The Finnish Market Court decided in its ruling on May 24, 2013 to set stringent conditions for a corporate acquisition deal by Uponor and KWH Group. The court ruled in accordance with a proposal made by the Finnish Competition and Consumer Authority (FCCA) on February 25, 2013 that without changes, the corporate arrangement would have prevented the emergence of efficient competition in the market for plastic tubing used in civil engineering construction in Finland. The conditions set by the court for approval of the deal were more stringent than the commitments that the parties had originally presented to FCCA. FCCA cannot impose conditions on corporate acquisitions that the announcer of the deal does not accept.
The Market Court’s decision applied to an arrangement announced to the Finnish Competition and Consumer Authority on September 24, 2012, in which Uponor and KWH would transfer all of their civil engineering activities to a new joint venture that they were setting up. The so-called building services engineering business activities linked with piping installed inside buildings are combined in the same connection in such a manner that KWH’s building services engineering activities would transfer to Uponor. The corporate deal unites Finland’s two overwhelmingly largest players in plastic piping solutions, and if implemented as such, the deal would probably have led to a rise in the prices of the goods and an increase in the cost of civil engineering construction.
The Market Court set as a condition of its approval for the arrangements, that the transaction should exclude the seven production lines mentioned in the decision, which the companies agreed to sell to other manufacturers of piping system products. In addition, the companies should reserve production capacity for certain types of pipe for the use of other manufacturers.
A proposal to reject the deal was the only option for the Finnish Competition and Consumer Authority after the commitments submitted by the sides of the deal could not be seen to effectively remove the harmful impact that the deal would have on competition. The Authority cannot set conditions for a corporate deal if the announcer of the deal does not approve of them. “The two sides of the deal need to show to FCCA the practical measures that will eliminate the problems with competition. The proposals also need to arrive at FCCA at such an early stage that there is sufficient time to assess their feasibility. Responsibility for the construction of a functioning package of conditions is primarily with the sides of the transaction”, emphasises Research Chief Maarit Taurula, who is responsible for corporate purchase supervision at the Finnish Competition and Consumer Authority.
Conditions put forward to FCCA were insufficient in the view of the Market Court.
In its decision, the Market Court concurred with the view of FCCA according to which the arrangement, if left unchanged, would have prevented efficient competition in the Finnish piping supply market for delivery pipes, storm drain pipes, sewage pipes, land drainage pipes, drain pipes four buildings, and piping to protect cables. The Market Court also concurred that the undertakings presented by the two sides to FCCA could not avert anticompetitive consequences. In this respect FCCA acted properly when it proposed to the Market Court that the corporate deal should be rejected.
The Market Court noted in its decision that the combined market share of the two sides in the deal is well above 50 per cent in several types of piping, and that the shares of their competitors were significantly smaller than those of the two sides. In addition, Uponor an KWH are, according to the decision, each others’ closest competitors in the Finnish plastic piping market, which can be seen to be likely to lead to more severe declines in competition than might be imagined on the basis of pure market share examination. The better the products of the two sides can replace each other in customers’ minds, the more likely it is that the centralisation will lead to considerable price increases, unless balancing factors are strong enough.
According to the Market Court, entering the field cannot be assumed to be likely, timely, or sufficiently extensive to prevent or counteract the anticompetitive impact of the concentration. Reasons for this include the weak economic situation and overcapacity in the field and the fact that high transport costs make it especially difficult for foreign companies to enter the market, and for any increase in imports to take place. Clients also do not have the kind of negotiating power that would offset the anticompetitive impact of the concentration.
Head of Research Maarit Taurula, tel. +358 29 505 3381
Senior Research Officer Hanna Kaiponen, tel. +358 29 505 3620