The FCCA asks the Market Court to block Mehiläinen’s acquisition of Pihlajalinna

D&I Alert

Posted on

30 Sep

2020

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Dittmar & Indrenius > Insight > The FCCA asks the Market Court to block Mehiläinen’s acquisition of Pihlajalinna

The second prohibition proposal in Finland in only 10 months

On 29 September 2020, the Finnish Competition and Consumer Authority (the “FCCA”) made its fifth ever proposal to prohibit a concentration with the much-awaited decision in the Mehiläinen/Pihlajalinna merger control case. According to the FCCA, the merger control investigation was the largest in its history, which in part explains the several extensions to its review periods. The Market Court has now three months to decide on the case, which means that we may have a second ever prohibition decision in Finland less than a year from the first one.

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 arrangement fell within the scope of the EU Merger Regulation (139/2004) and therefore as a main rule should have been notified to the European Commission. However, prior to the notification, on the basis of Article 4(4) of the EU Merger Regulation, the parties asked the Commission to refer the case to the FCCA to be examined in its entirety by the FCCA. On 28 January 2020, the Commission referred the case to the FCCA, reasoning that the concentration may significantly affect competition only in Finland. After such a referral, only the national merger control rules apply.

The FCCA received the merger control notification on 10 February 2020. After its preliminary investigation, the FCCA stated that the combined market shares of the parties might increase significantly in a number of private healthcare market segments as well as in the market for publicly funded healthcare services, on a national as well as on a local basis. In addition, the potential effect of the merger on the social services market also needed further investigation. The FCCA anticipated that the acquisition could potentially impede effective competition in Finland or in a substantial part of it and therefore an in-depth investigation was necessary. On 12 March 2020, the FCCA opened a Phase II investigation.

The multifaceted Phase II at the FCCA

The prolonged investigation process itself in this case is a good reflection on how Finnish merger control has changed over the past few years, with different types of extensions to review periods starting to be the norm at least in mergers between competitors. The review periods were extended a total of three times, with the declaration of the notification as incomplete being the only unused tool left in the toolbox of the FCCA. The original deadline of the Phase II investigation and thereby of the FCCA’s decision in the matter was on 24 June 2020. However, on 27 May 2020, Pihlajalinna issued a press release stating that the FCCA had extended the review period retrospectively from 20 May 2020. According to the Competition Act (948/2011), if the parties do not submit the information requested by the FCCA within the set time limit, or submit information that is significantly incomplete or incorrect, the review period will be extended with the number of days the information asked for is late. This “stop-the-clock” lasted until 24 June 2020, extending the 69 working days’ Phase II investigation by 23 working days and setting the new deadline to 27 July 2020.

After this first delay in the process, the FCCA requested an extension to the review period from the Market Court – twice. First, on 25 June 2020, the FCCA requested the Market Court to extend the review period by 23 working days, i.e. until 27 August 2020. According to the FCCA, the case had required extensive investigations which were slowed down and hindered due to the extraordinary conditions caused by the Covid-19 situation. The FCCA stated that the extension of the deadline was necessary to allow sufficient time for the parties to be heard and respond properly to the inquiries of the FCCA. The Market Court approved the FCCA’s application on 26 June 2020 since the parties did not object to the extension of the deadline.

On 18 August 2020, the FCCA requested the Market Court to further extend the review period until 29 September 2020. This time the FCCA requested an extension to complete its investigations on this exceptionally large matter, especially because it had concentrated its resources on assessing the remedy proposal, submitted by the notifying party on 10 August and further supplemented on 17 August, for which reason it could not simultaneously further prepare the decision in the main case. This time the notifying party opposed the extension, claiming even that due to the procedural errors made by the FCCA the merger should be considered to have been approved already on 24 June or at the latest on 22 July. The Market Court dismissed these claims as inadmissible and granted the extension on the grounds of weighty reasons, extending the time limit to 29 September 2020.

An interesting detail here is the FCCA’s new policy to not apply for the full 46 working days’ extension from the Market Court at once. This stems from the FCCA’s intention to ensure that there is enough time to process possible remedy proposals. The case file documents also reveal that the notifying party was initially unhappy with the first 23 working days’ extension as it had wished for a full 46 working days’ extension. However, it had clearly changed its position in the matter somewhere between the end of June and mid-August as it opposed the second extension request.

The FCCA’s assessment and prohibition proposal

The FCCA had presented its initial view on the merger’s effects on competition to the notifying party in a memorandum already on 1 July 2020. In its initial analysis, the FCCA had identified competition concerns in several different segments of the healthcare market. The notifying party delivered its response to the FCCA on 3 August 2020. Both the FCCA’s memorandum (340 pages) and the response (480 pages) are exceptionally extensive and the response comprises several legal and economic expert opinions. On the basis of the FCCA’s initial analysis, the notifying party submitted its first proposal for remedies on 10 August 2020 and supplemented it on the basis of the FCCA’s remarks on 17 August 2020. It is clear from the public records of the discussions between the FCCA and the notifying party that their views on the adequacy of the proposed remedies differed quite a bit, with the notifying party being of the opinion that the case does not merit divestments at all and the FCCA considering the proposed divestments as merely cosmetic and not resolving any competition concerns. On 4 September 2020, the notifying party submitted a new proposal for remedies but the FCCA did not accept it.

At the time of writing this, the prohibition proposal (411 pages + a 205-page economic analysis) is not yet publicly available. In its press release of 29 September 2020, the FCCA notes that the Finnish healthcare market has concentrated rapidly over the last decade, with the three largest players, Mehiläinen, Pihlajalinna and Terveystalo, having multiplied their combined market shares since 2014, partly through acquiring their smaller competitors.

According to the FCCA, if approved, the merger would seal this development and irreversibly change the Finnish health services market. Post-merger, two companies – Mehiläinen and Terveystalo – would control a significant part of the healthcare market with their superior market position. As said, the notifying party submitted two remedy proposals, neither of which, according to the FCCA, adequately addressed the identified competition concerns. The FCCA considered that the remedies were not a realistic option, as they would not have been sufficient to prevent higher prices and poorer choice for customers.

From what can be gathered from the public records, the FCCA ultimately found competition concerns in all of the segments it had listed as potentially problematic in its initial analysis of 1 July 2020. According to the FCCA, the merger would lead to competition concerns in both private medical services and occupational healthcare services in several local markets, private hospital services in the area of four hospital districts, services provided to insurance companies, infertility treatment services in the Helsinki metropolitan area, and public sector outsourcing in certain segments.

According to the Competition Act, the Market Court must issue its decision within three months. The Market Court can either prohibit the merger, approve the merger as such or impose remedies. A decision adopted by the Market Court may be appealed to the Supreme Administrative Court.

Final remarks

Over the past few years, we have witnessed rapid consolidation in the healthcare sector in Finland. In addition to numerous non-notifiable mergers and acquisitions, there have also been some concentrations in this sector which the FCCA has had the opportunity to investigate. 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 investigated in-depth and ultimately cleared without conditions. While the market has consolidated significantly, it is still unclear what will come of the government’s major overhaul of how the provision of social and healthcare services is organized in Finland.

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 have a concentration prohibited, 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. It is worth noting that the Market Court, unlike the FCCA, can unilaterally impose remedies. The Market Court can rule that the merger may be approved with the conditions set by the Court, regardless of whether the parties to the merger approve of the conditions or not. However, if the parties find the remedies imposed unacceptable, they may withdraw from the merger, as happened in the NCC Roads Oy/Destia case back in 2011.

This is a high profile case with significant public interest. It will be very interesting to see whether the parties are able to present to the Market Court evidence which would lead to an approval decision, or if we will witness the second ever prohibition decision in Finland less than a year from the first one.

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

Please see the 29 September 2020 press release of the FCCA here.

 

Special thanks to the co-author of this insight Riikka Kanerva, D&I Trainee.

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