In late March 2024, the Finnish Competition and Consumer Authority (“FCCA”) published new, more detailed guidance on acceptable commitments in merger control cases. The Commitment Guidance is mostly a codification of previous case law by the FCCA (and also by the European Commission). The new Guidance is nevertheless highly useful since it reflects the FCCA’s own policy on the acceptability and implementation of different commitments.
When are commitments required?
Commitments are tools for competition authorities to resolve competition concerns arising from a merger (merger used here in a broad sense, referring to notifiable transactions). The parties of the merger must propose commitments to FCCA to remove competition concerns identified by the latter. The FCCA may approve a merger subject to conditions and require compliance with the commitments if the commitments are sufficient to remove the competition concerns arising from the merger.
If the parties do not propose commitments or if the proposed commitments do not sufficiently address the competition concerns, the FCCA will not approve the merger and will refer the case to the Market Court for a prohibition of the merger.
The application of structural and behavioural commitments in a particular case
The main types of commitments are structural commitments and behavioural commitments.
Structural commitments, such as commitments to divest a particular business or part of a business, typically have a lasting impact on the market structure, for example by strengthening the position of a competitor by creating more competition in the market.
Behavioural commitments, on the other hand, determine the behaviour of the parties to the merger in the market after the merger is completed. Behavioural commitments require post-merger monitoring. Behavioural commitments also aim at preserving the competitive structure of the market.
According to the FCCA’s Commitment Guidance, structural commitments take precedence over behavioural commitments. In horizontal mergers, i.e. mergers between competitors, the FCCA does not, in principle, accept behavioural commitments alone. In horizontal mergers, the primary remedy for removing competition concerns is the divestiture of some or part of the parties’ overlapping business.
Behavioural commitments may be applied in vertical or conglomerate mergers. Examples of acceptable behavioural commitments include commitments creating competitors’ access to certain key inputs or intellectual property rights held by the parties to the merger. Behavioural commitments that aim at controlling or limiting the subsequent competitive behaviour of the merging parties in the market are, in principle, not acceptable (for example, a commitment ’not to abuse a dominant market position’ or ‘not to participate in competitive tendering for a certain period of time”).
The competitive effects of the merger and the possible commitment options should be assessed as early as possible
The parties to a merger should assess the competitive effects of the merger as early as possible in the transaction process, so that any potential competition concerns can be identified and the proposed commitments can be carefully assessed and prepared.
Commitments can be proposed at any stage of the FCCA’s process. In any event, commitment negotiations should always be initiated well in advance before the expiry of the FCCA’s assessment period. Commitment negotiations with the FCCA are typically initiated in the so-called second phase (“Phase II”) of the merger process when the FCCA has presented the results of its analysis (based on market investigation and economic assessment) to the merger parties and the FCCA has concluded that commitments are necessary because the merger cannot be approved as such.
The duration of the commitment negotiations is case-specific and depends, for example, on the competitive conditions and characteristics of the relevant markets and the specific merger. A careful preparation of commitments will contribute to finding an acceptable commitment solution for all parties (the merging parties insofar as the transaction makes sense also with the commitments, and the regulator in ensuring that competition is not unduly impeded) in a timely manner. However, commitment negotiations with the FCCA typically take between a month to two months, and this should be factored into the transaction timeline.
How are commitments typically implemented?
In the context of structural commitments, the FCCA generally ensures that a suitable buyer is found in two alternative ways:
• up-front buyer solution: the business is transferred to a suitable buyer within an agreed timeframe following a conditional decision of approval by the FCCA. The conditionally accepted merger may not be implemented until a binding agreement on the transfer has been concluded with a buyer that has already been approved by the FCCA.
• fix-it-first solution: the parties find a buyer for the business that has been approved by the FCCA and enter into a binding agreement with the buyer for the transfer of the business during the FCCA’s merger control process, before the conditional decision of approval of the FCCA is issued.
Only in exceptional circumstances the FCCA approves the implementation of a conditionally approved merger before a suitable buyer has been found. Given the challenges to find a suitable buyer and the time pressure usually involved with a required divestment, this can lead to sub-optimal sale of business and/or assets.
In an up-front buyer solution, a fixed period of less than one year is agreed with the FCCA, and the period is divided firstly to:
- a period dedicated to conclude a binding agreement, and
- a period dedicated for the transfer of the ownership.
Secondly, the period for concluding a binding agreement will be further divided into two periods:
- an initial sales period, during which the parties themselves can seek for a suitable buyer (this period is usually agreed at around six months, but in any event this period must be sufficiently short to create an effective incentive for the parties to find a suitable buyer at an early stage of the divestiture procedure) and, if this period is unsuccessful
- a second sales period, during which an independent expert in charge of the sale is authorised to transfer the business to a suitable buyer, if necessary, without a minimum price (this period is typically agreed to last approximately three months).
In a fix-it-first solution, a suitable buyer is found by the merging parties in advance of the conditional approval decision. The buyer is approved and a binding agreement is concluded with the buyer during the FCCA’s merger control process. The agreement sets out the procedure and timeframe for the implementation of the divestment transaction, whereby the FCCA’s decision sets a timeframe only for the completion of the transfer of ownership. If, for example, only a letter of intent has been concluded with the buyer before the FCCA’s decision, the time reserved for the conclusion of the binding agreement and the final transfer of ownership will be agreed on a case-by-case basis.
Recent merger control practice of the FCCA
In the last three years, the FCCA has approved a total of four mergers with structural commitments. Only one merger has been approved by the FCCA with behavioural commitments and one merger with both behavioural commitments and structural commitments.
Four mergers have been abandoned during the merger control process, which means it is likely that a functional commitment solution for both the FCCA and the parties to the mergers was not found in these transactions.
Key take-away
Given the regulator’s (now) explicit stance that structural remedies take, as a rule, precedence, in case a merger can raise (serious) competition concerns, based either on the parties’ own assessment early in the transaction process, or based on the FCCA’s own analysis post-notification (typically in early Phase II), the parties should start sufficiently early to analyse possible divestment plan that could address the regulator’s competition concerns, while ensuring that the transaction’s business rationale remains equally at the focus. As solutions often require careful analysis by the merging parties, and the regulator alike, sufficient time should be allocated for such analysis.
