Merger Remedies: An enforcers' view of the Commission's case practice during the last three years

Transcription

1 Merger Remedies: An enforcers' view of the Commission's case practice during the last three years Thomas DEISENHOFER Massimiliano KADAR Unit E.4 10 April 2014

2 Disclaimer We speak in our individual capacity. What we say cannot be attributed to the European Commission or DG Competition. When using information from our presentation please refer neither to our identity nor our affiliation.

3 Agenda a. I. Overview of the Commission's recent remedy practice b. II. Lessons learned from recent prohibitions c. III. Remedy design a. Upfront buyer b. Carve-out remedies c. Re-branding remedies d. Non-divestiture remedies d. IV. Remedy implementation e. V. Remedies and international cooperation 3

4 I. Overview of the Commission's recent remedy practice 4

5 Structural vs Behavioural remedies Structural remedies: Parties commit to take a one-off action which durably removes their ability to negatively affect competition in the future Behavioural remedies: Parties retain in principle the ability to negatively affect competition, but commit (1) not to make use of that ability and/or (2) to facilitate competition by others Access remedies can be more behavioural or more structural depending on whether access is granted to a resource controlled by the parties 5

6 The Commission's remedy policy Merger control seeks to protect competitive market structures => preferred solution is usually also structural Structural commitments: are best way to address horizontal overlaps may be best way to address vertical and conglomerate concerns Access commitments may be good remedies for all concerns, if they have equivalent effects to a divestiture Other behavioural commitments may be acceptable only exceptionally (and generally not in horizontal cases) 6

7 Remedies from 2011 to 2013 (1) 33 decisions with remedies 24 phase I 9 phase II Exclusively horizontal concerns in 28 cases Vertical concerns only in: UTC/Goodrich (partly), GE/Avio, Friesland/Campina Zeijerveld (partly) Conglomerate concerns only in: Intel/McAfee, Arm/Giesecke 7

8 Remedies from 2011 to 2013 (2) Horizontal concerns: Solved almost always structurally: 22 divestiture case 3 cases with removal of link with competitor (Glencore/Xstrata, Südzucker/EDFM, GDF Suez/International power) Only 3 non-divestiture remedies: Access/slot remedies in two air transport cases Access to spectrum and access for MVNOs to network in H3G Austria/Orange (In addition to divestiture, behavioural prohibition of MFN clauses in Universal/EMI) 8

9 Remedies from 2011 to 2013 (3) Vertical concerns in 3 cases solved through: divestiture commitments (UTC/Goodrich) Removal of links with competitor/access commitment (Friesland Campina/Zijerveld) 'Take note' of 'assurance of continuation' contracts (GE/Avio) Firewall commitment for the special Eurofighter issue (GE/Avio) Conglomerate concerns in both Intel/McAfee and Arm/Gisecke solved through: access to interoperability information + behavioural commitment not to degrade interface 9

10 II. Lessons Learned from Recent Prohibitions 10

11 M Deutsche Börse / Nyse Euronext Quasi-monopoly (90% share) in European financial derivatives traded globally Remedies proposed: NYX (or NYX/DB) divestment of equity derivatives businesses Access to the merged entity's clearing house for some categories of new contracts on FRAND basis Remedies rejected as: Scope of divestment remedy insufficient to remove concerns and ensure viability "Mix and match" features add risk to the package Concerns about scope, workability and effectiveness of access remedy "Complex and novel" commitments serious concerns as to implementation and monitoring 11

12 M.6570 UPS / TNT Express 3 to 2 merger problems in 15 Members States in the express delivery of small packages Remedies proposed: Divestiture of TNT's subsidiaries in 15 Member States where concerns arose, plus TNT's subsidiaries in Spain and Portugal Provide access to UPS's intra-european air network for 5 years in case purchaser is not an "integrator" Remedies rejected as: Among integrators, DHL was disqualified for competition problems FedEx would have been only suitable option Non-integrators would have qualified only at certain conditions (e.g. access to air network after 5 years) Fix-it-first attempt did not materialise, and in any event La Poste was not suitable Limited pool of suitable purchasers Upfront buyer would have been needed 12

13 M.6663 Ryanair/ Aer Lingus - III Creation of monopoly or dominant position on 46 routes Remedies proposed: Fix-it-first divestiture of Aer Lingus' operation on 43 overlap routes to Flybe (including financial support) Access to slots to IAG/BA at LGW or LHR on 3 overlap routes Flybe and IAG committed to operate on the routes for 3 years Remedies rejected as: Flybe not independent and experienced purchaser Doubtful that IAG and Flybe would remain on the route after 3 years period Doubts over timely implementation of commitments 13

14 Key lessons learned from recent prohibitions Scope of remedy: must remove the competition problem in its entirety (DB/NYSE)....But it may not be enough (Ryanair, UPS/TNT) Fix-it-first is no guarantee for approval purchaser features will always be carefully scrutinised..(ryanair)..but upfront buyer may help when the problem relates to the chance of finding a suitable purchaser (UPS/TNT) Long-term removal of competition problem and independence of purchaser are key issues (Ryanair, UPS/TNT) Too complex remedies may be unworkable (DB/NYSE) 14

15 III. Remedies Design 15

16 Upfront buyer 4 cases in past 3 years: M.6203 Western Digital Ireland / Viviti Technologies M.6497 Hutchison 3G Austria / Orange Austria M.6690 Syniverse / Mach M.6857 Crane Co. / MEI Group N.B. Only 2 cases in period (Arjowiggins / M-real Zanders Reflex and Hexion / Huntsman) In 1 case (UPS / TNT) absence of upfront buyer was amongst the reasons for prohibition In other cases, de facto upfront buyer due to international dimension (e.g. Thermo-Fisher/Life Tech) Trend towards more upfront solutions 16

17 Carve-out remedies A carve-out is a divestment of a business which has strong links or is partially integrated in the operations of the seller In general, Remedy Notice requires a divestiture of a viable, existing stand-alone business (e.g. production plant, subsidiaries) If a stand-alone business cannot be offered/would be disproportionate, Commission can accept a carve-out, but: it is has to meet the same criteria (remove competition problems, viable, competitive, etc) additional safeguards are necessary to remedy the 17 implementation risks of a carve-out

18 How to design a carve-out? Key issues in carve-outs: Assets Personnel IP rights Customer portfolio Supply contracts Necessary safeguards: Reverse carve-out Strict purchaser criteria Upfront buyer 18

19 Example of carve-out M.6690 Syniverse / Mach Near-monopoly position in the markets for data clearing (DC) and near real time roaming data exchange (NRTRDE) Remedies: Carve-out of Mach's DC and NRTRDE businesses in the EEA, including: Platform (hardware, software, intelligence reporting); Personnel, including an executive management team; Customer contracts. N.B. Assets were part of different legal entities Reverse carve-out for certain assets Strict purchaser requirements Upfront buyer 19

20 Re-branding remedies Commission usually requires transfer of the brand Re-branding acceptable only when: (i) the brand at stake is widely used and (ii) high proportion of brand turnover is generated outside market where problems arise Goal transfer customers from licensed brand to new brand and create a viable competitor, without divesting brand Commitment to grant an exclusive, time-limited licence for a brand to allow the licensee to re-brand the product Substantially higher risks than divestitures-> Reverse re-branding preferred Identity of the potential licensee is a key factor often specific purchaser requirements 20

21 Example of re-branding M.6857 McCain Food Group/ Lutosa Business Serious doubts in the Belgian retail market for processed potato products Remedies: 7-year exclusive and royalty-free licence for Lutosa brand in retail sector to undertake re-branding (+ other assets) Serious doubts only in Belgium but licence extended to whole of EEA to ensure viability 8-year black out period Special purchaser requirement: "sufficient financial resources to carry out the rebranding, and either proven expertise with rebranding operations and co-packaging arrangements or having direct access to Belgian potatoes or potato products" 21

22 Example of non-divestiture structural remedy M.6541 Glencore / Xstrata Serious doubts on EEA market for zinc metal Remedies: Divestment of Glencore's minority shareholding in Nyrstar Termination of Glencore's exclusive long-term off-take agreement with Nyrstar Commitment not to buy directly or indirectly any EEA zinc metal from Nyrstar for 10 years Not engage for 10 years in any other practice that would have the effect of materially restricting Nyrstar's ability or incentive to compete effectively with Glencore in zinc metal in the EEA 22

23 IV. Implementation of Remedies 23

24 Typical implementation issues Interim preservation of business to be divested Hold separate obligations: e.g. cut-off of information flows Preserve viability during the interim period: e.g. capital injections Extension of deadlines for implementation Purchaser suitability: Verify that purchaser chosen by parties fulfils buyer criteria (e.g. independence) Find suitable purchaser (if parties fail) Remedy modification / waiver 24

25 Example: M.6471 Outokumpu/ Inoxum (1) Outokumpu (OTK) purchases stainless steel business of Thyssenkrupp (TK) Combination of n.1 and n.2 largest suppliers of cold rolled stainless steel products Remedy: divestment of Inoxum's stainless steel plant in Terni, IT (AST) and distribution assets in Europe Context of divestiture: AST is a large industrial asset (2.3 billion TO in 2013) Presence of interested buyers (e.g. competitor Aperam) Difficult industry conditions Weak financial position of the seller (heavy losses and large stock of debt during divestment period) Social tensions at Terni 25

26 Example: M.6471 Outokumpu/ Inoxum (2) Initial first divestment period (FDP): 6 months H1 2013: FDP extended twice subject to commercial and financial measures to protect AST's competitiveness and viability in the interim June 2013: OTK publicly labels the conditions of the bids presented as "not satisfactory"; "continues to work intensively with all parties to provide as quick a solution as is possible." OTK then requests: Full waiver of the commitments Modification of the divestiture Third extension of the divestiture deadline Commission rejects all requests from OTK 26

27 Example: M.6471 Outokumpu/ Inoxum (3) November 2013: OTK publicly announces sale of AST back to ThyssenKrupp (together with additional assets) TK: Committed to sell 29.9% stake in OTK and sever all remaining links Provided assurances that it intends to invest in AST Presented business plan which the Commission considered as 'based on credible assumptions' Does the purchaser need to have a long-term interest in the business? Would have an upfront buyer changed the process? 27

28 V. Remedies and international cooperation 28

29 Remedies and international cooperation In mergers subject to multiple jurisdictions, a remedy accepted in one jurisdiction may have an impact on other jurisdictions International cooperation aims at facilitating coherence and compatibility in remedies Key issue for parties: Coordinate timing of merger review in different jurisdictions Ensure that agencies can exchange information on remedies (waivers) Find mutually compatible remedies capable of solving competition issues in all jurisdictions at the same time 29

30 Example: M.6944 Thermo-Fisher / Life Technologies (1) USD 13 billion transaction in the life science industry Case reviewed by nine jurisdictions (including EU, Australia, Canada, China, US) All major jurisdictions find concerns on: Gene modulation Cell culture In addition: EU: serious doubts on magnetic beads China: concerns in HLA typing and protein standards 30

31 Example: M.6944 Thermo-Fisher / Life Technologies (2) Intense cooperation with all jurisdictions In spite of some differences in assessment, remedies mutually compatible Timing of review well aligned: 15 April 2013: deal announced 7 October 2013: deal notified to Commission 26 November 2013: Commission clears subject to remedies 16 December 2013: CCB clears unconditionally due to EU remedies 19 December 2013: ACCC clears unconditionally due to EU remedies 15 January 2014: MOFCOM clears subject to remedies 31 January 2014: FTC clears subject to remedies on the same day Commission issues buyer approval decision 31

32 Thank you for your attention Questions?