D&I’s annual merger control report highlights the most recent trends and developments in Finnish merger control enforcement. 2020 was not only the year when the Market Court prohibited a concentration for the first time ever, but it also witnessed another prohibition proposal – only the fifth ever – to the Market Court by the Finnish Competition and Consumer Authority (“FCCA”). The year also featured a temporary legislative extension to the review period in Phase II cases, and saw the lowest number of merger control notifications to the FCCA in years. Other noteworthy trends and developments in 2020 included the prolonged review periods, the relative number of Phase II cases remaining high and the lack of unconditional clearances in Phase II cases.
Summary of the rules on review periods
In order to better understand what is discussed in this report, we have gathered here a brief summary of the rules on review periods in Finland. Those familiar with these rules can dive right into the next chapter.
After receiving a complete notification of a concentration from the notifying party (or parties), the FCCA has 23 working days at the so-called initial stage (“Phase I”) of its investigation to decide that the concentration does not fall under the Competition Act, to approve the concentration with or without commitments, or to decide that the concentration raises significant competition concerns and warrants an in-depth scrutiny during a further investigation stage (“Phase II”). Phase II extends over a period of max. 69 working days, which can exceptionally be further extended by up to 46 working days by the Market Court at the request of the FCCA. In 2020, there was also a temporary legislative extension to the Phase II review period, as described below. At the end of Phase II, the FCCA must either approve the concentration with or without commitments, or request the Market Court to prohibit it.
If the FCCA has submitted its prohibition proposal to the Market Court, the Market Court has a three-month period to clear the concentration with or without commitments or to prohibit it. However, as part of the national implementation of the ECN+ Directive ((EU) 2019/1), the due dates in merger control cases in the Market Court will in the near future be calculated by using a set number of working days instead of the currently used calendar months (more information on the national implementation can be found from our alert on the matter here). After the proposed amendments in Government Bill 201/2020 enter into force (probably within a month or two, i.e. a bit later than the 4 February deadline the Directive envisages), the Market Court will have 69 working days to decide on the FCCA’s prohibition proposal in merger control cases instead of the current three months. A decision issued by the Market Court may be appealed to the Supreme Administrative Court within 30 days. The length of such appeal proceedings in the Supreme Administrative Court is not set in law.
If the parties do not provide in time the information the FCCA has asked for, or the information provided is substantially insufficient or incorrect, the FCCA may extend the review periods in both Phases 1 and 2 with the number of days the information asked for is late (“stop-the-clock”).
If the notification is substantially insufficient, the 23 working day review period of Phase I does not begin to run until sufficient information is provided (“incomplete notification”).
The fourth ever prohibition proposal led to the first ever prohibition
On 17 February 2020, the Market Court set a new benchmark in Finnish merger control enforcement in prohibiting Kesko Oyj’s acquisition of Heinon Tukku Oy, making it the first ever prohibition in a merger control case in Finland. Both parties to the transaction are daily consumer goods wholesalers active in the foodservice sector. Because the FCCA is not itself empowered to prohibit concentrations it had to submit a prohibition proposal to the Market Court when it considered that the concentration would significantly impede effective competition in the sale of daily consumer goods to foodservice customers. Prohibition proposals have been very rare in Finland – this was only the fourth ever proposal since the merger control rules entered into force in Finland in 1998.
The main difference between the views of the notifying party and the FCCA seemed to lie in the definition of the relevant markets, i.e. whether the specialist suppliers and companies manufacturing daily consumer goods belong to the same market with the broadline distributors when considering the sale of daily consumer goods to foodservice customers. According to the FCCA, the remedies submitted by Kesko were not sufficient to address the competition concerns and, therefore, the proposal to prohibit the transaction was the only option available (more details on the case may be found from our alert here). The Market Court mostly agreed with the FCCA’s analysis and prohibited the concentration because it would have led to a significant impediment of effective competition in the market for broadline distributors’ delivery sale of daily consumer goods to foodservice customers. The Market Court held that the competition concerns could not be removed even with commitments. This is noteworthy because, unlike the FCCA, the Market Court is not bound by the parties’ proposals for commitments and may freely impose the kind of commitments it sees fit. The decision was not appealed.
…and the fifth ever prohibition proposal followed soon after
That being said about the rareness of prohibition proposals, the FCCA submitted the fifth ever prohibition proposal to the Market Court in September 2020 in case Mehiläinen/Pihlajalinna. Mehiläinen Yhtiöt Oy is a leading provider of social and health services in Finland, providing private as well as public health services varying from medical services to housing services for the elderly. Pihlajalinna Oyj provides similar social and health services and is another leading provider in the Finnish market. The FCCA’s prohibition proposal was very extensive, to say the least; it comprised approx. 400 pages plus an approx. 200-page economic analysis. This is only one example of how merger control cases have gradually become more and more data-intensive and how the importance of economic analyses has grown during the past few years.
In this case, the FCCA found that the concentration would significantly impede effective competition in the healthcare market. The notifying party had submitted two proposals for remedies, neither of which, according to the FCCA, adequately addressed the identified competition concerns. On 29 December 2020, the Market Court, in a 12-page decision, deemed the matter to have lapsed. The decision was based on the fact that the acceptance period under Mehiläinen’s voluntary recommended public cash tender offer for all issued and outstanding shares in Pihlajalinna had expired on 20 November 2020, i.e. during the Market Court proceedings and only a few weeks before the decision deadline of the Market Court. The completion of the tender offer was subject to e.g. obtaining merger control clearance. As such a clearance was not obtained in time vis-à-vis the acceptance period under the tender offer, both Mehiläinen and Pihlajalinna had also expressly stated in their press releases during the Market Court proceedings that Mehiläinen will not complete its tender offer in question. Consequently, the conditions for a ruling on the substance of the matter had lapsed during the legal proceedings and as a result the Market Court did not rule on the prohibition proposal or the alleged procedural errors of the FCCA at all. In order to complete a possible merger in the future, Mehiläinen would need to submit a new merger control notification and make a new tender offer even if the possible new transaction would be similar to the one it notified to the FCCA on 10 February 2020 (for more details, see our alert here). At the time of writing, the Market Court’s decision is not yet final as according to the Court the formal appeal period is still running, but we have understood it that the decision will not be appealed.
The effects of the unusual year: Temporary extension to Phase II review period
The Covid-19 pandemic affected the Finnish merger control legislation: the Phase II review period was temporarily extended in October 2020 by 23 working days from the normal 69 working days. The amendment was made to grant the FCCA more review time during the exceptional circumstances, including the FCCA’s move to remote working. The amendment applied retroactively to all concentrations notified to the FCCA between 3 July and 31 October 2020 that moved to Phase II (please see our alert here). In practice, eventually the amendment applied only to one case, Hankkija Oy / SSO Rauta-Maatalous Oy:n maatalouskaupan liiketoiminta. And even in that one case the parties ultimately withdrew their notification during the first days of the new extension as in their view the FCCA’s review took too long. The parties then modified the transaction so that it no longer met the turnover thresholds deciding the merger control notification obligation and completed it within days without a need to have the FCCA’s clearance for it (see also below). Despite the continuing pandemic, a similar extension to review periods has not been re-introduced or even contemplated and seems now unlikely.
…and less notifications
The pandemic also played a role in the number of merger control notifications submitted to the FCCA as there were significantly fewer notifications made to the FCCA than during any of the previous three years: in 2020, only 23 concentrations were notified, whereas the number was 33 in 2019, 37 in 2018 and 31 in 2017. Unlike the European Commission, the FCCA does not provide merger control statistics. However, D&I has compiled and kept up-to-date detailed statistics on Finnish merger control cases since the entry into force of merger control rules in Finland in autumn 1998. The lower number of notifications reflects also the global trend of less mergers and acquisitions in 2020 due to the pandemic – a trend that, however, did not affect the amount of work of D&I Transaction Powerhouse at all (see here).
Number of Phase II cases remains relatively high
According to the statistical review we have conducted, the number of Phase II investigations in Finland has remained relatively high in 2020. While there were 45 Phase II cases in the 18 years between autumn 1998 and the end of 2016, there were 20 Phase II cases in 2017-2020. Over 17 per cent of the cases notified in 2020 were taken to Phase II, a clear increase from the 9 per cent of notified cases taken to Phase II in 2019. While the volatility in the percentages seems high, it is good to note that this stems partly from the relatively small absolute number of cases yearly. The absolute number of cases taken to Phase II in 2020 was only 4 in total. In 2020, the reasons behind the relatively high number of Phase II investigations may partly relate to the effects of the pandemic. The Competition Act does not set out specific criteria under which an investigation can be extended to Phase II. However, it is typically considered that an investigation can be extended to Phase II if the FCCA finds in Phase I that the notified concentration may raise serious competition concerns. During 2017-2020 the FCCA has issued decisions in four to six Phase II cases per year, which partly explains the increased workload of the FCCA’s merger control unit and its increased resources over the last couple of years.
…as well as FCCA’s requests to Market Court to have Phase II review periods extended
In 2020, the FCCA continued to utilise the possibility to have Phase II review periods extended by requesting extensions from the Market Court. This is partly due to the above-mentioned observation that merger reviews are becoming increasingly detailed and data-intensive, lengthening the duration of the review processes. As explained, the Phase II review period may exceptionally be extended by up to 46 working days by the Market Court at the request of the FCCA. Between the entry into force of the Finnish merger control rules in autumn 1998 and the end of 2016, such an extension was granted only three times in total. However, in 2017-2020 the Market Court granted extensions in nine separate cases. The FCCA’s current policy is to not request a full 46 working days extension at once. This means that in some cases, like Mehiläinen/Pihlajalinna (see above) and Loomis AB / Automatia Pankkiautomaatit Oy in 2020, such an extension was requested and granted twice.
Extensions granted despite notifying parties’ objections
To our understanding, so far the Market Court has granted an extension to the review period each time the FCCA has requested one, even when the notifying party has opposed the extension. If the notifying party objects to the request for extension, the extension may only be granted, according to the Government Bill, if there are ‘weighty reasons’ for doing so. There are no examples for what could be considered as ‘weighty reasons’ in the Government Bill. In Kesko/Heinon Tukku (in 2019), Kesko asked the FCCA to request the first extension, but objected to the second one. Although the arguments presented by the FCCA differed clearly from the examples for granting the extension given in the Government Bill, the Market Court accepted them as ‘weighty reasons’ and granted the second extension despite the objection by the notifying party. The FCCA argued that the notifying party had not submitted certain reports, which were agreed upon with the FCCA, and on the other hand, that the notifying party had submitted other reports that were not agreed upon beforehand, whose review required more time from the FCCA.
In Mehiläinen/Pihlajalinna, Mehiläinen objected to the second extension but the Market Court accepted as weighty enough reasons the FCCA’s request to complete its investigations on the exceptionally large matter, especially because it had concentrated its resources on assessing the remedy proposal submitted by the notifying party and had not been able to prepare a decision in the main case simultaneously.
Prolonged investigations affecting the completion of concentrations
The prolonged merger control investigations at the FCCA have had the unfortunate effect of companies even withdrawing their notifications, as was seen in December 2020 in case Hankkija Oy / SSO Rauta-Maatalous Oy:n maatalouskaupan liiketoiminta. The case was notified in 22 July 2020 and it had been pending in the FCCA for 4.5 months before the withdrawal on 2 December 2020. After the withdrawal, the acquisition was modified so that the turnover thresholds were not met and no notification to the FCCA was needed. According to the parties of the case, the case simply took too long at the FCCA.
In addition, as discussed above, in Mehiläinen/Pihlajalinna – notified to the FCCA on 10 February 2020 – the acceptance period under Mehiläinen’s tender offer for shares in Pihlajalinna had expired on 20 November 2020 (it had started on 9 January 2020), i.e. during the Market Court proceedings and only a few weeks before the decision deadline of the Market Court. As a consequence, the Market Court only assessed the parties’ merger agreement and concluded in its very brief decision that it had lapsed and therefore, the acquisition was deemed to be cancelled. In this case, the review periods of the FCCA were extended three times (two extensions by the Market Court and one stop-the-clock lasting 23 working days by the FCCA (for stop-the-clocks, see below)). On top of that the FCCA took the case to the Market Court, leading to a further 3-month phase. Naturally, when planning their transactions, parties should take into consideration, to the extent possible, the very long period clearance may sometimes require. Unfortunately, the fact that the length of the FCCA’s review is often so unpredictable does not help.
On the other hand, depending also on the FCCA’s workload at a given moment, cases where no competition concerns are identified could be approved rather quickly even despite some initial hick-ups. In Builder SPV Bidco Oy / A-Insinöörit Oy, the first notification from November 2020 was withdrawn and a new notification, including the information on a vertical link between the parties, required by the FCCA, was submitted within a week. The FCCA issued an approval decision very quickly, in the beginning of December (i.e. within 23 working days calculated even from the first notification). This indicates that even having to re-submit a notification does not necessarily prolong the investigation in cases where no competition concerns are identified, especially if the FCCA’s hands are not at the same time tied up in large investigations. Apart from that, this case draws attention to the importance of identifying right in the beginning all aspects of the case that could potentially affect competition, including also e.g. the vertical ones.
Stop-the-clocks, incomplete notifications, conditional clearances, remedies
As already touched upon above, stop-the-clocks have been in use also in 2020, lengthening the investigations. They have been used although parties have most often submitted a draft notification in the pre-notification phase and have been actively in contact with the FCCA early on. For example, in Mehiläinen / Pihlajalinna, a stop-the-clock extended the Phase II investigation by a whopping 23 working days.
Although there was a rather surprising rise in the number of notifications declared incomplete by the FCCA back in 2018, representing an incredible 16 per cent of all notifications submitted that year, declaring notifications incomplete was not used as widely by the FCCA in 2019 and 2020, with only three notifications declared incomplete during this period.
While six of the 13 cases that were taken to Phase II in 2017-2018 were eventually approved without conditions, none of the cases taken to Phase II in 2019 received an unconditional clearance and it was the same in 2020. Hence, with its two conditional clearances, 2020 strengthens the view that the number of conditionally cleared cases still seems to be on the rise. In 2017-2020, 11 cases were approved with conditions, while in the 10-year period before that there was on average less than one conditional clearance per year. There were no conditional clearances in Phase I in 2017-2020, which is not surprising.
The remedies in recent cases have mostly been structural (divestments) or combinations of structural and behavioural commitments. Out of the two conditionally approved cases in 2020, one was accepted with purely behavioural commitments, the vertical merger of Loomis AB / Automatia Pankkiautomaatit Oy.
A rare appeal of a clearance decision
Loomis AB / Automatia Pankkiautomaatit Oy also featured a quite rare appeal to the Market Court and a request to suspend the implementation of the concentration. Avarn Cash Solutions Oy, a competitor, appealed the FCCA’s clearance decision to the Market Court requesting that the Court changes the commitments or refers the case back to the FCCA for a new review. In connection with this, Avarn requested the Court to suspend the implementation of the concentration under the threat of a fine of EUR 100,000. At the time of writing this article, the Market Court has only given its decision on the request to suspend the implementation of the concentration, and a decision on the matter of substance will be given later. In its decision (in December), the Court dismissed the suspension request. This interim decision cannot be appealed separately.
The Finnish merger control enforcement has become tougher, more time consuming and more data-intensive over the last few years. In 2020, the Market Court gave the first ever decision prohibiting a concentration. Also a rare prohibition proposal – only the fifth since 1998 – was again submitted by the FCCA to the Market Court; it became only approx. 10 months after the previous one. The pandemic have had its impacts too: on rules on review periods, on efficiency of the proceedings as well e.g. on the (lower) number of notifications in 2020. The number of Phase II investigations has increased during the past years, and extensions by the Market Court to Phase II review periods have become more common and the requests by the FCCA in this regard have still never been rejected. The FCCA has not forgotten to continue to use the stop-the-clock provision and to declare notifications incomplete. The likelihood of a Phase II case being cleared unconditionally seems to be decreasing.
As can be seen above, several trends and developments contribute to longer and more burdensome merger control investigations and to the growing uncertainty and decreased visibility regarding the review processes. Parties to concentrations should be prepared to allocate more time and resources to merger control related questions and processes – from the very beginning.
A special thanks to Sabina Hautaviita and Riikka Kanerva, D&I trainees.