The current Irish merger control regime will reach its 10th birthday next January, the moment is thus opportune to consider how the Irish Competition Authority has approached the issue of remedies.
Procedure and timing
Irish merger control rules are contained in Part 3 of the Competition Act 2002 which sets out a two-phase procedure for the Authority to review merger notifications. Phase I lasts for up to one month from the date of receipt of a notification or, if the Authority issues a formal request for information, of a complete response.
The Authority may discuss potential remedies with the parties. In these discussions, any of the undertakings involved may suggest measures that would ameliorate the transaction’s effect on competition. If accepted, these proposals may form part of the Authority’s Phase I clearance decision in which case they are binding on the parties. The relevant one-month Phase I review period is extended to 45 days if the parties propose remedies.
Where the Authority has been unable to conclude that the transaction will not result in a substantial lessening of competition, it will initiate a Phase II investigation. The Authority has up to an additional three months to complete a Phase II investigation. During this phase, the transaction may be approved with or without conditions or be prohibited.
Types of remedies
The Authority has approved transactions subject to both structural and/or behavioural remedies. Structural remedies involve the divestiture of certain activities such as a business or subsidiary. Behavioural remedies require the undertakings involved to either act or refrain from acting in a certain manner. Normally, merger control authorities prefer structural remedies to behavioural remedies because the latter require ongoing monitoring. Nevertheless, the Authority has not published specific overall guidance on its use of remedies. In some of its decisions, it has, however, referred to international sources such as European Commission notices and cases, UK Competition Commission guidelines and US cases. To be effective, a remedy must restore competition to the intensity or levels of competition prior to the relevant transaction.
Structural remedies
Communicorp/SRH : Communicorp notified the Authority in July 2007 of its proposed acquisition of Scottish Radio Holdings’ Irish radio stations: FM104, Today FM and Highland Radio. Communicorp operated two radio stations serving Dublin, 98 FM and Spin 103.8; and one quasi-national station, Newstalk 106 FM.
The proposed transaction would have resulted in the two best-established Dublin radio stations, 98 FM and FM104, coming under common ownership. Since these two stations’ listenership profile was more similar than any other combination of Dublin stations, advertisers often played one against the other to secure cheaper rates. Consequently, the Authority was concerned that the addition of FM104 to Communicorp’s portfolio of radio stations would enable it to raise its advertising prices unilaterally in Dublin.
During Phase I, Communicorp submitted an initial proposal to sell FM104 following the closure of the entire transaction within nine months of the date of the clearance decision. However, the Authority preferred an upfront divestiture. This remedy meant that the parties had to find a suitable buyer and sign a sale agreement (in each case approved by the Authority) before closing the transaction. Communicorp went some way towards satisfying the Authority’s concerns in Phase I; however, its revised proposals were submitted too late for the Authority to market-test them fully. Accordingly, the Authority opened a Phase II investigation.
Ultimately, the Authority’s clearance was made subject to Communicorp’s proposal to sell FM104 to an approved third party within three months of the decision. The Authority felt that the upfront divestiture was required to protect FM104’s operational integrity and the value of this radio station’s contracts with the presenters of its various programmes.
Premier Foods/RHM : Premier Foods notified the Authority of its proposed acquisition of RHM in December 2006. Premier Foods sold grocery products under various brands including Campbell’s and Erin. RHM sold food products under several brands such as Bisto. The Authority found that the combined Erin and Bisto brands would account for 70-80% of the Irish retail gravy market with their nearest competitor accounting for less then 10%. Accordingly, the Authority considered that the merger would create a dominant supplier in this market.
The parties proposed two alternative remedies to address this concern. First, Premier Foods proposed to split Erin’s meal enhancer business (gravies, pour-over sauces and casserole mixes) from its soup business. Second, Premier Foods offered to divest the whole Erin business. The Authority accepted the second proposal after its market testing suggested that a divergence of interests between two separate owners could damage the quality and value of the Erin brand.
Behavioural remedies
ESB/NIE : In October 2010, the acquisition by ESB, Ireland’s largest electricity utility, of NIE, the owner of Northern Ireland’s electricity transmission and distribution assets, was cleared by the Authority, subject to remedies.
In the Republic of Ireland, ESB is active in generation, transmission, distribution, wholesale and retail supply of electricity. EirGrid is an independent company which has responsibility for the planning and development of the grid. In Northern Ireland, NIE owns and operates the electricity distribution system, owns the transmission system and is responsible for the planning and development of the transmission system in consultation with SONI, its independent operator. NIE and SONI are required to consult EirGrid to coordinate planning and development of the transmission systems in both jurisdictions.
The Authority found that since each transmission and distribution grid is legally confined to its own jurisdiction, there was no overlap between the parties’ transmission and distribution systems. However, it was concerned that, post-acquisition, due to NIE’s role in planning and developing the transmission grid across the island, ESB may have been in a position to acquire, through NIE, commercially sensitive information regarding these grids, which could have given ESB an unfair advantage in its electricity generation or supply business. In order to address this competition concern, the Authority accepted ESB’s binding commitment to prevent NIE from sharing commercially sensitive information with it.
Enforcement and future developments
The 2002 Act makes it a criminal offence to infringe a decision of the Authority (including a merger approval) or to breach a commitment. A person who commits such an offence is liable on summary conviction of a fine of up to €3,000 and/or a prison term of six months. On conviction on indictment, a guilty person is liable to receive a fine of up to €10,000 and/or a maximum two year jail sentence. While it considers the power implicit, the Authority has requested the express power to monitor commitments made by notifying parties. Time will tell whether this recommendation is included in the forthcoming proposed revisions to the 2002 Act.
Conclusion
The possibility of offering remedies allows merging parties to secure clearance for transactions that might otherwise be blocked. The relevant parties should thus seek to address any potential competition concerns with the Authority early in the transaction process. In order to maximise the chances of regulatory clearance, any proposals offered should be clear-cut and should seek to remove each of the Authority’s competition concerns. Nevertheless, the parties should be prepared for possible delays and if necessary, keep a “Plan B” in mind. While it has only prohibited a small number of transactions, the Authority has shown that it is not afraid to impose stringent remedies to remove the anti-competitive element of a proposed merger.
Contributed by Cormac Little.
This article also appeared in the ABA International Antitrust Bulletin for Q2 2012.
