Mads Magnussen is the team leader of Wikborg Rein’s competition and EU/EEA law practice area. Mads has considerable experience as an adviser within competition law. He has previously worked as legal director of the Norwegian Competition Authority. He has also, for many years, been a judge and during that period been appointed acting director general of the Competition Authority in two significant infringement cases. Mads and his team of 12 competition lawyers advise leading businesses in a number of industries, such as NorgesGruppen (Norway’s largest groceries retailer and wholesaler), Norsk Gjenvinning (Norway’s largest player within recycling and waste handling), Amedia (one of Norway’s largest media groups) and VY (the Norwegian state’s railway company).
Eivind Stage is a specialist counsel within competition law. Besides assisting clients in cases handled by the Norwegian Competition Authority, he has experience of multi-jurisdictional filings, as well as EU filings. Before joining Wikborg Rein, Eivind served several years with the Norwegian Competition Authority, including as deputy director.
GTDT: What have been the key developments in the past year or so in merger control in your jurisdiction?
Mads Magnussen: The Norwegian Competition Authority (the Authority) blocked no mergers and only cleared two mergers subject to commitments in 2018. In addition, one merger was abandoned by the parties in Phase II following concerns from the Authority. So far in 2019, one merger has been cleared subject to commitments. The number of interventions seem to be on par with previous years. In my opinion, the lower number of interventions in the past couple of years is probably a matter of coincidence based on case-specific circumstances and not a sign of a more relaxed attitude towards mergers by the Authority. However, the low number of interventions may also show a more balanced approach from the Authority in terms of clearing mergers when there are not sufficient grounds for intervening.
Eivind Stage: I would add that we have also seen indications of the Authority continuing to show a more accepting attitude towards the efficiency defence. Efficiencies played an important role in the clearance of at least one merger in 2018. We saw this also in 2017, when the Authority referred to efficiencies among other factors, when clearing two of the three mergers that went to Phase II.
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?
MM: The most important lesson is to be well prepared. In complex cases, it is often advisable to approach the Authority at an early stage and present the main issues and available data by entering into pre-notification discussions. Confidentiality is respected, so that discussions may take place before a deal has been signed. Traditionally pre-notification has been uncommon in Norway. Following changes to the filing system that took effect in 2014, the Authority is keen to promote pre-filing talks.
However, expectations must be realistic. The merger rules envisage clearances based on commitments during Phase I and this phase is extended from 25 to 35 working days if commitments are proposed at this stage. However, we have not seen any Phase I remedy decisions yet, and frankly, I do not think it is possible unless the Authority is willing to invest more resources in detailed analyses and engage in candid discussions at an early stage. Experience shows that it is difficult to avoid a Phase II investigation in cases where the Authority has significant concerns. A full investigation may run up to 145 working days if remedies are on the table. Without proposed remedies, the investigation runs 100 working days. So if timing is a major issue, it may be a good idea to consider an up-front divestiture to get rid of any showstoppers.
ES: A particularly important issue to consider is whether two merging competitors can be regarded as ‘close competitors’. In most of the recent years’ prohibition decisions, the Authority has found that the parties were not only competitors, but were deemed as close competitors. A good example is a merger between two marine gas oil providers, St1 Norge and Statoil Fuel & Retail Marine, that was cleared on conditions last year. The parties were evidently competitors, but the Authority made sure to include that they were also close competitors.
GTDT: What do recent cases tell us about the enforcement priorities of the authorities in your jurisdiction?
MM: In my view, it is difficult to see any clear enforcement priorities when it comes to merger control in Norway, at least if you look at the mergers in which the Authority has intervened in the past couple of years. The transactions are from various industries, and not necessarily in priority markets for the Authority. Last year we saw interventions within payment solutions, marine gas oil and port services. None of these sectors are under particular scrutiny by the Authority, possibly with the exception of payment solutions.
To explain, following a significant increase in the merger-filing thresholds in 2014, the Authority decided to keep an extra eye on 10 large companies in already concentrated markets. The Authority feared that these companies could escape the Authority’s merger control scrutiny by acquiring small competitors falling below the new filing thresholds. The Authority imposed a duty on these 10 companies to inform the Authority about all mergers regardless of size. This duty extends to companies in markets for fuel, telecoms, media, security alarms, waste management, groceries, textile services and garden centres, and was renewed in the beginning of 2019. In previous years, we have seen interventions in most of these markets.
The last merger decisions, however, show that the Authority is ready to act in any market, and does not take into account the importance or size of the market. Rather the Authority deals with mergers on a case-by-case basis, and does not shy away from intervening in small markets. As set out in the Competition Act, the Authority is also obliged to intervene if an anticompetitive effect can be identified.
ES: It is important to mention that the Authority has the power to investigate and block transactions that fall below the filing thresholds, which can come as a surprise to many companies. The deadline for the Authority to require a notification in these cases is three months from the signing date. In other words, the buyer may risk receiving a filing request even after the deal has been closed. According to the current thresholds, at least two parties must have turnover in Norway exceeding 100 million kroner. In addition, the combined threshold is 1,000 million kroner in Norway, which excludes most foreign-to-foreign transactions.
Most of the deals below the thresholds have no impact on competition and are of no interest to the Authority, but in narrow or concentrated markets the risk of intervention is quite real. The Authority has recently intervened against a merger below the threshold, which shows that there is no de minimis rule in the Norwegian regime. This was within the market for security alarms, one of the markets that is on the Authority’s agenda. Combined with the Authority’s general focus on local markets, the risk of getting unwanted attention even in a small transaction should not be underestimated. Needless to say, we generally advise our clients to consider sending a voluntary filing in such cases. In some cases we also manage to get an informal clearance from the Authority without having to submit a formal filing.
GTDT: Have there been any developments in the kinds of evidence that the authorities in your jurisdiction review in assessing mergers?
MM: The Authority continues to gain experience in using economic evidence, in particular evidence on diversion ratios. This has been a two-step process. The first step was the use of survey evidence on diversion ratios to shed light on market definition issues. In several cases, the Authority relied on high diversion ratios between the merging parties as evidence that they were competing in the same market.
The second step has been the use of survey evidence not only to inform the market definition but also to measure more directly the parties’ incentives to raise prices post-merger. The Authority is now prepared to carry out gross upward pricing pressure index (GUPPI) analyses, in which they combine data on diversion ratios with data on the parties’ price-cost margins to calculate the incentives of raising prices post-merger.
This development makes us use economic advisers more and more often when dealing with cases that may go all the way. The Authority’s Director General, former Chief Economist Lars Sørgard, is a well-reputed expert who favours economic analysis. It is fair to say that the Norwegian community of competition lawyers expect to see even more of this development in the future.
We can also see from recent cases that the Authority tends to use such analyses in their decisions, and may rely heavily on such analyses. In Telia/Phonero, a merger in the mobile communication sector, a GUPPI analysis seems to have formed the main basis for the Authority’s proposed intervention. After having received the parties’ comments, the Authority had to change important assumptions in its analysis, and ended up clearing the merger unconditionally. That decision was later followed by Telia/Get-TDC from last year, another merger in the mobile communication sector that was cleared in Phase I. However, a characteristic of the mobile communication sector is the clear evidence of loss of marginal cost when acquiring mobile virtual network operators and service providers.
ES: Another key type of evidence for the Authority is internal strategy documents. In most mergers with some level of competition concern, the Authority will request internal documents from both parties. The Authority will review them and search for any information that could support the finding of reduced competition. You will typically also see references to statements from such documents in the prohibition decision.
A particularly important issue to consider is whether two merging competitors can be regarded as ‘close competitors’.
In my view, the Authority should be careful not to read too much into such internal documents. Taken out of context, things may look worse than they are. Nevertheless, companies would be wise to be cautious about what they put down in writing during the lead-up to a merger filing in Norway. We provide our clients who are considering entering into transactions with advice on this at an early stage of the process.
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.
ES: Vipps/BankAxept/BankID was a vertical merger between the mobile payment application Vipps, the national payment system BankAxept and the national electronic identification provider BankID. The merger was cleared in Phase II subject to commitments. According to the Authority the merger would most likely lead to a foreclosure effect on competing payment solutions. It held that the services of BankAxept and BankID were essential to providing payment services in Norway, and that the merged entity would have the ability and the incentives to foreclose competing services. To remedy the Authority’s concerns, the parties committed to offer access to BankID and BankAxept on non-discriminatory terms and to continue to offer BankAxept’s products on a stand-alone basis. The remedies have an initial period of three years and may be unilaterally renewed by the Authority.
The Authority’s theory of harm in this case was straightforward for vertical mergers, where it assessed the incentives to foreclose competitors based on profitability analysis and internal documents (where available). However, it is noteworthy that the Authority still is open to accept behavioural remedies as the only commitments offered. Behavioural remedies have also been accepted previously, but are typically coupled with structural remedies.
As such, St1 Norge/Statoil Fuel & Retail Marine is more in line with the traditional merger practice of the Authority. This case concerned the acquisition by St1 Norge of the marine gasoil provider Statoil Fuel & Retail Marine. The Authority took the view that the parties were large and close competitors and identified three local regions where the acquisition would lead to a significant impediment to effective competition. To address the Authority’s concerns, the buyer undertook structural remedies not to acquire control in two of the regions and to sell its existing base in the last.
MM: The recent Sector/Nokas decision is especially notable as it is the first intervention against minority shareholding. It is also the first prohibition against a merger falling below the filing thresholds. The deal consists of two acquisitions with the security alarm provider Sector as acquiring party. First, a minority stake of 49.99 per cent in the vertically integrated competitor Nokas. Second, a takeover of Nokas’ limited household and SME security alarm portfolio. The Authority intervened against both acquisitions.
In essence, the Authority only considered the horizontal aspects of the case and intervened because the number of competitors would, according to the Authority, be reduced from three to two leading to an upwards pricing pressure and facilitating tacit coordination with its remaining competitor. Although Nokas had a limited portfolio, the Authority considered the company to be a close competitor and more important for the competitive situation than its size implied. The transaction was ultimately approved subject to remedies. Sector dropped the acquisition of the security alarm portfolio and agreed to reduce its minority stake in Nokas to 25 per cent.
In our view, the decision shows that the Authority follows its prioritised sector closely and continues to emphasise the closeness of competition and the need for at least three competitors in a given market. Moreover, the decision seems somewhat at odds with the economic approach from previous decisions as the Authority seems only to have relied on qualitative arguments.
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?
MM: Two years ago, an independent appeals board replaced the Ministry as the appeal body for all competition cases, including mergers. Decisions of the appeals board are subject to judicial review, and actions are brought directly to the Gulating Appeals Court. The main reason for this new appeals body is to ensure independent decisions, meaning that competition cases should not be tampered with by other policy considerations. At the same time, the Ministry also lost its prerogative to clear or intervene against mergers owing to other policy considerations than competition policy. In my view, there were no grounds for suspecting the old regime to be influenced by non-competition considerations, and I believe this is the general perception among competition lawyers.
That being said, our hope is that the new appeals board will take a more independent approach than the Ministry has done so far. In most cases, the Ministry has more or less agreed with the Authority, and you can sometimes get the impression that the Ministry has not put the Authority to the test. We are yet to see what the effects of the new appeals process will be, as so far no merger cases have been dealt with.
ES: Last year a new cooperation agreement between the Nordic competition authorities entered into force. The Nordic agencies have been cooperating for a number of years, but have now expanded the level of cooperation. The respective authorities may now, to a greater extent, exchange confidential information with each other, and have easier access to formally request information from companies located in another Nordic country. It is uncertain if the extended cooperation will have much practical impact on merging parties, but within the Nordic region merging parties should expect information submitted to flow relatively freely between the authorities. A potentially more united group of competition authorities may also be a good thing.
The Inside Track
What are the most important skills and qualities needed by an adviser in this area?
Successful handling of a complicated deal requires the investment of time and effort into understanding the details of the parties’ activities in the markets affected by the transaction, and how those markets work.
However, the outcome also depends on the process. You need to have a solid knowledge of how large deals are investigated by the authority at the various stages of its review process. If you have a complex transaction, you may wish the filing team to include lawyers who have worked at the Authority.
What are the key things for the parties and their advisers to get right for the review process to go smoothly?
In deals where the Authority can be expected to raise concerns, it is important that the filing preparation process is front-loaded. If the notification is based on assumptions that at a later stage of the review process turn out to be questionable or even wrong, it will certainly not help the process. Getting it right from day one requires the advisers and the client to put significant effort into the analysis.
What were the most interesting or challenging cases you have dealt with in the past year?
We acted for the acquirer in a merger case within the metal recycling business. Generally, in the recycling markets, the business is seen as a service to waste producers, since the waste itself has only negative value. However, the interesting part in metal recycling is that metal waste has positive value, meaning that the recyclers are in essence buyers of the waste as a valuable resource, rather than suppliers of a waste disposal service. In the past, the NCA has dealt with several cases concerning the recycling sector, but none relating to metal recycling. As such, the biggest challenge in this case was to get the NCA to accept the analysis that the merging parties were not competing suppliers, but rather competing buyers. This was essential to flip any effects of the merger from being negative to positive. We are quite content to successfully have cleared this case within Phase I.
Mads Magnussen and Eivind Stage
Wikborg Rein Advokatfirma AS
Oslo and Bergen