The first two years (2017-2018) under the new leadership of the merger control unit of the Finnish Competition and Consumer Authority (the FCCA) have witnessed major changes in the Finnish merger control enforcement: more Phase II investigations, more conditional clearances, more declarations of incomplete notifications and more requests by the FCCA to the Market Court for extending the Phase II review period. Companies are well advised to take into account the increased risk and decreased predictability of longer review periods when planning their next transactions.
Summary of the rules on review periods
After receiving a complete notification of a concentration from the notifying party (or parties), the FCCA has one-month 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 in-depth scrutiny during a further investigation stage (“Phase II”). Phase II extends over a period of max. three months, which can exceptionally be further extended by up to two months by the Market Court. 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 (from receiving the proposal) to clear the concentration with or without commitments or to prohibit it. 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.
More Phase II cases
According to the statistical review we have conducted, there has been a substantial increase in the number of Phase II investigations in Finland. While there were 45 Phase II cases in the 18 years between the introduction of merger control rules in Finland in 1998 and the end of 2016, there have been 13 Phase II cases in 2017-2018. Approximately one out of six cases in 2017 and more than one out of five cases in 2018 were taken to Phase II, which is a significant increase of Phase II cases compared to previous years. In 2015-2016, Phase II was initiated in six cases. The total number of cases notified to the FCCA in 2017-2018 was 67, maintaining approximately the same level as in 2015-2016 (62).
The reasons behind the increased number of Phase II investigations are not entirely clear. 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. Several of the recent Phase II cases were approved unconditionally in the end. The general rule is that the FCCA’s investigations should not delay the execution of a transaction longer than is necessary to appraise the transaction’s effects on competition. Although the duration of an investigation may be affected by e.g. a relatively short Phase I review period as well as an at times heavy workload, they are not in themselves grounds for initiating Phase II investigations. Also complex and time consuming investigative tools, such as consumer surveys and the analysis thereof, should be proportionate to the case and time at hand.
More conditionally cleared cases
Although several of the cases that were taken to Phase II in 2017-2018 were eventually approved without conditions (currently five cases, with three cases still pending), the number of conditionally cleared cases seems to be on the rise. In 2017-2018, five cases were approved with conditions (and, as said, three Phase II cases are still pending), while in the 10-year period before that there was on average less than one conditional clearance per year.
The remedies in recent cases are mostly structural (divestments) or combinations of structural and behavioural commitments. Only in one case were the commitments purely behavioural. There were no conditional clearances in Phase I in 2017-2018, which is not surprising. There were no proposals to the Market Court to have a concentration prohibited either.
More incomplete notifications
Very interestingly, there has also been a rather surprising rise in the number of incomplete notifications over the past year. While there were no incomplete notifications in 2017 and only very few before that, there were as many as six incomplete notifications in 2018 alone. Incompleteness of a notification can significantly delay a merger control process, as according to the Competition Act the review period does not begin in the first place if the notification is significantly incomplete. In one case, the clearance was ultimately given only in October 2018 although the case was first notified in January 2018. Although D&I has not been involved in any of the cases with incomplete notifications, according to the documents in the case files the notifications in these recent cases were found incomplete due to insufficient information concerning the markets, incorrect market definitions, and/or inconsistencies in the parties’ market shares and sales figures. This emphasizes the importance of a thorough and well-grounded market evaluation process by the notifying party before submitting a notification. Also, the documents reveal that to have avoided the declaration of incompleteness, a notifying party should have presented to the FCCA a single consistent and justified view of the markets and market shares of the parties (and other market players), even though the parties to the transaction may have had different views on these.
The later the declaration of incompleteness is given, the more problematic it naturally is for the parties to the concentration as they are eager to close the transaction swiftly. The FCCA has recently considered notifications incomplete even as late as close to the end of Phase II. The wording of the Competition Act does not explicitly specify the timeframe within which the notification can be declared incomplete. In our view, it can, however, be inferred from the systematics of the relevant section/paragraph and the preparatory works that the legislative intention was not to allow it as late as in Phase II, not to mention close to the end of Phase II. Although it is not explicitly dealt with in law or in the preparatory works, our understanding of the structure of the relevant section and the reading of the language used in it and in the preparatory works, as well as having a separate initial review phase in the first place, is that declaration of incompleteness is a tool intended by the legislator to be used only during Phase I. However, the FCCA has explicitly stated that according to its view, there is no deadline during the investigation to declaring a notification incomplete.
More requests to extend the Phase II review period
As mentioned above, the Phase II review period may exceptionally be extended by up to two months by the Market Court. Before 2017, the extension was granted only three times. However, in 2017-2018 the Market Court granted extensions in four separate cases. In three of them, the review period was extended at the request of the FCCA in order to duly complete the investigation, but in one case the extension was granted at the request of the notifying party. If the notifying party objects to the extension of the review period, according to the preparatory works the extension may only be granted if there are weighty reasons for doing so. However, in practice the notifying party may have to choose between the FCCA’s prohibition proposal to the Market Court and not objecting the extension.
Further concerns in the pipeline?
The FCCA has recently been advocating for a right to investigate, on its own initiative, any concentrations in which it identifies potential detrimental effects to competition and consumers. According to the FCCA, the current turnover thresholds defining the cases that have to be notified for a merger control clearance are too high for an economy the size of Finland. We believe that such an ex officio right to investigate concentrations should only be granted, if any, within the boundaries of legitimate expectations, and should therefore not extend to concentrations below certain (turnover) thresholds and/or should be clearly limited in time. Otherwise, such a right would build up the risk of uncertainty with regard to e.g. whether and when the parties may proceed with their transaction.
As can be seen, several recent trends seem to contribute to longer merger control review periods and growing uncertainty with regard to the review process. At the same time, the predictability with regard to all this has decreased. However, the overall situation is not that gloomy. A clear majority of cases are still approved in Phase I and even before the end of it; and for example, D&I has very recently obtained an unconditional clearance for a transaction between competitors in less than two weeks from the notification. Also, during the 20 years of Finnish merger control there have so far been only three proposals to the Market Court to prohibit a transaction, and none has ever been prohibited. Although the FCCA seems to probe more closely into the notified transactions, the parties to a transaction and their advisors can also contribute to the fluency of the merger control process.
As the FCCA often reminds, the parties can mitigate the risks of longer review periods by engaging in pre-notification discussions with the FCCA. Pre-notification discussions are crucial especially in cases where the parties are competitors, where alternative market definitions may be presented, or where there are other reasons to believe that competition concerns might arise. A thorough and well-grounded market evaluation process by the notifying party before submitting a notification also seems to be critical in light of the recent cases, as the notifying party must be able to defend its view of the case through the whole merger control process.