The Norwegian Supreme Court permits merger between Schibsted and Nettbil
In the Norwegian Supreme Court's first judgment in a merger control case, it has sided with the merging parties against the competition authority. Why?
The following article summarises the most important points from the Supreme Court's judgment. In particular, it looks at what the judgment means for the Norwegian Competition Authority's practice in merger reviews going forward.
Background and facts
In December 2019, the Nordic media group Schibsted acquired a majority stake in Nettbil. Schibsted is the owner of Finn.no ("Finn"), an online platform where private individuals may post classified adverts to sell their used cars, while Nettbil offers a web-based auction service where private individuals can sell used cars to dealers.
Schibsted's acquisition of Nettbil was not subject to a mandatory merger filing under the Norwegian Competition Act, as Nettbil's turnover was well below the individual jurisdictional turnover threshold. The Norwegian Competition Authority ("NCA") therefore exercised its statutory power to call in transactions under the jurisdictional thresholds in order to conduct its review. The NCA was of the opinion that Schibsted's acquisition of Nettbil represented a killer acquisition in a digital market, and that the underlying rationale of the transaction was to remove the increasing competitive pressure that Nettbil had exerted on Finn. A merger filing was eventually made by Schibsted in June of 2020.
On 11 November 2020, the NCA prohibited the proposed acquisition of Nettbil. The NCA concluded that the advertising services offered by Nettbil and Finn were part of the same product market, that the merging parties were close competitors and that, as such, the concentration would significantly impede effective competition. Schibsted appealed the prohibition decision to the Competition Appeal Tribunal, which upheld the NCA's decision on 27 May 2021. However, on appeal, the Gulating Court of Appeal unanimously overturned the Competition Appeal Tribunal’s decision to uphold the prohibition decision.
The NCA therefore appealed the Court of Appeal's decision to the Norwegian Supreme Court, which has now rejected the appeal, allowing Schibsted to complete its acquisition of Nettbil.
The central question addressed in the Supreme Court's judgment is whether the merging parties' service offerings form part of the same relevant product market, so that the parties may be considered as competitors. Both the NCA and the Competition Appeal Tribunal's prohibition decisions were predicated on an assessment that Finn and Nettbil were close competitors.
After a comprehensive assessment of the significance of various qualitative factors, including significant price differences between the services offered by the parties, the Supreme Court concluded that the merging parties did not operate in the same relevant product market. In particular, the Supreme Court pointed out that while Finn's offering is limited to a classified ads service for the sale of used cars, Nettbil takes over all work related to the sale of a car on behalf of the customer. Having found that the merging parties are not competitors, the Supreme Court stated that it is neither necessary nor appropriate to conduct a substantive competitive analysis.
Finally, the Supreme Court pointed out that the NCA had not sufficiently substantiated that Nettbil and/or Finn would have developed competing products in the future. As a result, there was no basis for intervening against the proposed transaction on the basis of a theory of harm centered around a lack of incentives to innovate.
The most important points from the Supreme Court's judgment
As the first merger case to be heard by the Norwegian Supreme Court, the clearance of Schibsted's acquisition of Nettbil represents a significant loss for the NCA. The judgment itself also provides a number of valuable lessons for the authority and for practitioners:
- With reference to case T-584/19 Thyssenkrupp, the Supreme Court has clarified that Norwegian courts are under no obligation to refrain from reviewing the NCA's interpretation of economic analysis. While recognising that courts must refrain from substituting the economic analyses relied upon by the NCA with their own, the Supreme Court has explicitly stated that it may review (i) whether the evidence used is reliable and consistent, (ii) whether the evidence provides a sufficient basis for assessing the case in question, and (iii) whether the evidence is capable of substantiating the conclusions drawn from it. This potentially makes it much harder for the NCA to hide behind an unthoughtful or badly prepared analysis in future merger cases.
- In its appeal, the NCA had argued that it may prohibit a concentration where the potential restrictions that may result are great enough so as to affect competition. The Supreme Court disagreed. With reference to the wording of Section 16 of the Norwegian Competition Act, that the transaction must "to a significant extent hinder effective competition", the Supreme Court pointed out that the negative effects on competition must be qualified, and therefore be above a certain minimum threshold.
- The Supreme Court further maintained that significant price differences between differentiated products or services normally indicate that they belong to different product markets, and pointed out that it would be difficult to prove that a quality product sold at a much higher price could be a substitute for a low-cost product. In Wikborg Rein's opinion, this is a reasonable approach, as large price differences may be taken as an indication that there are significant qualitative differences between two offerings, that it may be difficult to credibly find that they directly compete with one another.
- The Supreme Court also held that if two products are found not to form part of the same product market, there is no basis for assessing whether the concentration at hand will significantly impede effective competition as regards the price or quality of those products, i.e., on the same basis that it would assess a horizontal merger. This also makes sense, considering that if two products are not included in the same market, competition between them is by definition not eliminated.
- Finally, the Supreme Court makes some interesting observations regarding the NCA's use of the parties' internal documents. The Supreme Court points out that while internal documents may constitute important evidence in merger cases, information taken from internal documents must be interpreted in light of the purpose of the document and considered in its proper context. In other words, the content and evidentiary value of a document must be determined by reference to how that document was prepared and intended to be read. This is helpful in particular in auction processes, where documents are often prepared by external advisers to sell the most positive vision of a company and its worth.
Going forward it will be interesting to see whether, and in what ways, the Supreme Court's judgment will affect the NCA's practice in merger cases. There is little doubt that a higher standard is expected from the NCA in future.