Getting The Deal Through logo
Getting The Deal Through


Erik Brändt Öfverholm is head of the competition and EU law group of Baker McKenzie’s Stockholm office. Erik helps Swedish and international clients with cartels, abuse of dominance, regulatory issues and merger control. He has worked at leading law firms on a number of cases in the private equity, healthcare, retail and franchise, media and communication and logistics markets. Erik has a background at the SCA and is therefore especially well-suited to assess the regulator’s outlook on a transaction.

Philip Thorell is an associate and member of the competition and EU law group of Baker McKenzie’s Stockholm office. Philip advices Swedish and international clients on all areas of competition and EU law, including merger control. He also frequently advices on public procurement related matters.

Olof Johannesson is an associate and member of the competition and EU law group of Baker McKenzie’s Stockholm office. Olof advices Swedish and international clients on all areas of competition and EU law, including merger control. He has experience working in competition law for a leading law firm in Brussels.

The group’s significant recent merger control deals include Nordic Capital’s acquisition of Trustly, the leading next-generation direct payment provider and Accent Equity’s divestment of Corvara to Veolia.

GTDT: What have been the key developments in the past year or so in merger control in your jurisdiction?

Erik Brändt Öfverholm, Philip Thorell and Olof Johannesson: As of 1 January 2018, the Swedish Competition Authority (SCA) is authorised to approve or reject transactions, in effect making this the first time decisions in merger control cases will be made directly by the authority. Before that, the SCA had to file a summons to the Patent and Market Court to block a notified transaction, which would often take several months just in the first instance – often resulting in the merger being abandoned. This increased power was established in order to align the SCA’s decision-making powers with those of the European Commission, as well as to increase the authority’s effectiveness. The SCA has updated its guidance for notification and review of concentrations to reflect the new changes.

The change has been heavily criticised, perhaps most strongly by the Swedish Bar Association, on the grounds that legal certainty will be reduced. However, the SCA has responded to the criticism by introducing new internal rules of procedure that prevent the personnel that actively investigate a case from participating in the actual decision-making process. It has also introduced an opportunity for notifying parties to be invited to a formal oral hearing if the SCA is considering whether to deliver a decision that would prevent a concentration. During the hearing, the parties are given a chance to supplement or further develop their arguments on why the concentration should be approved. The hearing is led by an independent chairman and other attendees from the SCA including the director general and the chief legal and economic counsel.

In our view, the impact of the new rules should not be overestimated. The SCA is generally competent and is expected to handle its new powers fairly, and there are usually only a few cases per year where a merger is blocked, or approved subject to conditions. At the time of this interview, no decisions to block a merger have been made by the SCA.

Seventy-six concentrations were notified to the SCA in 2017, all of which were approved without conditions. This is aligned with the start of 2018, when 19 notifications were filed during the first quarter. In 2016, 74 mergers was notified. The number of concentration filings in 2016 and 2017 was, however, significantly higher than the years prior (61 in 2015 and 67 in 2014). This trend can be explained by the economic growth in recent years. It is predicted that the numbers of mergers and acquisitions in Sweden will be even higher in 2018. 

The SCA rarely finds concentrations to be problematic from a competition law perspective. Only three merger notifications were subject to an in-depth investigation (Phase II) in 2017, compared with four notifications in 2016 and 2015 respectively, and three in 2014. Only one Phase I decision included reasoning from the SCA. One notification was considered inadmissible as the SCA found nothing to suggest that the four notifying parties had joint or sole control of the target company of which they had each acquired 25 per cent of the shares.

The SCA did not initiate any court proceedings in 2017 or in the first quarter of 2018. Normally there is at least one, or perhaps two, cases per year. Consequently, no judgments were made by the Patent and Market Court or Patent and Market Court of Appeal on merger control.

“This prioritisation does not appear to have had an impact on the outcome of any merger control decisions.”

GTDT: What lessons can be learned from recent cases to help merger parties manage the review process and allay authority concerns at an early stage?

EBÖ, PT & OJ: The merger review process at the SCA can be extended if the submission is incomplete at the time of filing, as the clock for the time limits for Phase I will not start until the SCA considers the notification complete. The SCA may also stop the clock if the notifying parties do not comply with an injunction to provide additional information or answer questions, which can also delay the process.

The SCA is generally quick to deliver merger notification decisions compared to many other competition authorities. If the filing is deemed complete and the concentration is unproblematic, a decision can be delivered in Phase I in a considerably shorter time period than 25 working days (eg, 10–15 days). The SCA is required to deliver a decision to move into Phase II within 25 workings days, or the merger will be automatically approved. The time limits can only be extended with consent from the notifying parties.

Pre-notification contact with the SCA is recommended, at least in more complex cases, as a good way to get a sense of the SCA’s initial concerns that can be addressed in the notification directly. During the review process the SCA often asks the notifying parties and their advisers questions. The communication is often informal (eg, via telephone or email), but the SCA is also empowered to request information by formal injunctions. The SCA’s case handlers are easy to contact and readily available throughout the process, which is also expected from the notifying parties and their advisers. The SCA requires that all information listed in its guidance is included in the merger notification filing. It is, however, flexible in giving waivers to certain information requirements, if requested by the notifying parties.

The open communication with the SCA throughout the process, and its transparent guidance on its internal procedures on assessing merger notifications, tends to make the outcome of a merger process fairly predictable. If the SCA is considering blocking a merger, or to clear it with conditions, it will send the draft decision beforehand to give the notifying parties a chance to comment on it.

GTDT: What do recent cases tell us about the enforcement priorities of the authorities in your jurisdiction?

EBÖ, PT & OJ: There is no real conclusion to be drawn regarding the SCA’s enforcement priorities from recent cases as there have been so few reasoned decisions.

During a competition law conference in April 2017, the authority commented on its future enforcement priorities. It explained that the new patterns of e-commerce and the sharing economy will be prioritised in merger control and that these patterns may affect its supervision and the possibilities for effective examination of concentrations. It did not, however, explain how these priorities will actually be implemented.

The SCA also regularly announces that it will focus its supervision on specific sectors and industries for a certain period of time. This prioritisation does not appear to have had an impact on the outcome of any merger control decisions.

There are no indications that the SCA is governed by political considerations or influence in its merger control decision-making.

GTDT: Have there been any developments in the kinds of evidence that the authorities in your jurisdiction review in assessing mergers?

EBÖ, PT & OJ: A recent trend is that the SCA is more frequently using data gathered from public procurements in all types of competition law investigations (eg, to identify cartels, abuse of dominant positions and for merger control, as seen in the Ahlsell/Viacon decision in 2017.

However, the SCA still primarily relies on the information provided by the notifying parties and information requests from concerned third parties, such as customers, competitors etc, in its reviews, especially in Phase I. It is especially keen on hearing third-party views on competition concerns both pre- and post-merger.

The SCA has its own economic experts who participate in merger investigations. It is not required or customary for a party to include its own expert economic evidence in the merger notification. It could, however, be relevant to include this evidence in more complex concentrations or to supplement the filing later on to refute the findings of the SCA’s economic experts.

The SCA’s updated guidance also provides additional transparency on its internal work procedures regarding gathering and assessment of evidence in merger control matters.

GTDT: Talk us through any notable deals that have been prohibited, cleared subject to conditions or referred for in-depth review in the past year.

EBÖ, PT & OJ: No mergers were prohibited or cleared subject to conditions in 2017 or in the first quarter of 2018. Only the following three merger notifications were subject to an in-depth Phase II review.

In the Nibe/Enertech transaction, the SCA decided to move into a Phase II investigation as the Phase I investigation indicated that competition in the market for heat pumps could be significantly impeded as a result of the concentration.

In Phase II, the SCA roughly defined the market and market shares based on information submitted by the notifying parties and from interviews with and information request injunctions from third parties. It found that Nibe and Enertech were competitors in some product segments where their combined market share would be high post-merger. In addition, the market was already very concentrated and the Herfindahl-Hirschman Index delta would exceed the European Commission’s de minimis increase by a good margin, although the market shares and concentration levels were not high enough to assume that competition would be impeded. Ultimately, the SCA found that concentration was unlikely to significantly impede competition as there were circumstances that refuted its theory of harm (ie, that the concentration would lead to price increases or a reduction of product quality, or both). The customers could easily turn to other suppliers, and there were also no significant barriers for entry to the market, or for existing competitors to expand. The SCA therefore approved the transaction.

The SCA also decided to conduct a Phase II investigation in the Arla/Gefleortens Mejeri transaction since both competitors and customers had expressed strong concern as to how the concentration would affect competition in the market for dairy products – a market that was concentrated and where Arla already held a dominant position pre-merger.

In Phase II, the SCA conducted a thorough market analysis by acquiring market and sales data, consumer surveys, data on margins for different categories of customers and products, and information from competitors, customers and interest organisations through in-depth interviews. The SCA also conducted its own consumer and merchant surveys and extensive economic analysis. The latter is not customary for the SCA’s investigations and shows that it must have had serious concerns for the concentration initially, and likely prepared to gather sufficient evidence to block the concentration. The findings in Phase II also confirmed Arla’s strong market position, which was expected to be even further strengthened by the concentration. The transaction would also result in the disappearance of a player in the already concentrated market. However, the investigation also showed that Gefleortens Mejeri did not impose significant competitive pressure on Arla before the concentration, and the pressure was expected to be reduced in future owing to its decreasing profitability. The SCA also deemed that there were no indications that the possibilities for existing competitors to expand, or for new undertakings to enter the market, would be unaffected by the concentration. The SCA therefore approved the transaction.

The SCA’s decision to conduct a Phase II review of the Ahlsell/Viacon transaction was motivated by concerns from competitors and customers that the merger (the acquisition of Viacon, the fourth-largest player in the market for distribution of water and sewer supplies, by Ahlsell, the largest player) was going to have a negative impact on competition in an already highly concentrated market. There was particular concern from third parties that Viacon had exerted considerable price and competitive pressure on the market, which was expected to disappear as a result of the concentration.

In Phase II, the SCA gathered information from competitors, customers and suppliers to Ahlsell and Viacon. The SCA also reviewed data from public procurements that Ahlsell and Viacon had participated in, which is something it has done more frequently in recent years. It found that while the concentration would lead to relatively high market shares for Ahlsell, it would not lead to the company being able to act independently of its competitors. It was also considered unlikely that competition would be significantly impeded. The customers had other suppliers to turn to and there were no significant barriers to entry to the market or for existing competitors to expand. The SCA therefore approved the transaction.

GTDT: Do you expect enforcement policy or the merger control rules to change in the near future? If so, what do you predict will be the impact on business?

EBÖ, PT & OJ: As mentioned, new decision-making powers for the SCA have recently been introduced, and its guidance on merger filings has been updated. There are no more proposals to change the merger control rules or enforcement priorities in the near future. In the long term, it is not unlikely that a deal-size threshold will be included in Swedish merger control as has recently been done in Germany.

The Inside Track

What are the most important skills and qualities needed by an adviser in this area?

An adviser must have a clear understanding of the entire process, and be involved from the first stages of the deal. A commercially viable merger control strategy is key to a successful outcome, especially when dealing with more complicated transactions. A good understanding of the parties’ respective businesses is important, as well as knowledge of the internal workings of the SCA.

What are the key things for the parties and their advisers to get right for the review process to go smoothly?

The notification itself must be convincing, and time should be spent to make the information therein clear and informative. After submission, it is important to be involved in the process and to be proactive when dealing with the SCA. The authority will ask questions and require swift turnarounds, and it is important to be expedient while staying focused on the target of obtaining clearance.

What were the most interesting or challenging cases you have dealt with in the past year?

Erik Brändt Öfverholm and Philip Thorell advised Nordic Capital on its acquisition of Trustly, the leading next-generation direct payment provider, and Accent Equity on its divestment of Corvara to Veolia.

Erik Brändt Öfverholm, Philip Thorell and Olof Johannesson
Baker McKenzie
Stockholm
www.bakermckenzie.com


Back to Merger Control




Follow Getting the Deal Through for the latest updates on law and regulation worldwide

Follow us on LinkedIn