Merger investigations – deadlines and subject matter

In connection with recent discussions about merger matters, including the potential merger of Íslandsbanki and Kvika, speculation has been publicly raised regarding the duration of merger investigations and the scope of the investigation.

In the interest of an informed discussion on these matters, it is useful to highlight a few points regarding investigations into merger cases, deadlines and the subject matter of the investigation.

Merger investigations are subject to statutory time limits. This means that the Competition Authority has a predetermined amount of time to complete the investigation after a full merger notification has been submitted. Often, a long time passes between the public announcement of a transaction and the receipt of the merger notification by the Competition Authority.

Good preparation by the merging parties, their provision of information and possible preliminary discussions with the Competition Authority can simplify the merger investigation and shorten the proceedings. Where appropriate, so-called statement of objections are issued to ensure a thorough investigation.

Company mergers can cause significant harm to the public and the business community, and for this reason, the Competition Authority is tasked with overseeing them. Harmful mergers can, among other things, lead to higher prices, poorer service, less innovation and operational inefficiencies.

Investigations into merger cases can be extremely comprehensive and there are often many factors to consider. Their importance is, however, indisputable, as the aim is always to protect the public, the national interest, and to create a healthy market environment.

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Mergers parties have a lot to say about the duration of the investigation – the Competition Authority, however, is bound by statutory deadlines.

The investigation of merger cases begins when the merging parties submit a completed merger notification. Often, a long time passes between the public announcement of the transaction and the notification being received by the Competition Authority, which can then begin to gather data and investigate the case.

When a completed merger notification has been received, statutory time limits begin, first 25 working days (Phase I) and then 90 working days (Phase II), which the Competition Authority invokes in more complex cases, i.e.e. if it considers there are grounds for a further investigation into the merger's effects on competition.

This means that the investigation of a merger notified on 1 February 2023 is generally completed no later than 21 July of the same year.

However, there are two exceptions to this, both of which are at the disposal of the merger parties. On the other hand, the merging parties may put forward proposals for possible conditions in the case so late (after the 55th business day of the investigation) that an additional 15-day period is triggered, in order to give the competition authority time to assess the conditions and respond to them. However, the merging parties may unilaterally request an extension of the deadline by up to a further 20 working days.

Merger parties can also withdraw a merger notification at any stage, thereby ending the investigation.

Preparing merger partners is crucial – preliminary talks

Good preparation by the merging parties, their provision of information and possible preliminary discussions with the Competition Authority can simplify merger investigations and shorten the review period.

Mergers can be subject to pre-notification discussions with the Competition Authority, i.e. before a notification is submitted and deadlines begin to run. They can be subject to confidentiality. The usefulness of pre-notification discussions depends primarily on the extent to which the merging parties are prepared to engage in frank discussions with the Competition Authority and put their cards on the table. If this is the case, and the Competition Authority is familiar with the relevant markets, pre-notification discussions can highlight the main concerns regarding the merger's competitive effects, thereby making it easier for the merging parties to assess whether it is appropriate to proceed with the merger.

Pre-notification discussions can also be used to ensure that the Competition Authority receives all adequate data and information simultaneously with, or very shortly after, the notification of the merger, or even earlier.

Status meetings to facilitate the resolution of a matter

The Competition Authority also often offers status meetings during the processing of merger cases that require a very thorough investigation. These allow the Commission to communicate information on the progress of the case to the merging parties as quickly as possible. At such meetings, the Commission, among other things, sets out its preliminary assessment at that stage of the investigation.

Status meetings can therefore enable the merger parties to assess whether it is right to proceed with the merger plans, to propose conditions to prevent negative competitive effects of the merger or to call it off. Furthermore, status meetings can provide the merging parties with an opportunity to request settlement negotiations.

Objection documents issued to ensure a thorough investigation

If the Competition Authority considers that an adverse decision may be taken in the case, it prepares a document called a statement of objections. This describes the case and presents a preliminary assessment of the merger's effects on competition.

By issuing an objection statement in a merger case, the Competition Authority goes further than is generally required in administrative law. This makes it easier for the merging parties to exercise their right to be heard and to submit counterarguments and, if necessary, further evidence in the case.

Why merger investigations?

According to Article 1 of the Competition Act, the aim of the Act is to promote effective competition in trade and thereby contribute to the efficient use of the nation's factors of production. It is stated that this objective is to be achieved, inter alia, by combating harmful monopolies and restrictions on competition, and by facilitating the entry of new competitors into markets.

By their very nature, mergers and acquisitions will, unless changed, lead to a reduction in the number of companies in the relevant markets, and there is a risk that competition will be impaired as a result. This can mean that customers have to pay higher prices or receive poorer or less service. Consequently, it is important to assess the impact of mergers on competition on each occasion. The merger rules of competition law are modelled on the European system, and a comparable merger assessment is carried out in most, if not all, EEA countries, as well as by the European Commission.

A common characteristic of Icelandic markets is that they are often served by a relatively small number of companies. Many markets also have considerable barriers to entry, which include the difficulty of entering the market and a lack of foreign competition.

In such markets, mergers (increased concentration) can be very damaging to the public interest and the national economy. Merger investigations are often the only opportunity to prevent such damage.

What is under investigation?

In merger cases, it is investigated whether a dominant position is being created or strengthened. It is also examined whether the merger otherwise significantly impairs competition. A merger can thus harm competition and be grounds for intervention even if a dominant position is neither being created nor strengthened.

When assessing this, the Competition Authority applies the same criteria as competition authorities elsewhere in the European Economic Area. The Authority therefore bases its assessment, among other things, on precedents from EU and EEA law.

In some cases, it is clear that a merger has little effect on competition and is therefore cleared quickly. In other cases, however, the issues can be extensive and complex, and of great public interest. In such cases, a detailed investigation into the effects of the merger in question must be carried out.

The following examples can be mentioned:

• How should the relevant markets be defined, i.e. which products and services are affected by the merger and in which geographical areas?
• In which areas do the activities of merger companies overlap?
• What is the market share in the relevant markets and how great will the concentration be?
• How easy or difficult is it to enter the market (barriers to entry)?
• What is the significance of a merger or mergers, regardless of market share? For example, is the acquired company more important for competition than its market share suggests?
• What level of scrutiny are competitors and customers likely to be able to provide if the merger goes ahead?
• What effect does the merger have on the position and ability of the merging parties and their main competitors to coordinate their actions? In other words, does the merger lead to an increased risk of collusion or tacit coordination between the companies operating in the relevant market?
• Does the combined company have the ability to exclude its competitors following the merger?
• Does the combined company have the incentive and ability to transfer potential market power from one market to another following the merger? 

Further information

Read more about deadlines and merger investigations at website of the Competition Authority. A list can also be found of merger cases under investigation by the Competition Authority, and those cases that have been investigated in recent semesters.

Last autumn, the National Audit Office published the findings of an administrative review of the Competition Authority, which focused in particular on the handling of merger cases. The National Audit Office considered that neither the processing time nor any weaknesses in handling had been so extensive as to undermine the efficiency and effectiveness of investigations during the period under review. However, the Auditor General made various recommendations and suggestions aimed at strengthening the operation.

Further information about the review and the Competition Authority's response can be found on a dedicated information page on the authority's website.