sell it to other contractors or by charging prices above the competitive level.
The court stated that NCC and Lemminkäinen need not cooperate illegally in order to cause a negative effect on competition. As a result of the acquisition, the companies would be in a position to predict each other's behaviour. Therefore, they would have incentives to maximise their profits by limiting production and increasing the price of asphalt mix. In turn, this would increase the price level of asphalt paving work.
The court stressed that the remedies offered to eliminate the negative effects to competition should, for the most part, be structural. NCC offered a number of behavioural remedies to facilitate the possibility of market entry, but only one of a structural nature. The remedies were offered as alternatives to each other.
According to the court, the proposed remedies alone were insufficient to ensure that the markets would remain competitive following the acquisition. Therefore, the court decided to combine the structural remedies with temporary behavioural remedies. Behavioural remedies were included to ensure that the market would remain competitive during the transitional phase of the new entrant entering the market.
First, NCC was ordered to sublease land near the capital area for a competitor to establish its own fixed asphalt station and enter the market. Second, NCC was required to sell asphalt mix to competitors under detailed conditions. NCC's compliance with the conditions will be monitored by an independent expert.
The FCA was satisfied with the court's decision, although the acquisition was not blocked as it had proposed.
However, NCC and Destia withdrew from the original acquisition agreement and signed a new agreement which was sent to the FCA for approval. The new agreement did not include Destia's fixed asphalt station near the capital area in Tuusula, or the production and sale of asphalt mix or sale agreements related to the station. On November 24 2011 the FCA concluded that the threshold for intervention (ie, the creation or strengthening of a joint dominant position) was not exceeded, and thus cleared the amended transaction.
The new Competition Act entered into force on November 1 2011. The new act replaced the dominance test with the significant impediment to effective competition test, thereby harmonising Finnish competition law with the EC Merger Regulation. However, as the parties signed the new acquisition agreement on October 31 2011, the amended transaction was assessed using the old dominance test.
For further information on this topic please contact Hanna Laurila at Dittmar & Indrenius by telephone (+358 9 68 1700), fax (+358 9 65 2406) or email ([email protected]).