Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Merger Control volume discussing topics including enforcement priorities, evidence review and notable cases within key jurisdictions worldwide.
1 What have been the key developments in the past year or so in merger control in your jurisdiction?
On 1 January 2018, an amendment to the Danish Competition Act entered into force. The amendment, inter alia, introduced a ‘stop the clock’ provision, which allows the Danish Competition and Consumer Authority (DCCA) to suspend the deadline for a merger review if the undertakings fail to disclose requested information.
The DCCA and the Danish Competition Council (DCC) enforce the Danish merger rules. The DCCA prepares the cases and decides less complicated cases on behalf of the DCC. More complicated mergers, including Phase II mergers, are usually decided by the DCC. The DCCA and the DCC approved 52 mergers in 2018, which is a small increase from the 49 approved mergers in 2017. The number of notified mergers per year is still relatively low compared to certain other European countries. The DCCA did not issue any decisions prohibiting notified mergers in 2018.
Approximately 75 per cent of the cleared mergers in 2018 were based on simplified notifications. In a simplified notification, less market information is required by the parties, and the notification is subject to less scrutiny from the competition authorities. Moreover, the filing fee is limited to 50,000 Danish kroner. Thirteen mergers (representing the remaining 25 per cent of the cleared mergers) were subject to full-form procedures, nine of which were cleared in Phase I. As such, only four mergers underwent Phase II investigations in 2018, and two of these were approved subject to conditions (see below). In other words, only a small portion of the notified mergers in Denmark are subject to a full merger analysis.
One of the Phase II cases involved a merger between the undertakings Danica Pension (Danica) and SEB Pensionsforsikring A/S and SEB Administration A/S (together referred to as SEB), both active on the market for pension and life insurance products. The parties filed a full-form notification of Danica’s acquisition of sole control of SEB, and the DCCA carried out extensive investigations of the merger, including input from third parties. Based on the investigations, the DCC found that the parties were not particularly close competitors, and that the merger would not result in price increases. Accordingly, the DCC found that the merger would not significantly impede competition on the market, and the merger was approved unconditionally.
Another Phase II case that was approved unconditionally involved a merger on the Danish market for ferry services (Molslinjen A/S’s acquisition of Danske Færger A/S). The merger underwent Phase II investigations owing to the relatively low competition pressure on the market and owing to concerns expressed by third parties. However, the merger was approved on the basis of findings that the parties were not close competitors and, as such, the merger would not result in significant changes to the competitive situation on the market. Interestingly, the merger was cleared by the DCCA and not the DCC, even though it underwent Phase II investigations.
The third case that underwent Phase II investigations involved a merger between Tryg Forsikring A/S (Tryg) and Forsikrings-Aktieselskabet Alka (Alka), two Danish undertakings providing products and services in the market for property and casualty insurance (non-life insurance) for private consumers. The parties filed a full-form notification of Tryg’s acquisition of sole control of Alka. Based on its investigations, the DCC found that Alka had a greater influence on the competitive process than its market shares or similar measures suggested. Thus, the DCC found that the merger would lead to significant restrictions to the competition on the market for private non-life insurance with the possible consequence of higher consumer prices. The merger was approved, however, subject to behavioural commitments (interestingly, as the Danish competition authorities – in line with the approach of the European Commission – usually prefer structural remedies).
The fourth case that underwent Phase II investigations in 2018 involved a merger between Global Connect A/S (Global Connect) and Nianet A/S (Nianet). The parties each had data centres in Copenhagen and Aarhus and were active in the market for wholesale and retail supply of broadband connections via fibre-optic infrastructure. The DCC carried out extensive investigations and found that the merger would give rise to unilateral effects in the market for provision of colocation services in the Aarhus area, resulting particularly in higher prices. To meet the DCC’s concerns that the merger would impede competition, Global Connect committed to divest two data centres in the Aarhus area owned by Nianet.
In a recent case from February 2019, Royal Unibrew A/S (Royal Unibrew) acquired sole control of Bev.con Aps, which owns 100 per cent shares in Cult A/S (together referred to as CULT). Both undertakings were active in the Danish on-trade and off-trade markets for production, distribution and sale of energy drinks, ‘ready-to-drink’ beverages and ciders. The merger underwent Phase II investigations as the DCC were concerned that the parties’ relatively high post-merger market shares (30–40 per cent) would result in price increases. However, the DCC found that the merger, overall, would not significantly impede competition as the market is dynamic with low entry barriers, low brand loyalty and the constant introduction of new products. Consequently, the DCC approved the merger unconditionally.
Lastly, the European Court of Justice (ECJ) has ruled in a Danish case relating to the merger in 2013 between the two accounting firms, KPMG and Ernst & Young (EY). The parties were accused of ‘gun-jumping’ (ie, implementing the merger before competition approval) because KPMG terminated a cooperation agreement with the international KPMG network prior to obtaining clearance. On 7 December 2016, the Danish Maritime and Commercial Court referred the case to the ECJ, seeking guidance on how to interpret the EU merger control rules on implementa-tion of mergers. On 18 January 2018, Advocate General Wahl delivered his opinion. On 31 May 2018, the ECJ ruled in the case and, unlike the DCC, the ECJ found that the termination of the cooperation agreement did not constitute a partial implementation of the merger and, as such, the merging parties had not pre-implemented the merger. Despite the effects the termination was likely to have on the market, the ECJ found that the measure did not contribute to the change of control of the target undertaking. With its ruling in KMPG/EY, the ECJ thus provides guidance on the stand-still obligation in mergers and clarification in relation to gun-jumping. In light of the ECJ’s ruling, the DCC has acknowledged EY’s claim that the parties did not pre-implement the merger, and, accordingly, the DCC’s decision has been set aside.
2 What lessons can be learned from recent cases to help merger parties manage the review process and allay authority concerns at an early stage?
The majority of mergers in Denmark are cleared in Phase I without remedies. In 2013–2014, there was only one merger case per year involving remedies; in 2015, two related mergers were cleared with commitments; in 2016, no merger clearances were subject to commitments; in 2017, two mergers were cleared with commitments; and in 2018, two mergers were cleared with commitments (and further two mergers were approved unconditionally in Phase II).
If a merger gives rise to concerns, the DCCA usually informs the parties early in the process. However, although the outcome may be predictable, the same does not always hold true for the merger process. The two main concerns in this regard are timing and whether simplified or some kind of full-form notification will be called for. In our opinion, however, the DCCA has generally become more professional and transparent since the DCCA established a specific merger division within the authority in 2017.
As regards timing, the DCCA recommends that the parties notify the authority of the merger prior to signing. In line with this, we generally find that the best way forward is to start the pre-notification process as early as possible or, at least, immediately following signing. Further, if the notified merger is likely to lead to serious concerns and Phase II investigations, the merging parties may also consider proposing remedies at an early stage.
In recent cases, we have seen examples where Phase I did not commence until the DCCA was out of questions, and most of the case analysis had been finished. This tendency is further underlined by the procedure for conducting the public hearing. Previously, the public hearing was part of Phase I. However, in recent cases the DCCA has conducted the public hearing as part of the pre-notification. The result is that the DCCA has a large time frame with no legislative time limits to assess the merger. Arguably, the end result may be similar in terms of time spent from that of a procedure that followed the black-letter-law timetable more closely (or even faster than the black-letter-law procedure), but it may increase uncertainty for the parties.
According to our experience from recent cases, a time frame of two to three months between the submission of the first draft notification (including market data) and the final clearance is not unusual even in cases with relatively small overlaps, while a time frame of up to six months is possible even in Phase I cases.
Another aspect that is not always predictable is the form of the notification. In many cases, the overlaps between the parties’ activities and the relevant market share thresholds determine whether a simplified notification may be submitted; however, this largely depends on how the market is defined. At the same time, it may prove difficult to get a binding answer from the DCCA on the market definition early in the process. We have experienced the DCCA proposing a new market definition at the end of Phase I, which could potentially have transformed a simplified notification into a full-form notification. Such changes at a late stage in the process may have a significant impact on timing and the amount of work required of the parties. Further, even if the parties’ overlaps on the relevant markets are below the thresholds triggering a full-form notification, the DCCA may, nonetheless, request the parties to provide a full-form notification. Although this may have a major influence on both the information to be provided by the parties and the notification fee (the fee for a simplified notification is 50,000 Danish kroner, whereas the full-form notification fee amounts to 0.015 per cent of the merging parties’ annual turnover), the DCCA has a very wide margin of appreciation in this regard. The market investigations conducted by the DCCA under a full-form notification are often limited to a few phone calls or email questionnaires.
Overall, it is our experience that case handlers are effective and proactive in processing merger notifications. On a day-to-day level, we find that the case handlers at the DCCA are easily accessible, and that deadlines are adhered to. We especially appreciate the fact that the case handlers are available for meetings and teleconferences, if required, and that communication is informal. We find that frequent contact with the case handlers may reduce the risk of misunderstandings and lead to a faster clearance and more accurate assessments.
Prior to 2017, merger control was handled within the ambit of the relevant sectoral divisions in the DCCA. In January 2017, the DCCA established a specific division, which deals with all notified mergers. In our experience, the creation of the new division has resulted in significantly improved case processes in terms of timing, cooperation and overall transparency. Further, the new division is notably more inclined to provide a conclusive opinion in cases of doubt concerning the DCCA’s own jurisdiction.
3 What do recent cases tell us about the enforcement priorities of the authorities in your jurisdiction?
Generally speaking, mergers on markets with few, large competitors seem to attract considerable attention from the DCCA, and during the past few years they have led to protracted Phase II investigations in several instances (eg, most recently, the mergers Danica/SEB, Molslinjen/Danske Færger, Tryg/Alka, Global Connect/Nianet, and Royal Unibrew/CULT).
Apart from this, however, the limited number of full-form notification mergers in Denmark makes it difficult to identify trends as regards enforcement priorities. Although the DCCA is clearly aware of political considerations when conducting merger reviews, we see no direct connection between the cases subject to public or media interest and the cases subject to intense review by the DCCA. Similarly, while the DCCA may choose to scrutinise certain sectors thoroughly in terms of antitrust and dominance cases, we have not experienced that this focus has led to any particular trends in the DCCA’s merger review.
4 Have there been any developments in the kinds of evidence that the authorities in your jurisdiction review in assessing mergers?
In recent years, the use of expert economic evidence has increased significantly. Since around 2012, the DCCA has looked into diversion ratios and UPP calculations before clearing mergers rather than looking merely at market shares and Herfindahl-Hirschman Index figures.
Regarding third parties, public hearings are routinely conducted by the DCCA on its website, and recent case law shows that the DCCA gives significant weight to input from customers and competitors. In a case regarding the merger between Holmris A/S (Holmris) and B8 A/S (B8), both active in the market for professional furniture, the DCCA found that the parties would hold a post-merger market share of 30–40 per cent. Accordingly, initial concerns were raised that the merger would have a negative effect on, inter alia, larger public tenders, and, further, that the merger would result in market foreclosure. However, an overall assessment based primarily on input from market participants showed that the merger would not significantly impede competition on the market, so the DCCA approved the merger unconditionally.
In some instances, a small market investigation leads the DCCA to request a full-form notification. This was the case in Arbejdsmarkedets Tillægspension/Danica Ejendomsselskab ApS (2017), where the parties initially submitted a simplified notification. The DCCA informed competitors and customers of the merger and asked for comments and, on that basis, required the parties to submit a full-form notification. This resulted in a filing fee of 1.5 million Danish kroner instead of 50,000 Danish kroner. The merger was eventually approved following a simplified procedure (under which the DCCA is not required to prepare a lengthy, written decision).
Input from third parties may lead to increased scrutiny, and if hearings are held during pre-notification, it may lead to a delay in having the notification declared complete. Further, remedies have occasionally been requested against the backdrop of competitor or customer complaints.
5 Talk us through any notable deals that have been prohibited, cleared subject to conditions or referred for in-depth review in the past year.
In the Global Connect/Nianet case (2018), the DCCA found that the merger would significantly impede competition in the Danish market for wholesale and retail supply of broadband connections via fibre optic infrastructure, as the merger would give rise to unilateral effects as described above. Global-Connect offered structural remedies consisting of a commitment to divest both of Nianets’ data centres in the Aarhus area, enabling new or existing competitors to acquire the data centres. The DCC found that the commitments were sufficient to address the identified concerns, and, thus, the merger was approved.
In the Tryg/Alka case (2018), the DCC found that the merger would significantly impede competition in the market for property and casualty insurance (non-life insurance) for private consumers. The DCC carried out extensive investigations and found that no other undertaking has had the same effect on the competitive process on the market for non-life insurance as Alka. As a result of Tryg’s acquisition of Alka, the DCC found that the merger would limit the competitive pressure, enabling Tryg to raise prices on the market for private non-life insurance. In order to meet the DCC’s concerns, Tryg made the following behavioural commitments for a duration of five years: to terminate exclusivity clauses in some of the partnership agreements entered into with Alka; to refrain from charging customers a fee when terminating their private insurance policies; and to annually pay 5 million Danish kroner to Forsikringsguiden (an independent insurance and price comparison website). The DCC found that the commitments, by increasing market mobility, were sufficient to address the identified concerns. The merger was, accordingly, approved.
While being approved unconditionally, three more cases have undergone Phase II investigations during 2018 and the beginning of 2019 (see above).
6 Do you expect enforcement policy or the merger control rules to change in the near future? If so, what do you predict will be the impact on business?
We do not expect changes in the merger control rules or the authorities’ enforcement policy in 2019.
This chapter was accurate as at May 2019.
The Inside Track
What are the most important skills and qualities needed by an adviser in this area?
Thorough knowledge of competition law and M&A is vital when working in the area. Additionally, with the increasing focus on competition economics, a solid understanding of this and the many ways in which market data can be generated and read is important. Advisers on merger control need to understand how markets work in order to assess the effects of a merger and argue before competition authorities. Comprehensive insight into the authorities’ procedures is necessary and a good dialogue between the parties is crucial in ensuring an efficient clearance process. In the end, credibility and thoroughness will win the day.
What are the key things for the parties and their advisers to get right for the review process to go smoothly?
The parties need to realise that a notification process involves a great amount of work on the part of the client and that it may take time. To establish a good and efficient working relationship with the case team, it is highly advisable to make contact with the DCCA early on. A meeting in person based on a short memo or a draft merger application and with the participation of key party representatives and their advisers is often an effective way to present the merger to the case handlers and discuss timing and procedure and possibly have a first exchange of views on potential substantive issues.
What were the most interesting or challenging cases you have dealt with in the past year?
Frederik André Bork assisted GSV Materieludlejning A/S and CataCap in the acquisition of Ramirent A/S.
Frederik further assisted BWB Partners I K/S and Holmris A/S in the acquisition of B8 A/S.
Moreover, Frederik assisted Arbejdsmarkedets Tillægspension (ATP) and Danica Ejendomsselskab ApS (Danica) in the acquisition of apartment No. 2 in Randers Storcenter (part of a shopping centre in Central Denmark).
