Mehiläinen’s acquisition of Pihlajalinna lapsed in the Market Court – The purchase offer’s term of acceptance ran out during the process

D&I Alert

Posted on

29 Dec

2020

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Dittmar & Indrenius > Insight > Mehiläinen’s acquisition of Pihlajalinna lapsed in the Market Court – The purchase offer’s term of acceptance ran out during the process

The Market Court gave its long-awaited decision in the Mehiläinen/Pihlajalinna merger control case on 29 December 2020, and deemed the matter to have lapsed. Both Mehiläinen and Pihlajalinna had stated in their stock exchange releases that Mehiläinen will not carry out its purchase offer, causing the merger agreement to lapse. The Market Court therefore found the acquisition to have lapsed and that Mehiläinen would need to submit a new merger control notification and make a new purchase offer in case the parties wanted to complete the acquisition. The fact that Mehiläinen had not cancelled its initial purchase offer did not change the Court’s analysis.

Background

Mehiläinen Yhtiöt Oy is a leading provider of social and health services in Finland. Mehiläinen provides 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. Pihlajalinna is listed on Nasdaq Helsinki since June 2015.

The case was referred to the Finnish Competition and Consumer Authority (the “FCCA”) in January 2020 by the European Commission based on the parties’ request. The Commission’s reasoning was that the concentration may significantly affect competition only in Finland. After the referral, only the national merger control rules applied. The FCCA received the merger control notification on 10 February 2020.

The merger control investigation turned out to be the largest in the FCCA’s history, which partly explains why its review periods were extended several times. After a preliminary investigation, the FCCA found that the acquisition could potentially impede effective competition in Finland or in a substantial part of it, and opened an in-depth investigation (Phase II) in March 2020. The review periods were extended a total of three times, including a “stop-the-clock” extension and two Phase II deadline extensions granted by the Market Court at the FCCA’s request. The notifying party strongly opposed the second Phase II extension granted by the Market Court, claiming that the FCCA had made significant procedural errors during its investigation. The prolonged process reflects how extensions are becoming the new norm in Finnish mergers between competitors (for more details, see here). For a detailed description on the background and extensions in this case, please see our previous alert.

The notifying party submitted two proposals for remedies, neither of which, according to the FCCA, adequately addressed the identified competition concerns. Consequently, on 29 September 2020 the FCCA submitted an extensive prohibition proposal (411 pages and a 205-page economic analysis) to the Market Court.

Market Court Decision

The Market Court only assessed the contents of the merger agreement between the parties and concluded that it had lapsed because Mehiläinen had stated that it will not carry out its purchase offer.

In its stock exchange release on 25 November 2020 Mehiläinen had stated this by pointing out that the time to accept the purchase offering had ended on 20 November. Since it had not been possible to get an approval for the acquisition in time, the minimum requirements to carry out the acquisition were not fulfilled and therefore Mehiläinen would not carry out its purchase offer. Pihlajalinna published a similar stock exchange release on the same day, confirming that Mehiläinen will not carry out its purchase offer. Both parties stated that they will continue the Market Court procedure and see its outcome. In case the Market Court decision would be positive, Mehiläinen would aim to cooperate with Pihlajalinna in order to see if there would be possibilities for a merger in the future. Despite this, the acquisition process between the parties had ended and there were no commitments to further negotiations according to the stock exchange releases.

In order to complete a possible merger in the future, Mehiläinen would need to submit a new merger control notification and make a new purchase offer even if the possible new acquisition would be similar to the one notified to the FCCA on 10 February 2020. Interestingly, the Market Court emphasized that each merger is investigated and assessed based on the existing competition situation, and therefore a possible new acquisition between the parties would likely be at least partly assessed in a different situation even if the acquisition would be carried out in a similar way as the one notified to the FCCA in February 2020. The findings of the Market Court would thus not have any evidentiary effect in the assessment of a possible future merger control notification.

Therefore, the Market Court concluded in its very brief decision that the merger agreement had lapsed and the acquisition had been cancelled, although Mehiläinen had not cancelled its purchase offer. The conditions for a ruling on the substance of the matter had lapsed during the legal proceedings. Consequently, the Market Court did not rule on the prohibition proposal or the alleged procedural errors of the FCCA at all.

Final Remarks

Because the matter had lapsed, the Market Court did not need to take any stand on the substance of the case. It remains open how the Court would have assessed the Finnish health services market and the three major players in the market. We have witnessed a rapid and significant consolidation in the healthcare sector in Finland over the past few years, with numerous non-notifiable mergers and acquisitions. Those cases that have been notified to the FCCA have been investigated in-depth. For example, in March 2017, the FCCA approved the acquisition of Diacor Terveyspalvelut Oy by Terveystalo Healthcare Oy, and in December 2018, the FCCA approved Terveystalo Healthcare Oy’s acquisition of Attendo Terveyspalvelut Oy. Both cases were ultimately cleared without conditions.

Since the entry into force of the merger control rules in Finland in autumn 1998, this was only the fifth time the FCCA has proposed to prohibit a concentration, the other proposals being from 2000, 2011, 2013 and 2019. The most recent case, the contemplated acquisition of Heinon Tukku by Kesko (see our alert here) was the first ever case prohibited by the Market Court in Finland. The long merger control processes in Finland have also led to other companies withdrawing their purchase offers, as we saw this December in case Hankkija Oy / SSO Rauta-Maatalous Oy:n maatalouskaupan liiketoiminta. This can be seen as part of a wider trend of Phase II deadline extensions, increasing use of stop-the-clocks and the FCCA deeming notifications incomplete more often.

Mehiläinen published a short stock exchange release on the matter on the date of the Market Court Decision, stating very briefly the outcome of the proceedings in the Court. At the time of writing this Pihlajalinna has not issued a statement regarding the Market Court’s Decision.

It remains to be seen whether the decision adopted by the Market Court will be appealed to the Supreme Administrative Court.

Dittmar & Indrenius has not represented any party in this matter.

Please see the 29 December 2020 decision of the Market Court here (in Finnish).

Please see the 29 December 2020 stock exchange release of Mehiläinen here (in Finnish).

Please see the 29 December 2020 press release of the FCCA here (in Finnish).

Please see the 25 November 2020 stock exchange release of Mehiläinen here (in Finnish).

Please see the 25 November 2020 stock exchange release of Pihlajalinna here (in Finnish).

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