The Case
Conditions on the Merger
Savings Rejected as a Reason for Merging
The Council's Decision


Decision 29/2001 (October 31 2001) is significant as it is the first time that the Icelandic Competition Council has used its authority to annul a merger that had already taken place. This update briefly outlines the most important facts and conclusions of the case.

The Case

The Competition Authority was notified of a merger between MR and FB, in accordance with Article 18 of the amended Competition Act 8/1993. The main activity and purpose of both companies is the importation, processing, packaging, distribution and sale of animal food and animal food products.

The reason behind the merger of MR and FB was twofold: it would save costs and secure the cooperation between the companies, which had been significant in the past.

In light of the fact that the Icelandic market for the products in question is small, and potential purchasers are widely dispersed across the country, product distribution was uneconomical for both companies. For several years the companies had also cooperated in the importation of animal feed products, since this requires the installation of specially equipped carriers and silos at the harbour, which the companies could not afford separately. When the owners of FB wanted to sell the company, the future cooperation between the companies was jeopardized and it also became clear that without further cutbacks in FB's operations, venture capitalists would not be interested in investing in the business. MR therefore bought 75% of the outstanding and issued shares in FB.

Conditions on the Merger

Since it was clear from the outset that the merger would give the new company a dominant position on the market in question, the companies suggested to the Competition Authority that certain conditions would be set for the merger. These conditions included the following:

  • MR would sell at least 40% of its shares in FB to unrelated parties within nine months of the purchase date, and its right to nominate members to the board of FB would be restricted;

  • No members of the board of MR, or any individuals with connections to MR, could sit on the board of FB;

  • Third parties would be guaranteed use of the company's facilities at the harbour and could share in the use of the importing facilities; and

  • The two companies would continue their operations as separate units and there would be no trade between the companies.

After further consultation with the Competition Authority the condition that there would be no further cooperation between the companies than that which already existed was added to the list.

Savings Rejected as a Reason for Merging

In its decision the Competition Council stated that the companies had not submitted a detailed calculation of possible savings and had therefore not succeeded in proving if and how much they could financially save through the merger. The council also stated that the companies had not succeeded in demonstrating that the merger would be necessary to achieve their goals of economizing. The council then stated that in the field of competition law, it is almost impossible to prove that a merger will result in economic benefits. The negative effect that a merger can have on competition makes it unlikely that consumers will benefit from any possible savings. The council pointed out that in a previous decision it had stated that it was only in very special circumstances, where a merger resulted in demonstrably significant savings, that this might affect the council's evaluation of a merger. This situation did not apply in this case.

Here the council seems to have departed from EC Merger Regulation 4064/89 as amended, Article 2(b) of which requires the commission to take into account "the development of technical and economic progress provided that it is to the consumers' advantage and does not form an obstacle to competition".

The Council's Decision

Together with the high combined market share of the merging companies, their economic strength, the buyers' strength and the changes the merger would make to the market structure, the council decided that the conditions offered by the parties would not be enough to balance the detrimental effects on competition that such a merger would have. Therefore the council decided to annul the merger. According to a public statement from the merging parties, they are considering appealing the decision to the Competition Appeals Committee.


For further information on this topic please contact Gudrun Bj√∂rk Bjarnadottiror or Gunnar Sturluson at LOGOS by telephone (+354 5 400 300) or by fax (+354 5 400 301) or by email ([email protected] or [email protected]).