Overview of merger control activity during the last 12 months
Ireland's merger control regime, as set out in Part 3 of the Competition Acts 2002 to 2012 ("Act"), is mandatory and imposes a prohibition on the merging parties putting a notifiable merger into effect prior to Authority clearance.
There was a notable increase in Irish merger activity in 2013, reflecting a growth in market confidence that was first shown by merger control statistics for the last quarter of 2012. Specifically, a total of 37 filings were submitted to the Competition Authority ("Authority") in 2013, as compared to 33 filings in 2012 (14 in the last quarter), 40 filings in 2011 and 46 filings in 2010.
No filing submitted to the Authority during 2013 resulted in a Phase II investigation. However, during 2013, the Authority initiated and completed two Phase II investigations of mergers that were notified to it in 2012 (Uniphar / CMR M/12/027 and Top Snacks / KP Snacks M/12/031). The published determinations on these two cases provide valuable insights on the investigation techniques that the Authority is likely to adopt during Phase II(e.g., market surveys and economic analysis), as described further below.
During 2013, no merger approval was issued by the Minister for Finance under the Credit Institutions (Financial Support) Act 2008. As of 25 July 2013, when the 2008 Act was repealed by the Central Bank (Supervision and Enforcement) Act 2013, the Minister for Finance no longer has a statutory power to review mergers. The 2008 Act had provided the Minister for Finance with power to review mergers involving credit institutions where he/ she was of the opinion that the proposed merger was necessary to maintain the stability of the financial system in the State. The only merger approval that was granted by the Minister for Finance under this Act was for AIB's takeover of EBS in June 2011.
The Authority has the power to extend the one-month statutory timescale for a Phase I investigation by issuing a Requirement for Further Information ("RFI") that 'stops the clock'. During 2013, the Authority issued a RFIon two occasions (BT / ESPN Global M/13/003) and (Blackrock / CS ETF M/13/001). In January 2014, the Authority issued a RFIin respect of a filing that was submitted to it in December 2013 (Glanbia / Wexford Creamery M/13/036). The longest time taken to issue a (Phase I) clearance in 2013, resulting from issue of a RFI, was 90 days (Blackrock / CS ETF M/13/001).
The average duration of a Phase I investigation (without a RFI) was 23.2 days in 2013. To put this in context, the shortest Phase I investigation period in 2013 was 14 days (Bridgepoint / Cool Holding GmBH M/13/025) and the average Phase II investigation lasted 113 days in the period 2003-2011.
Only one determination published by the Authority during 2013 (Promontoria / Greenstar M/13/015) makes reference to a target company being in financial difficulty, and "failing firm" arguments were not addressed by the Authority in its published determination. In previous years, cases involving firms in difficulty have not led to any new principles of competition analysis, with the Authority avoiding a "failing firm" analysis, but rather have involved the Authority expediting its normal review process to deal with the timing realities where firms are in liquidation or receivership.
There is no indication that the Authority intervened in any deal that was not compulsorily notifiable to it (i.e., where jurisdictional thresholds were not met) during 2013. In 2012, Authority intervention led to the withdrawal of a non-notifiable merger, in respect of which a merger agreement was already signed, for the first time (Eason / Argosy). A press release by the Authority stated that the merger would have reduced the number of new book wholesalers in Ireland from two to one, and that the merger was withdrawn following the Authority's decision to commence legal proceedings challenging its lawfulness. This case demonstrates the need for parties to conduct an early and detailed analysis of non-notifiable transactions that present material competition issues in Ireland, and to consider closely the appropriate strategy for interaction with the Authority.
New developments in jurisdictional assessment or procedure
On 20 December 2013, the Authority published new Merger Guidelines, which replace the Merger Guidelines that were in place since December 2002. Two public consultations on draft Merger Guidelines were carried out in recent years: firstly in December 2010 and subsequently in September 2013. It is to be welcomed that the Merger Guidelines provide a fuller picture of the Authority's views on the fundamental principles and procedures of merger assessment, the relevance of specific market features, merger effects and 'theories of harm', and the role for competition economics. It is also helpful that the new Merger Guidelines align the Authority's guidance on Herfindahl-Hirschman index ("HHIˮ) thresholds with that of the European Commission. However, it is regrettable that the new Merger Guidelines do not refer to any precedent decisions by the Authority and do not explain whether any aspect of the new Merger Guidelines departs from the previous thinking and decision-making practice of the Authority.
The new Merger Guidelines indicate that the Authority remains influenced by the work of the International Competition Network (the "ICN") of which it is an active member, and also of the EU, UK and USA competition authorities. The Authority appears minded to follow the new US DOJ and FTC approach, as set out in their 2010 Horizontal Guidelines, to reduce the importance currently afforded to the small but significant and non-transitory increase in price ("SSNIPˮ) test and market definition, in that the new Merger Guidelines state that "it is not always necessary to reach a firm conclusion on market definition". The Authority has consistently reviewed mergers by emphasising unilateral and coordinated effects as the main theories of harm, and this position is unchanged in the new Merger Guidelines.
The long-awaited Consumer and Competition Bill is expected to be published in the first quarter of 2014. This legislation has been in progress since Summer 2011 and is expected to introduce significant changes to the procedure and tests applicable to media mergers. The Authority has sought changes to some procedural issues also (see 'Reform proposals', below).
One area of ongoing interest is the issue of implementation of a transaction prior to clearance. The Authority has always been implacably opposed to implementation prior to clearance.
However, the way in which the merger regime operates so as not to permit notification prior to conclusion of a binding agreement/announcement of a public bid, and the absence of a discretion to exempt implementation prior to clearance, causes real difficulties for merging parties. The Authority has suggested that the Act be amended to allow early notification of transactions, reducing the number of occasions where this issue arises. However, it is not clear whether this objective will be met by the forthcoming Consumer and Competition Bill.
In terms of new developments in jurisdictional assessment during 2013, the only case of note is RP Management / Elan (M/13/017). This was a public bid by Royalta Pharma to acquire Elan, which was cleared at Phase I and subsequently withdrawn. The published determination does not explain the Authority's jurisdictional analysis of the case. However, its content shows that the jurisdictional requirement that each of at least two undertakings "carries on business" in Ireland or Northern Ireland may be interpreted broadly by the Authority. In particular, the illustrative examples that are included in the Authority's 2006 guidance notice1 do not provide an exhaustive meaning of the term "carries on business", so that the Authority has discretion to apply a broader interpretation where deemed appropriate. In this case, the Authority took the view that Elan "carries on business" in Ireland or Northern Ireland, notwithstanding that the determination indicates that Elan generates no turnover in that territory and Elan does not make any direct sales to customers located in that territory.
Key industry sectors reviewed and approach adopted to market definition, barriers to entry, nature of international competition, etc.
The industry sectors most likely to be subject to merger control review by the Authority are mergers involving financial services. This reflects the facts that the Irish merger control system is mandatory, and the only relevant factor is the turnover of the undertakings involved and not substantive overlap, such that the high proportion of such mergers is more a factor of the number of financial institutions carrying on business in Ireland and their high turnover, rather than the approach of the Authority to market definition or to any other substantive concern. Within this industry sector, private equity buyers featured strongly in 2013 with 15 out of the 37 mergers notified (41%) involving such entities.
It is expected that media mergers will continue to feature prominently, due to the disapplication of turnover thresholds for all media mergers, although only four media mergers were notified in 2013, and all were cleared following a Phase I review by the Authority (without conditions), i.e. with no competition issues or plurality concerns following review by the Minister for Jobs, Enterprise and Innovation. There remains some level of frustration that so many media mergers continue to be caught by the Act, imposing an unnecessary regulatory burden on such businesses. However, there is no indication of a desire to modify the scope of the current media merger system so as to enable such mergers to escape merger control review (see 'Reform proposals', below).
Other industry sectors which featured prominently in 2013, 2012 and 2011 include the pharmaceutical sector and the food and drink sector. The latter sector was the subject of five merger control determinations during 2013 and has also produced the only merger control determination which has been the subject of an appeal to date – in August 2008, the Authority prohibited the proposed acquisition by Kerry Group plc of the consumer foods division of the former Dairygold Co-operative (Breeo Foods Limited and Breeo Brands Limited M/08/009). The Authority's prohibition decision was overturned on appeal by Kerry Group to the High Court, based in part on the Court's critique of the Authority's approach to market definition, which had focused on very narrow segments within certain food sectors such as natural and processed cheese. A Supreme Court appeal hearing is pending.
Based on the information available at the time of writing, approximately 23 of the 37 filings submitted to the Authority involved a target business that had a substantial base in Ireland. Once again, this reflects the mandatory turnover thresholds that apply in Ireland.
In terms of the approach to market definition, during 2013 the Authority continued its established practice of exercising restraint and not reaching firm conclusions on market definition where possible. In any event, the Authority did go through the process of identifying potential market definitions in each and every 2013 decision. The Authority took a firm position on market definition in 4 of the 12 cases notified during 2013 that involved horizontal overlaps.
Key economic appraisal techniques applied, and the assessment of vertical and conglomerate mergers
In terms of specific appraisal techniques used during 2013, the Authority used the HHI as a step in at least three cases involving horizontal overlaps. As noted above, the Authority's new Merger Guidelines include HHI thresholds that are aligned with those applied by the European Commission.
The Authority instructed an independent research agency, Ipsos MRBI, to conduct a customer survey as part of each of the two Phase II investigations that it completed during 2013 (Uniphar / CMR M/12/027 and Top Snacks / KP Snacks M/12/031). In the former case, the survey involved written questionnaires and face-to-face interviews with the pharmacy customers of the merging parties. The Authority also engaged in a wide consultation exercise with stakeholders including the Department of Health and the Health Service Executive. In the latter case, a random set of potential customers were surveyed through 'cold call' phone conversations. In both cases, market feedback was used to support the Authority's conclusion that the merger raised no significant competition issues.
The Authority instructed two academic economists, Professors from the University of East Anglia and from University College Dublin, to inform its review of each of the two Phase II mergers that were investigated during 2013 (Uniphar / CMR M/12/027 and Top Snacks / KP Snacks M/12/031). The Authority's final unconditional clearance determination in each case relied upon the expert economists' views on the dynamics of the market(s) where the relevant horizontal overlap was identified, in particular based on econometric analysis of sales data (e.g., AC Nielsen / EpoS data).
Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation
The Authority is willing to consider remedies in each of Phase I and Phase II. In circumstances where remedies are voluntarily suggested by the merging parties in Phase I, this increases the period for Authority review from a one-month period to 45 days. While the Authority states that it prefers for remedies to be set out as early as possible in the process, there is some frustration among practitioners that the Authority's internal processes are not well suited to an early engagement on such matters. This can lead to mergers moving to Phase II even where there is an appropriate remedy offered early in Phase I(as the Authority does not allow itself sufficient time to consider the issues).
The Authority's preference when considering mergers is where possible to identify an available structural remedy and then to consider behavioural remedies. In practice, structural remedies are rare. Where behavioural remedies are adopted, the Authority prefers those which require the least possible oversight role by the Authority itself in demonstrating compliance. In the last Phase II merger involving remedies, Metro / Herald (M/09/013), the Authority imposed a requirement that an annual report be submitted by the independent chairperson reporting on compliance. This mechanism has worked satisfactorily to date.
The Authority has not to date published any guidelines in relation to remedies. However, its approach to the small number of cases in which structural remedies have been imposed to date (for example, Premier Foods / RHM (M/06/098) and Communicorp / Emap (M/07/040)) has increasingly relied on both EU and UK guidance, and has required the appointment of an independent trustee with a mandate to oversee and, if necessary, enforce the divestiture process.
As part of its commentary on the proposed reform of the Act by the Department, the Authority has proposed that the time period for Phase II be extended from three months to four in all cases (see 'Reform proposals' below) and by a further period of 15 days in the event that remedies are considered during Phase II.
Key policy developments
There are no new policy developments in Irish merger control as such. The Competition (Amendment) Act 2012 introduced certain changes to strengthen competition law enforcement powers and sanctions, but did not impact on merger control rules or policy. The new economic disciplines imposed on the State in seeking to recover from the economic crisis seem to have introduced a possible new commitment to, and focus on, the role of competition and the need for a new, strong, merger control regime. One significant step taken during 2012/13 was the recruitment of new case officers by the Authority, which could lead to a re-energised enforcement regime.
The forthcoming Consumer and Competition Bill is due to amend the Act to facilitate the merging of the Authority and the National Consumer Agency. From a policy perspective, the outcome of this merger may be greater alignment in future between the Government's approach to developing, resourcing and targeting consumer and competition law enforcement.
There are a number of proposals for reform which could impact on Irish merger control rules.
Changes to the Act, by virtue of the Competition and Consumer Bill, during the first quarter of 2014 are expected to include changes to the media merger control regime to take account of recommendations contained in the 2008 Report of the Advisory Group on Media Mergers ("Report").
However, while the Report recommends that the Act be amended to provide for a separate system of notification of media mergers to the Minister for Jobs, Enterprise and Innovation for clearance, we understand that it is likely that the Minister for Communication will take the role of the Minister for Jobs, Enterprise and Innovation. While the Authority would continue to review the competition aspects of media mergers under the substantial lessening of competition ("SLCˮ) test, media mergers would require an additional notification to the Minister for Communications (on a specific notification form and attracting a separate fee) who would apply a statutory test (discussed below) to ensure that the merger is not contrary to the public interest.
The Report proposes that media mergers which fall within the jurisdiction of the EU Merger Regulation should also be notified to the Minister of Communications for approval. This would appear to provide for a specific mechanism (not currently provided for under the Act) for the application in Ireland of Article 21(4) of the EU Merger Regulation, which allows Member States to take "appropriate measures" to protect legitimate interests, including media plurality.
The Report defines a proposed new statutory test to be applied by the relevant Minister in a review of media mergers, i.e.: "whether the result of the media merger is likely to be contrary to the public interest in protecting plurality in media business in the State". Plurality of the media is defined in the Report as including "both diversity of ownership and diversity of content".
The Advisory Group also recommends the adoption of a revised set of "relevant criteria" to be considered in applying the above test, including the likely effect of the media merger on plurality; the undesirability of allowing any one individual/undertaking to hold significant interests within a single sector or across different sectors of media business in the State; the consequences for the promotion of media plurality of the Minister intervening to prevent the merger; and the adequacy of other mechanisms to protect the public interest.
The Report recommends that these criteria should be supplemented by more detailed statutory guidelines to be issued by the relevant Minister. Such guidelines are intended to assist the undertakings involved in knowing how the Minister will apply the "relevant criteria". It is proposed that the guidelines would contain indicative guidance on levels of media ownership and in particular, cross-media ownership that would generally be regarded as unacceptable. They would also provide for concrete indicators of diversity and plurality which might operate as a "sort of checklist" which the parties to a media merger would be invited to address in their notification. Examples given include demographic audience information and market share data, shareholder information, compliance by the parties with industry codes of good practice, and whether the parties have a "record of truthful, accurate and fair reporting".
Should the Government implement the proposals contained in the Report and reflect comments by the Minister for Communications, parties will require a separate approval from the Minister for Communications prior to implementation of a media merger. The Report suggests a two-phase system for review, in which Phase I would last until 30 days after the date of notification to the Minister or the decision of the Authority / European Commission / Broadcasting Authority of Ireland (to which TV and radio mergers must also be notified), whichever is the later (i.e. effectively a two-month period for mergers notified to the Authority).
At the end of this period, the Minister may decide to: (i) approve the media merger on the basis that it does not contravene the public interest test; (ii) approve the media merger with conditions; or (iii) proceed to a Phase II examination.
It is proposed that a Phase II investigation should last no more than four months from the date of the Phase I decision. In addition, at any stage in the process (Phase I or II), the Minister would be entitled to look for further information and extend time limits by the time required to respond.
In the event of a Phase II review, the Report calls for the establishment of a five-person Consultative Panel comprised of experts in law, journalism, media, business or economics, to advise the Minister on the application of "relevant criteria" (and to replace the existing role of the Authority in this regard).
At the end of a Phase II investigation, unless concluded in the intervening period by a Ministerial decision, the Minister shall decide whether to approve, approve with conditions or block a media merger.
The Report also recommends the on-going collection and periodic publication by the Government of information in relation to media plurality in the State.
The long-awaited legislative proposal based on the recommendations of the Report is scheduled to be published in the first quarter of 2014.
Other proposed reforms
In its response to the Department of Jobs, Enterprise and Innovation's public consultation on a general reform package for the Act, the Authority requested that a number of changes be made to the Act, including changes to the merger control provisions in Part 3. The more important changes suggested by the Authority include:
Proposal to allow notification in advance of conclusion of a binding agreement (as is currently the case), allowing notification based on a "letter of intent", for example. In making this proposal, the Authority made reference to the European Commission's requirement for there to be "a good faith intention to conclude an agreement".
Proposals to introduce "more appropriate sanctions". At the moment the sanctions for breaching various elements of Part 3 of the Act, including knowing and wilful failure to notify a notifiable transaction within the statutory one-month period, and breach of a provision of a binding commitment or a conditional clearance determination, are criminal offences under the Act. It is, in the Authority's view, more appropriate that the sanctions for these infringements are civil. The Authority is also seeking civil sanctions for implementation of a transaction prior to clearance for the first time.
Proposal to include partial investments: at the moment the Act refers to mergers that involve a change in decisive control. The Authority has noted a suggestion in the literature and case law that there is a case for analysis of partial investments – i.e. those that fall short of decisive control. The Authority makes some tentative proposals for discussion on this issue, although it makes no definitive recommendations.
Proposals to extend time limits for review. The Authority has two major suggestions: (i) to extend a Phase II review from three to four months; and (ii) to enable it to "stop the clock" during Phase II following a requirement for further information.
Proposal to review the media merger provisions. The main suggestion (consistent with recommendations of the 2008 Report) is to remove the Authority from having to opine on "public interest criteria" in media mergers, as it "is not within its area of competence". The Authority also notes that even with recent revisions to the Media Order, media mergers with little nexus to the State are still captured under the Act, and it is thus proposed to introduce revisions to resolve this issue.
1. "Notice in respect of certain terms used in Part 3 of the Competition Act" (N/02/003).
Originally published in Third Edition of Global Legal Insights – Merger Control; published by Global Legal Group Ltd, London.
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