Preservation of efficiency gains and other benefits of the

Where a merger entails significant efficiency gains or other significant public benefits, the prohibition of the merger could be too stringent remedy, in particular where the anti-competitive effects would be outweighed by the positive effects. In such cases, structural commitment remedies are usually the obvious choice for removing the competition problems. However, when divestitures are applied in small economies they often imply a trade-off between enhancing competition and exploiting the potential cost efficiencies that flow from achieving minimal efficient scale of production. Even if the merging entity could be broken up into smaller parts, market demand may set limits to the number of efficient units so that high concentration rates would prevail.

Furthermore, structural remedies may not be effective without costly ongoing regulation after all, because (small) inefficient firms would not survive in a free market and would never grow to sizes large enough to allow them to take advantage of economies of scale.⁵⁰⁵

Moreover, divestitures may not be feasible simply because there is no suitable package to be divested without interfering with the remaining activities of the companies. This may be the case in particular where the total size and the range of business activities of the companies involved are rather limited. This problem is likely to have a greater effect in small economies, particularly in new market economies, where private companies do not yet have a long history and their size is still limited.

The TV2 Sport (2007) case from the practice of the Danish Competition Council provides an example of a situation where structural commitments were not available. The case concerned the establishment of a joint venture, the sports channel TV2 Sport, by Modern Times Group MTG A/S (MTG), a privately owned Danish media group, and TV2 Denmark, a state-owned TV broad-caster.⁵⁰⁶

Before the establishment of TV2 Sport, both MTG and TV2 had held important broadcasting rights to Danish and international sports events, but had failed to establish a dedicated Danish sports channel on their own. Therefore,

505 Gal 2001, p. 1469.

506 Decision of April 11, 2007, Establishment of TV2 Sport, cited through Kofmann, Morten: “Denmark – Merger Control”, in Competition Cases from the European Union, edited by Kokkoris, Ioannis, Sweet & Maxwell, London, 2008, section 7–041.

they established TV2 Sports and agreed to cease to transmit certain sports events in favour of transmission on the new sports channel. The market position of MTG and TV2 in the Danish TV market was very strong, possibly dominant, and particularly strong on sports transmissions. The Danish Competition Council was concerned that the joint venture could lead to a significant impedi-ment of effective competition not only on the markets related to broadcasting sports events, but also on several TV markets in general, due to the possible co-ordination of their behaviour by the parties with regard to their other channels.

The merger was nevertheless authorized after the parties undertook to comply with a package consisting of 17 behavioural commitments, which mainly aimed at ensuring the independence of TV2 Sport from its parent companies by establishing firewalls against exchange of sensitive information and requiring separation of the management and employees of the parties. The remedies were also targeted to solve potential competition problems related to the purchase of broadcasting rights to sports events, the composition of distribution packages, advertising strategies and the rights of printed press. The Danish Competition Council also gave a severe warning that any form of co-operation between TV2 Sport and its parents which was not covered by the remedies would be subject to general competition law rules.⁵⁰⁷

Apart from prohibiting the merger, no other structural remedy would have been available in this case, as there was nothing to divest or license. The prohibition would have deprived the consumers of the opportunity to enjoy the benefit of an additional TV channel, which could not have been created other-wise. Hence, behavioural commitment remedies were the only way to mitigate the competition concerns related to the establishment of the joint venture, while still maintaining the benefits for the consumers.

Even where a suitable divestiture package exists, divestitures may not be a feasible solution because of the difficulty of finding a suitable purchaser with no significant connection to the merging parties and with sufficient resources, expertise and incentives to operate the divestiture package as an effective competitor.⁵⁰⁸ In small economies, where the amount of market players is limited, finding such a purchaser may prove rather difficult. In addition, due to particularities of specific market structures, structural remedies may not remedy all concerns.

The Valio/Kainuu, Maito-Pirkka, Aito Maito case from the Finnish Compe-tition Authority’s practice provides an example of such a situation. The case concerned the acquisition by a major Finnish dairy processor, Valio, of the dairy and marketing businesses of the cooperatives Maito-Pirkka and Kainuu and that of the Aito Maito Fin Oy company.⁵⁰⁹

507 Ibid.

508 See more e.g., from ICN Merger Working Group: “Merger Remedies Review Project”, Section 3, pp. 7–13.

509 Decision of Finnish Competition Authority of 20.06.2000, Case No. 1151/81/1999 – Valio Oy / Dairy and marketing businesses of Kainuu operative, Maito-Pirka

The Finnish Competition Authority assessed the effects of the acquisition in over 20 product markets and found that the concentration would have resulted in the creation or strengthening of a dominant position in several of them. The main competitive problems related to the purchase of raw milk and its deliveries to the producers of upgraded products, the trade of standardized or skimmed milk and raw cream, the trade of liquid dairy products and the manufacture of domestic milk powder. In the assessment of whether the concentration could be accepted, the central issue was how the purchase of raw material by Valio’s competitors could be secured.⁵¹⁰

The Finnish Competition Authority cleared the merger subject to an exten-sive package of remedies consisting primarily of behavioural commitments such as Valio’s obligations to (i) sell to competitors annually a set amount of raw milk (including skimmed milk, standardized milk or cream) at prices equal the average purchase price of Valio’s own dairy industry; (ii) make export purchases of raw milk referred to in point (i) on the basis of market prices and reasonably non-discriminatory export costs; (iii) offer logistical services to competitors and dairy processing and packaging services for the products referred to in point (i); (iv) sell to domestic customers all the usual domestic milk powder brands manufactured by Valio at the market prices of the EU area.

In addition, Valio was to sell some of the acquired brands and offer the production plants or the related equipment for sale without any restrictions on use. An independent expert was appointed to monitor the surveillance with the commitments.⁵¹¹

Due to the special features of the Finnish dairy market, divestitures of brands and production plants alone would not have remedied the decrease in competition caused by the merger. The main impediment to competition encountered by Valio was the availability of raw milk and not production capacity, since Valio obtained the raw milk from co-operatives, who, in turn, purchase the raw milk from their producer members. As the cooperatives and producers were not parties to the acquisition, it was not possible to oblige them to deliver milk to Valio’s competitors. In the case of prohibiting the transaction, the milk producers would have likely switched their supplies to Valio in due course and this would have created even a greater shortage in milk deliveries for the co-operatives to be acquired.⁵¹²

It appeared later that the few structural commitment remedies attached to the merger did not produce the desired outcomes, as no competitor was interested in acquiring the brands or businesses to be divested.⁵¹³ However, the competitive concerns could be dealt with by the behavioural commitments – the transfer of

operative and Aito Maito Fin Oy. Available online (in Finnish):

http://www.kilpailuvirasto.fi/cgi-bin/suomi.cgi?luku=yrityskauppavalvonta/

yrityskaupparatkaisut&sivu=ratk/r-1999-81-1151 (last visited 15.05.2009).

510 Ibid.

511 Ibid.

512 Ibid.

513 ICN Merger Working Group: “Merger Remedies Review Project”, p. 37.

raw milk to Valio’s competitors was ensured with Valio’s commitment to sell raw milk at Valio’s own purchase price to the actual and potential competitors in the domestic market. Hence, Valio’s competitors were able to balance out the decreased competition caused by the acquisition in the liquid milk market.⁵¹⁴ Thus, in the circumstances of limited availability of structural commitment remedies, behavioural commitments can prove invaluable tools for securing the positive effects of otherwise anti-competitive mergers.