Mergers: Commission blocks proposed merger between Deutsche Börse and London Stock Exchange

On 29 March 2017, the Commission announced that it has decided not to approve the proposed merger between Deutsche Börse AG ("DBAG") and London Stock Exchange Group ("LSEG").The Commission's investigation concluded the merger would have created a de facto monopoly in the markets for clearing fixed income instruments.

The proposed merger would have combined the activities of the two largest European stock exchange operators, DBAG and LSEG. They own the stock exchanges of Germany, Italy and the United Kingdom, as well as several of the largest European clearing houses.

Deutsche Börse AG is a diversified financial market infrastructure organisation, best known for operating the Frankfurt Stock Exchange, a regulated marketplace for trading stocks, bonds and various other financial instruments. It also operates other regulated exchanges, most notably Eurex and the European Energy Exchange ("EEX"), where various types of derivative products are traded. Apart from trading, its activities include the supply of post-trade infrastructure services such as clearing, settlement and custody services, as well as market data, indices and other information products.

London Stock Exchange Group is also a diversified financial market infrastructure organisation, best known for operating the London Stock Exchange. It also owns Borsa Italiana, the Italian stock exchange, and operates a number of other trading platforms for trading of stocks, other equity-like exchange traded products, bonds and derivatives. LSE is also active in the post-trading space, most notably in clearing through the London Clearing House ("LCH.Clearnet") including SwapClear, and Cassa di Compensazione e Garanzia ("CC&G"), the Italian clearinghouse. LSE also offers settlement and custody services as well as indices, data, and other information products.

According to the Commission, the merger would have led to a de facto monopoly in clearing of fixed income instruments (bonds and repurchase agreements) in Europe, where the parties are the only relevant providers of these services. In particular, the merger would have combined DBAG's Frankfurt based clearing house Eurex with LSEG's clearing houses LCH.Clearnet (which comprises London based LCH.Clearnet Ltd and Paris based LCH.Clearnet SA) and Rome based Cassa di Compensazione e Garanzia.

Another of the Commissions concerns was that this monopoly in clearing fixed income instruments would also have had a knock-on effect on the downstream markets for settlement, custody and collateral management. Service providers in these markets depend on transaction feeds from clearing houses. As DBAG's Clearstream competes with these service providers, the Commission found that the merged entity would have had the ability and the incentive to divert transaction feeds to Clearstream and foreclose the other competitors. In addition, the Commission also concluded that the merger would have removed horizontal competition for the trading and clearing of single stock equity derivatives (based on stocks of Belgian, Dutch and French companies). Currently, Eurex competes with a bundled product (combining trading and clearing) offered by Euronext and LCH.Clearnet SA. According to the Commission, LCH.Clearnet, which has significant pricing power over the bundled product, would after the merger have less incentive to compete with Eurex. Finally, the Commission found that this market power could potentially also be used to squeeze out Euronext.

The Commission raised these concerns in its decision to open an in-depth investigation and communicated them formally to the parties in a Statement of Objections issued in December 2016. The Commission also raised further preliminary competition concerns on which it eventually did not have to definitely decide in the final decision. To address the Commission's concerns the parties proposed the divestment of LCH.Clearnet SA, LSEG's France-based clearing house.

The Commission concluded that this divestment would have resolved the concerns relating to single stock equity derivatives. However, as ermerged from the Commission's market test, this divestment would not have been effective to remedy the concerns stemming from the creation of the de facto monopoly in fixed income clearing. The market test revealed that LCH.Clearnet SA's fixed income clearing business is vitally dependent on trading feeds from LSEG's fixed income trading platform MTS. Without these trading feeds, the viability of this business line in the future would be severely undermined. Therefore, the Commission could not determine whether LCH.Clearnet SA would have been a viable competitor in fixed income clearing going forward.

The parties have had the opportunity to modify the proposed commitments to address the issues identified during the market test. According to the Commission, the divestment of MTS, a comparatively small asset compared to the parties' combined revenues and market value, would have been a clear-cut remedy to meet these concerns. However, the parties were only prepared to offer a complex set of behavioral measures but not the divestiture of MTS and were not able to demonstrate that these measures would have been effective in practice and would have ensured that LCH.Clearnet SA would be a viable competitor in fixed income clearing going forward. The Commission therefore concluded that the proposed remedy would not have been able to prevent the emergence of a de facto monopoly on the markets related to fixed income clearing as a result of the merger, and accordingly decided not to approve the proposed transaction.

Source: Commission Press Release 29/03/2017 

Mergers: Commission conditionally clears merger between Dow and DuPont

On 27 March 2017, the Commission cleared a merger between the two chemical companies Dow and DuPont. The clearance is conditional in particular on the divestment of major parts of DuPont's global pesticide business, including its global R&D organization. 

The proposed merger was initially notified to the Commission in June 2016 and led to an in-depth investigation. The Commission had concerns that the merger, without the commitments, would have reduced competition in a number of markets for existing pesticides. It also had concerns that the merger would have reduced innovation, which is vital for competition in the pest control industry, especially considering that only five players are globally active throughout the whole R&D process. 

The parties submitted commitments to address the Commission's concerns. According to the commitments, the parties will divest DuPont's pesticide business in the overlap markets as well as almost the entirety of DuPont's global R&D organization. The Commission found that these commitments enables a buyer to sustainably replace DuPont's competitive effects in these markets and to continue to innovate. Therefore, the Commission conditionally approved the merger between the parties. The merger is also conditional upon the divestment of parts of Dow's petrochemical business. 

Source: Commission Press Release 27/03/2017

Competition: Austrian Power Grid AG claims that EU agency decision is anticompetitive and violates fundamental freedoms

On 27 March 2017, the Official Journal published details of an action by the transmission system operator Austrian Power Grid AG ("Austrian Power Grid") against a decision by the EU Agency for the Cooperation of Energy Regulators (the "Agency"). 

Austrian Power Grid brought the action in January 2017 following the Agency's decision to split the common electricity market between Austria and Germany by introducing a bidding zone border and a capacity calculation mechanism. According to Austrian Power Grid, the decision amounts to market sharing, which violates the prohibition of anti-competitive agreements in Article 101 TFEU. 

Austrian Power Grid also claims that the decision violates fundamental freedoms. The splitting of the common Austrian-German electricity market results in quantitative restrictions on the trade in electricity between Austria and Germany and thus violates the principle of free movement of goods. Austrian Power Grid also claims that the bidding zone border limits transfer capacities and that the capacity allocation mechanism imposes unjustifiable restrictions on its freedom to provide services. 

Source: Case T-53/17 Austrian Power Grid v ACER, Official Journal C 95/21, 27 March 2017

Competition (Finland): FCCA conducts dawn raids at property management companies in Finland

On 22 March 2017, the Finnish Competition and Consumer Authority ("FCCA") announced that it has conducted surprise inspections ("dawn raids") at the premises of several undertakings operating in the Finnish property management business. The dawn raids relate to the FCCA's investigation into whether the companies have undertaken anti-competitive measures in the Finnish property management market. 

Source: Finnish Competition and Consumer Authority Press Release, 22/3/2017

Mergers (Sweden): Swedish Competition Authority publishes supplementary opinion on its proposed extended decision-making power 

On 29 March 2017, the Swedish Competition Authority (the "SCA") published a supplementary opinion concerning its proposed extended decision-making power. According to the proposal, the SCA would as a first instance be entitled to determine sanctions in cases of restrictive agreements, abuse of dominance and prohibitions or obligations in mergers.

In its supplementary opinion, the SCA states that it supports the proposal that its prohibition decisions should take effect immediately. The SCA underlines that in practice, some respite is given to the companies in order to stop the prohibited practice. This already follows from previous case law, but it could be made clearer in the proposition. 

The SCA also supports the proposal that the parties should not have a right to reimbursement of their costs incurred during merger control proceedings before the SCA, but only to costs incurred during subsequent court proceedings if the SCA loses the case. 

Source: Swedish Competition Authority Opinion 22/03/2017 (in Swedish) and Swedish Competition Authority Press Release 29/03/2017 (in Swedish)

 

In addition, kindly note the following merger control decisions by the Commission which are published on the website of the Commission’s Directorate-General for Competition:

• Commission approves acquisition of Zenith by Bridgepoint

• Commission approves acquisition of a Radisson Blu Centrum hotel in Warsaw by Mitsubishi Estate Group and the Carlson Group

• Commission approves acquisition of joint control over Meridiana by Qatar Airways and Alisarda

• Commission approves acquisition of Atlas Elektronik by Thyssenkrupp

• Commission approves joint venture between the Mitsubishi Chemical Group and the PTT Public Company Group

• Commission approves acquisition of joint control of RTE by the Caisse des dépôts et consignations

• Commission approves acquisition of Pioneer by Amundi

• Commission approves acquisition of Braas Monier by Standard Industries

• Commission approves acquisition of joint control of two photovoltaic parks by Groupe BPCE