The article was first published as Article on the Viðskiptablaðið website on 26th June.
Recently, familiar critical voices from merger control were revived and made themselves heard. The purpose of this article is to discuss the merger control of the Competition Authority over the last three years, 2021-2023, based on figures and facts.
Between 2018 and 2020, merger cases were split almost equally, with on average around half of the cases being referred to the so-called Phase II for further investigation. Over the last three years, however, the situation is that less than a third of mergers are moved to the second phase for further investigation:
This shows that the number of merger cases cleared quickly at Phase I, or within 25 days, has increased considerably at the Competition Authority, as the authority needs to plan its work effectively in light of pressure, reduced funding and limited manpower. Merger cases, however, are a high priority for the Authority due to statutory deadlines, which impacts other investigations, a situation largely attributable to insufficient funding for the sector.
In comparison with other EEA countries, the proportion of further investigations and Phase I merger cases is normal in Iceland:
This statistics shows that the Competition Authority holds its own when compared with other competition authorities in terms of the proportion of merger cases concluded with simple Phase I decisions in 2023, and ranks itself among powerful competition authorities, despite the oligopolistic conditions in Iceland.
However, statistics only tell half the story, as the actual handling of a case is measured in days, not by some kind of binary system of Phase I or II. A merger investigation can take anywhere from a few days to a maximum of 150 working days, as stipulated by law. Merger cases were, on average, under investigation by the Competition Authority for 42 working days over the past three years. This includes all merger cases, short and long, simple and complex, at both Phase I and II. Long cases where deadlines are even fully utilised can skew such statistics, and it is then advisable to use the median. Thus, the median number of days for merger case handling has been 25 working days over the last three years:
The waiting period for companies is generally no longer than this, and can be shorter. This statistic also includes longer merger cases that began in 2023 but were only recently concluded this year, 2024.
In light of the statistics that have been set out here, both the positive development in the number of Phase I cases and the normal speed of proceedings in terms of days, it is surprising when it is asserted that nothing has changed at the Competition Authority or that merger control is inefficient and therefore needs to be changed, contrary to the available evidence.
Comparing apples and oranges
Here, oligopoly conditions prevail in many markets for a variety of reasons, and consumers feel the effects of this every day. Market access, for example, is completely different from that found in other EEA countries. In the vast majority of the EEA area and on continental European markets, market conditions can therefore be entirely different from those in Iceland; this is clear for all to see. Iceland's location, distances from other markets, single and long supply routes to the country, rural settlement, small population, long distribution and transport distances within the country, and finally, barriers to entry that hamper the establishment of new companies, all lead to a lack of competition here. All such factors can justify a relatively greater number of interventions and more extensive investigations than in other EEA countries.
Despite these oligopolistic conditions, the Competition Authority is on a similar footing to other competition authorities in terms of the proportion of Phase II investigations, as previously stated. The oligopoly may explain why the proportion of interventions is slightly higher domestically. However, it should be borne in mind that the vast majority of the Competition Authority's interventions are settlements with companies. Last year, in 2023, one merger was annulled, but in five cases, a merger was approved with conditions as part of a settlement.
Then, methods, procedures and even merger regulation can differ between countries, particularly regarding case handling. Thus, there is a significant difference in how merger cases come before the European Commission and when deadlines start to run in merger cases with the Commission on the one hand, and with the Competition Authority on the other. With the exception of simple merger cases, the practice is for companies and their advisers not to submit merger notifications to the Commission without first holding lengthy pre-notification discussions. This means that a large part of the merger investigation at the EU level takes place outside the formal deadlines, and deadlines are usually not triggered by a filing until the Commission and the parties have agreed on the adequate information to be provided in the notification, the parties have answered questionnaires, and even agreed on the main issues of the case if not resolved them by then. This is one explanation for how the Commission clears a higher proportion of merger cases at Phase I.
For this reason, comparing statistics on merger cases in Iceland and at the European Commission is like asking why high jumpers, with and without a running start, do not jump equally high. This has been pointed out many times, but no heed has been paid, perhaps because this fact does not suit the argument of the person in question.
What can cause a long merger case?
In our experience, there are three main factors that can delay merger cases reported to the Competition Authority, which could otherwise have been expedited.
Firstly, pre-merger consultations are underused and rather poorly utilised in this country, although they have increased in recent years. Merger pre-notification is a collaboration between a company and the Competition Authority to provide information and thus speed up the proceedings. Pre-notification is not a unilateral decision by a company to hold a meeting and then submit a merger filing. There are examples of major merger cases in this country having been cleared in the first phase following pre-notification discussions. However, it seems to vary depending on the company's advisers and even law firms, whether and how pre-notification discussions are utilised.
Secondly, there is the inadequate provision of information by companies. It significantly delays merger cases when companies conceal or withhold important information. Furthermore, it causes delays and undermines credibility to state one thing at the start of a merger case, only to say something completely different later in the proceedings when the going gets tough. Incorrect and misleading information is subject to sanctions and even criminal penalties. A 2022 review and report by the National Audit Office found that the Competition Authority needed to pursue such corporate breaches more effectively, and the Competition Authority itself noted that it required better and greater resources for cases of inadequate information provision.
Thirdly, the analysis of companies and legal advice for prospective merger parties can be improved. Sometimes it is better to stay at home than to set off. Competition should not be assessed solely on the basis of market definitions and market shares. There has been significant development in European case law on the prohibition of mergers in oligopolistic markets when close competitors merge. Likewise, companies can save their advisers and competition authorities a great deal of time and expense by not proceeding with a merger if the company in question is not ready. their advisers and competition authorities a great deal of time and expense, by not embarking on a merger if the company in question is not prepared to provide competition authorities with readily available information about its operations and plans, even internal documents.
The truth will make everyone the angriest.
The problem for Icelandic companies seeking synergies is not merger control, but concentration, oligopoly and barriers to entry in Iceland. The solution to that problem is not to raise the turnover thresholds of competition law and reduce the number of merger cases.
The trend in competition law is, on the contrary, that more EEA states are currently requesting and being granted powers to call in merger notifications, even where turnover is below the statutory thresholds (call-in powers). The Competition Authority has such a power, but it is seldom used, and it is also far too rare for companies to take advantage of the power to flag transactions below the turnover thresholds with the authority. The European Commission is calling for more merger cases to be referred to it from the Member States under Article 22 of the Merger Regulation, even though the Commission and national competition authorities have no conventional jurisdiction. In a time of inflation, price rises and high interest rates that burden businesses and consumers, a robust competition and merger control is particularly important.
It so happens that three years have passed since the Althingi approved a request for an audit and the writing of a report on the Competition Authority's merger control in 2021. The audit covered the years 2018-2020. Needless to say, the conclusion of the National Audit Office was that the handling of merger cases was not unduly lengthy, and that there were no weaknesses in the processing of mergers that diminished the efficiency or effectiveness of handling merger notifications. This article then examines the following three years, 2021-2023, where the trend has been even better.
This article is written in response to the column by María Kristjánsdóttir and Heiðrún Lind, current and former lawyers at the law firm LEX, which was published on 20 June 2024 in Viðskiptablaðið. Finally, it is incorrect that, as they state, there is no oversight of the Competition Council and no reasoning can be found when a merger case is moved to the second phase. Although it is only a procedural decision and not an administrative one, the Competition Authority briefly justifies a further investigation in a letter to the companies by raising concerns and setting out presumptions of harm. The purpose of Phase II, however, is a further investigation into a matter that is not yet fully understood. It is therefore not possible to require that reasoned preliminary findings are available at that stage. However, no merger case is referred for further investigation without cause or without explanation.
Halldór Hallgrímsson Gröndal – Lawyer and Merger Control Officer at the Competition Authority
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