In three decisions published today, the Competition Authority imposes detailed conditions on banks regarding their takeover of companies operating in important competitive markets. The conditions are imposed to mitigate the competitive distortion that can arise from banks' ownership of the companies concerned.
- The decisions published today concern the takeover of Teymi by Landsbankinn (Eignarhaldsfélagið Vestia ehf.), pursuant to a decision No. 7/2010
- Íslandsbanka, Ingvar Helgason and Bifreiðum og landbúnaðarvélum, cf. decision No. 8/2010
- and Arion Bank's on Högum, pursuant to the decision No. 6/2010
Immediately following the banking collapse, in November 2008, the Competition Authority issued ten principles on competition to state-owned banks, which it considered should be taken into account in the restructuring of companies (see opinion No. 3/2008, Decisions by banks and governments on the future of companies in competitive markets).
Last December, the Competition Authority published a discussion paper. No. 2/2009, Banks and corporate restructuring, which deals with the debt problems of Icelandic companies and the related competitive issues. The Competition Authority called for the views of various stakeholders on the discussion paper, which have been used in the intervention in the activities of banks presented here.
Decision of the Appeal Board No. 18/2009, The phone against the Competition Authority, which fell at the end of January this year, was also of great significance in the resolution of the aforementioned matters. According to the ruling, the Competition Authority is authorised to impose conditions on a bank's takeover of a business, even if the takeover does not involve market overlap or a dominant position. The appeal board considered that exceptional circumstances in the business sector justified this authority.
In reaching the above decisions, various complaints and suggestions received by the Competition Authority have also been taken into account.
Bank conditions for corporate takeovers
The Competition Authority has concluded that the aforementioned acquisitions distort competition and that it is therefore necessary to impose conditions intended to counteract that distortion. The banks have agreed to comply with the conditions set out in the relevant decisions.
The main conditions are as follows:
- The relevant business enterprise shall be sold within a specified period. The bank's ownership of businesses must be subject to strict time limits in order to limit competitive distortion, taking into account the bank's interest in having a reasonable scope to increase or maintain the value of the assets in question. Selling periods vary depending on the circumstances of each case. They are confidential, as such deadlines, if made public, could have an undue effect on the sales process and the sale price.
- It shall be ensured that acquired companies operate as independent competitors in the market. This shall be done, inter alia, by entrusting the management of the relevant companies to an independent holding company of each bank. The holding company shall be located outside the relevant bank and operated as an independent company. Furthermore, conditions are set regarding board membership in the relevant holding companies and the operating companies themselves. For instance, a majority of the board members in the holding companies or operating companies must be independent of the banks.
- Reasonable profitability requirements should be imposed on the relevant businesses. This is important to counteract the incentive for banks to increase the value of acquired businesses by financing undercutting or increasing market penetration, thereby expanding the businesses' market share. These conditions are also intended to limit the risk of managers and employees of the acquired companies viewing the banks' ownership as a protection against any kind of setback (moral hazard).
- The banks are prohibited from interfering with transactions between the acquired companies and other companies in which the banks hold a stake. This prevents the acquired company and other companies connected to the relevant bank from directing their business to each other, without the normal commercial terms being applied.
- The banks are prohibited from interfering with transactions between the acquired companies and the banks' customers. Furthermore, it must be ensured that the same individuals within each bank are not business managers for, on the one hand, the acquired companies and, on the other hand, the clients or competitors of the acquired companies. It must also be ensured that sensitive information is not passed between these companies.
- The annual and half-yearly accounts of acquired undertakings shall be made public. In addition, various information on the activities of holding companies and the acquired undertakings, as well as information on the implementation of the conditions, shall be published. This is done to ensure transparency in the companies' operations.
- Comprehensive and ongoing monitoring of the implementation of the conditions within the banks must be ensured, along with regular reporting to the Competition Authority. The banks are required to ensure that an independent party within each bank can credibly monitor compliance with the conditions. For example, it must be ensured that the monitor can obtain external expert assistance if they deem it necessary. This monitoring is in addition to the general supervision that the Competition Authority has over companies' compliance with competition law and the imposed conditions.
The above-mentioned conditions and their underlying assumptions are discussed in detail in Decisions no. 6-8/2010, which are published on the Competition Authority's website, In addition to the above, the decisions address the circumstances in the relevant markets and the application of conditions based on the competitive effects in each case.
