The UK Competition Commission ("CC") has prohibited Eurotunnel from operating ferry services at the port of Dover, following its June 2012 acquisition of three SeaFrance vessels. The decision is notable for two reasons. First, this decision differed from that of the French Competition Authority ("FCA"), which had cleared the transaction in late 2012. Second, the CC found itself limited in its choice of remedies by an order of the French Commercial Court and therefore decided to impose a partial prohibition instead of the more usual divestment order. The merger review conclusions from either side of the English Channel leave Eurotunnel in a fix, trying to reconcile conflicting decisions from the competition regulators.
Chronology of the transaction on both sides of the Channel
Following a period of heavy losses, ferry operator SeaFrance was placed in liquidation. In May 2012, the French Commercial Court overseeing the liquidation process received bids for SeaFrance assets from several companies, including Eurotunnel – which operates the railway tunnels under the Channel – and three ferry operators: P&O Ferries, Stena RoRo and DFDS/LD. Around the same time, Eurotunnel informed the FCA of its potential acquisition of SeaFrance assets. The FCA exceptionally agreed that Eurotunnel would be free to complete the transaction without having to wait for French merger clearance. On 11 June 2012 the French Commercial Court chose Eurotunnel as the buyer of SeaFrance’s assets on the basis that it offered the best outcome for creditors.
Under UK merger law, parties to a transaction qualifying for review by the UK Office of Fair Trading ("OFT") are not obliged to notify the transaction for merger clearance. But if they do not notify, they run the risk that the OFT will open a merger investigation on its own initiative. The OFT opened such an investigation into Eurotunnel’s proposed acquisition of SeaFrance on 22 June 2012. Ten days later, as the UK and French merger reviews were underway, Eurotunnel completed its acquisition. However, the OFT had concerns that the deal may substantially lessen competition in the provision of cross-Channel transport services and, in October 2012, referred the acquisition to the CC for an in-depth investigation. The following week, on the other side of the Channel, the FCA cleared the transaction. Subsequently, in June 2013, the CC reached a different conclusion from the FCA and decided to prohibit Eurotunnel from operating ferry services at the port of Dover.
The CC’s decision and remedies
The CC found that Eurotunnel decided to acquire the SeaFrance ferries to prevent its rival DFDS/LD from buying them. The CC also found that one of the three existing ferry operators on the Dover–Calais route was likely to exit in the short term, in which case Eurotunnel could gain an even larger share of the cross-Channel market. The CC concluded that, by adding ferry services to its Channel tunnel business, Eurotunnel would increase its market share to over 50% and cross-Channel prices would rise.
The CC considered that the most effective remedy was to prohibit Eurotunnel from operating ferry services at the port of Dover. The prohibition will apply to any vessels for two years and to the two largest ferries it acquired from SeaFrance for 10 years (the third vessel is quite old and currently not in use). Before the prohibition at Dover takes effect, Eurotunnel will have six months to sell its two largest ferries to one or more purchasers approved by the CC.
The choice of a partial prohibition is striking – ordinarily, one would have expected the CC to require Eurotunnel to sell the SeaFrance ferries (a so-called "divestment" remedy). The use of a partial prohibition is rare. This is only the third time the CC has imposed such a remedy since June 2003, when the current UK merger control regime came into force. This partial prohibition also is the only one to be ordered in the context of a completed acquisition. However, this is the second time the CC has used such a remedy in a ferry merger, the first being its 2004 decision in Stena/ P&O. In the current case, the CC had to take into account an order of the Paris Commercial Court, which had prohibited the sale of the vessels for a period of five years. That prohibition may only be lifted by the Court through a process involving consultation with relevant French government ministers. The uncertainty of such a process for the timing and outcome of a divestiture led the CC to find that there was no guarantee that a divestment remedy would be effective. The CC therefore concluded that an effective and proportionate remedy would be to prohibit Eurotunnel from operating ferry services out of Dover.
The CC’s decision ensures that all Dover–Calais ferry services are run by companies competing with Eurotunnel’s train operations. But it leaves Eurotunnel in a difficult position. It has six months to sell the ferries it has bought – no doubt at a loss – and in any event it would first need the permission of the French Commercial Court and government. A more likely option – which Eurotunnel is understood to favor – is to appeal against the CC’s decision. If it succeeds, all well and good. If it fails, it will have to choose between operating the SeaFrance ferries out of a port other than Dover, selling the ferries to a competitor, or keeping them mothballed for ten years.
The rarity of inconsistent merger decisions in the context of international cooperation
Although the FCA and the CC reviewed the likely impact of the merger in exactly the same product and geographic markets, they came to different conclusions. This is not a first in the history of multi-jurisdictional mergers – a notable example being the 2001 GE/Honeywell merger which was cleared by the US Department of Justice but then blocked by the European Commission – but such conflicting outcomes are rare.
Indeed, with the proliferation of merger control regimes (over 100 around the world) and an increasing number of deals requiring merger clearance in many jurisdictions, the convergence of merger control analyses has become a priority for most competition authorities. In recent years, agencies around the world have demonstrated their interest in ensuring that investigations and, where appropriate, remedies, are consistent. Cooperation between competition agencies is promoted through several fora such as the Organisation for Economic Co-operation and Development, the International Competition Network and, within the European Union ("EU"), the European Competition Network ("ECN"). There are also increasing numbers of bilateral or multilateral agreements between competition agencies – the latest being that between the European Commission and the Swiss Competition Authority.
Informal communication of non-confidential information from their respective investigations and the formal exchange of confidential information (usually with a waiver from the merging parties) has helped competition authorities around the world to reach consistent, or at least non-conflicting, outcomes. This is why the diverging outcome in the Eurotunnel case is surprising – even more so between two close and well-established competition authority members of the ECN. The outcome is unsatisfactory for all the protagonists, particularly, of course, Eurotunnel.
The Eurotunnel/SeaFrance saga is far from over. The French Minister for Transport has requested an arbitration between the conflicting French and UK decisions. This may amount to political posturing: it is improbable that the CC would cede jurisdiction to a third party in this way. Instead, Eurotunnel’s expected appeal represents its best chance of a successful outcome. In the meantime, the case highlights the importance for merging parties to ensure that they have a strategy in place to coordinate merger filings across jurisdictions and to work constructively with competition authorities to reach a common position on the deal under review.