Antitrust – notes on the Swedish Competition Authority’s ability to require notification

The late 1990s and beginning of the new millennium saw consolidation in large Swedish industrial businesses through numerous acquisitions. Industry was focussing more than it had previously on specific core businesses, which involved large divestments. This market consolidation continued between 2006 and 2008 via private equity acquisitions and the restructuring of businesses. Since then, the number of transactions targeting companies with large turnovers has decreased. Naturally, this has led to a decline in the number of notifications to the Swedish Competition Authority (SCA). Sweden is currently mostly seeing smaller acquisitions in which the merger control turnover thresholds are not met. However, as shown in recent cases, this does not mean that the merger control rules can be overlooked. This article describes how, according to unique rules in the Swedish Competition Act (the “Competition Act”), the SCA may initiate an investigation by requiring a company to submit a merger control notification regarding acquisitions in which the turnover thresholds are not met.

The Swedish merger control rules apply if the companies concerned meet the merger control thresholds in the Competition Act. This triggers the mandatory obligation to notify the SCA of an acquisition. In Sweden, the SCA must be notified of an acquisition if the companies concerned have a combined annual turnover in Sweden of more than SEK 1,000 million (approximately EUR 110 million) and at least two of those companies individually have an annual turnover in Sweden of more than SEK 200 million (approximately EUR 22 million).

In addition to acquisitions that meet the abovementioned thresholds, the Act contains a unique possibility for the SCA to require a company to provide notification of an acquisition that only meets the combined company turnover threshold of SEK 1,000 million and not the individual SEK 200 million threshold provided particular grounds exist for such requirement. What constitutes particular grounds has been discussed to some extent in the preparatory works of the Act and a few indications may be derived from the scarce number of decisions taken by the SCA on this subject.

Pursuant to the preparatory works, particular grounds may exist in the event of successive acquisitions in which an already dominant company acquires smaller competitors. This is regarded as being especially harmful to competition on highly concentrated markets. Each such acquisition increases the risk of harm to competition, particularly if several acquisitions are made over a short time period. It should also  be noted that the Act states that all transactions between the same companies, where parts of a company or several companies are acquired during a two-year period, are to be regarded as a single acquisition.

Another example of a situation in which a company may be required to provide notification is where a dominant company on a concentrated market acquires a newly established company in order to prevent it from challenging the dominant company in the future. This is deemed to affect the willingness to conduct business on the market and to significantly weaken competition over time.

The abovementioned situations are not exhaustive. According to the SCA, particular grounds may also exist if complaints are raised by competitors or customers if the SCA finds that the negative effects described by the competitor or customer could harm competition. It should also be mentioned that the SCA cannot apply practice from the European Commission (“the Commission”) since there is no equivalent possibility in the EU Merger Regulation.

The SCA has required acquiring companies to provide notification of an acquisition in four cases since 2005. In case 597/2005, a company active on the RORO shipping market between Gothenburg, Sweden and Killingholme, England,had acquired its only competitor. The target did not reach the turnover threshold that applied at the time. Since entering the market the target had applied considerably lower prices than the acquiring company, which led the SCA to suspect that the acquisition would lead to higher prices. In light of these circumstances, the SCA required the company to notify it of the acquisition.(1)

In case 660/2009, the SCA required one of Sweden’s leading news agencies to provide notification of its acquisition of a company active on markets for digital media monitoring, archives and business intelligence services in Sweden. Before the SCA’s decision, the two parent companies that jointly controlled the news agency notified the Commission of their intention to acquire the same target company but withdrew the notification after the Commission initiated an in-depth investigation. Shortly after this, the news agency acquired the target. The joint parent companies were two major Swedish and Norwegian media groups (Bonnier and Schibsted). After the target had been acquired, a competitor of the target complained to the SCA, claiming it could no longer access digital data from newspapers controlled by the parent media groups.

As the target had an annual turnover of only SEK 40 million at the time and the acquiring company had a turnover of SEK 355 million, neither of the thresholds in the Competition Act were met. However, the parent companies controlling the acquiring company had a combined turnover of SEK 40,000 million in Sweden. In its decision to require the company to provide notification, the SCA referred to the Commission’s decision to initiate an in-depth investigation that made it clear that the parent companies controlled the majority of the upstream market in relation to the target. The target and its competitors were dependent upon the deliveries of the parent companies, which after the acquisition allegedly had the opportunity and incentives to discriminate against the target’s competitors. In light of this, the SCA found that it could not be ruled out that the acquisition could harm competition and required the companies to notify it of the acquisition. (2)

A recent decision, case 289/2012, concerned the same media group, which this time intended to acquire a target with an annual turnover of only SEK 123 million. In its decision, the SCA found that it could not be ruled out that the vertical and horizontal connections between the media group and the target could distort competition. Furthermore, the SCA found that the acquisition would enhance the media group’s position on the retail market and there was a risk that the ability of other publishers to reach consumers would be impaired. For these reasons, the SCA found that particular grounds existed and required the company to notify the transaction.(3)

The most recent decision, case 4/2013 of 30 January 2013, concerns a global leader on the locks manufacturing market, which intended to acquire its only competitor on a downstream market. There was no mandatory notification requirement since the target had an annual turnover of SEK 149 million. The SCA, however, found that the acquiring company was integrated in all parts of the distribution chain and that a monopoly would be created on the wholesale market for locksmith products. Furthermore, competitors of the acquiring company and customers of the target stressed that the target provided an alternative, which would disappear as a result of the intended acquisition, thus harming the competition. In light of these observations, the SCA found there were particular grounds to investigate the effects of the acquisition further and therefore required the acquiring company to notify it of the transaction.(4)

Some conclusions may be drawn regarding the possibility of a notification being required. First, it may be concluded that the ability to require a notification is rarely used, but that it is becoming more common. Second, the SCA does not consider itself bound by either the preparatory works or its previous practice. Consequently, it may be difficult to predict when a requirement will be issued by the SCA. Third, in light of the SCA’s previous decisions, it may be possible to identify certain situations in which the SCA may require notification.

The first conclusions above is also highlighted in the preparatory works and affects the situation whereby an already strong or dominant company successively acquires smaller competitors. Such successive acquisitions do not have to have been made within a specific time period; each acquisition on the same market which further concentrates the market structure increases the risk that the SCA will require notification. Based on the most recent SCA practice, other factors to be taken into account are acquisitions in which dominant companies acquire competitors on markets where competition is limited or acquire companies on vertically connected markets. Furthermore, a dominant company acquiring a new competitor also increases the risk of a requirement being issued. It should also be presumed that the risk of requirement
increases if the target company has valuable intellectual property rights, unique know-how or similar that could enhance an already dominant position.

In addition to the above, the SCA has also found that other situations constitute particular grounds to require a notification. Complaints from customers and competitors may lead to a requirement if the SCA finds that the concerns raised are reasonable and that competition would be harmed as a result of the acquisition.

In light of the above, a dominant company on highly concentrated markets should not place too much emphasis on the notification thresholds but should instead analyse further whether an intended acquisition could face a notification requirement from the SCA. To avoid the uncertainty regarding a possible notification requirement, it is possible for an acquiring company to voluntarily notify the SCA of an acquisition, provided that the SEK 1,000 million threshold is met. Such course of action enables the company to decide when the time limit starts for the initial phase of the SCA investigation. Voluntary notification may be useful if, for example, the acquiring company has a very strong market position on a highly concentrated market and if a clear decision on the acquisition is considered to be of value. 

 

(1) The SCA eventually did not oppose the acquisition after its in-depth investigation.

(2) The SCA eventually did not oppose the acquisition after its in-depth investigation as it found that the incentives to discriminate against the target’s competitors were limited.

(3) The SCA eventually did not oppose the acquisition after its in-depth investigation as it found that sufficient competitive pressure would remain on the relevant market after the acquisition. 

(4) The transaction was subsequently withdrawn after the SCA filed a summons to prevent the transaction.