Dutch court rejects public interest claim in merger case

Claiming compelling reasons of public interest, the state secretary of Economic Affairs and Climate granted a license for the acquisition of Sandd by PostNL, despite the earlier refusal of the Dutch competition authority (ACM) to grant such a license. However, on 11 June 2020 the District Court of Rotterdam found that the Ministry had made procedural errors in the realization of the license decision. According to the court, there were also substantive defects in the decision. 

21 July 2020

By Nina Korstenbroek and Sarah Beeston, Van Doorne N.V.

ACM refuses to grant a license

After a phase II merger investigation, the ACM  refused to grant PostNL (the largest national mail delivery service provider) a license for its intended acquisition of Sandd. According to the ACM the concentration would lead to a significant restriction of competition. When Sandd (the main competitor of PostNL) would disappear, this would create a monopolist in the mail delivery sector. The ACM established that the acquisition would lead to a price increase of 30 to 40% for business mail. Consumers would also need to pay more for sending mail. 

State Secretary grants license after all

The Dutch Competition Act (Mededingingswet) offers the Minister of Economic Affairs and Climate the possibility to grant a license after the refusal of the ACM if ''compelling grounds of public interest outweigh the competition law consequences''. At the request of PostNL, the state secretary for Economic Affairs and Climate approved the acquisition. In her view the concentration would:

• contribute to the long-term continuity of postal services;
• reduce costs for universal postal service products;
• ensure better protection of employees in the market; and
• serve the financial interests of the State.

The state secretary found that these interests should outweigh the competition law consequences of the concentration and considered there were sufficient grounds for approving the merger under Article 47 of the Dutch Competition Act for the first time in history, despite the ACM’s negative assessment. There were however a number of conditions attached to the approval: (i) an obligation to provide other postal delivery companies access to the PostNL network, (ii) a limit to the maximum return to be achieved on letter post and (iii) a requirement to comply with the commitments to Sandd’s work councils in the field of employee protection. 

Court of Rotterdam annuls decision

An advertisement printing company and two postal delivery companies disagreed with the decision to allow the acquisition. In their appeal to the Rotterdam District Court, they stated that the state secretary's decision had been negligently prepared and that it was substantively incorrect. They argued that the state secretary was biased and that relevant market players were not sufficiently involved in the preparation of the decision. 

As a preliminary remark, the court states that it is important to understand that, with the application of Article 47 of the Competition Act, the state secretary makes an exception to the main rule of the Competition Act that the importance of protecting competition is paramount in decisions on concentrations. 

Although the court did not agree with all arguments of the plaintiffs, the court also came to the conclusion that the licensing decision was not properly prepared. Other market player were not given enough time to respond to PostNL's proposal to grant other postal delivery companies access to its network. According to the court, this was enough reason to annul the decision. However, the court also assessed the substantive part of the decision.

Substantive shortcomings in state secretary decision

In its decision the ACM had also identified several negative effects that the merger could have on the parcel market and the market for unaddressed printed matters (markets adjacent to the postal market). The court stated that the fact that the ACM did not draw any final conclusions regarding these risks – because significant anticompetitive problems had already been established in the markets for business and consumer mail – did not mean those risks should not have been addressed by the state secretary. The state secretary had therefore insufficiently identified the expected restrictions of competition, according to the court. 

Furthermore, the state secretary had several reports drawn up and submitted a part of them to the court to demonstrate that there were compelling reasons of public interest to allow the acquisition. She did not however specify which pages or parts of the reports supported her assumptions and statements. The court emphasized that it is not the court's task to look for substantiation in submitted reports. In addition, it concerned reports that the ACM did not find sufficiently convincing. The state secretary should therefore have explained why these reports were nonetheless relied upon. 

After an extensive investigation, the ACM had concluded that a refusal of a license would not prevent PostNL from performing the universal postal service, because PostNL could continue to perform this task under economically acceptable conditions in the coming years. The state secretary stated that the merger was necessary to ensure for a considerably longer period and without state aid the continuity of the universal postal service and the availability of sending business mail at reasonable conditions and rates. According to the court, this conclusion lacked a proper motivation. 

Plaintiffs further argued that the licensing decision did not sufficiently take into account the expected price increase that the acquisition would cause for business mail. The state secretary stated that the maximum return condition set by the license decision was a sufficient remedy for the price increase the ACM expected. The court found this position insufficiently motivated as well. The same applied for the state secretary's view that the merger would reduce the risk of a sudden drop in employment in the postal sector. 

The court explicitly stated that it is aware of the far-reaching consequences of the annulment of the contested decision and that it is questionable whether the concentration can actually still be undone. The court found however that allowing PostNL's request to have the legal consequences of the license decision maintained - because of these far-reaching consequences - would inadvertently affect the legal protection of the possibility to appeal decisions made under Article 47 of the Dutch Competition Act. The court annulled the contested decision and it did not provide for any arrangements itself nor applied an administrative loop (to allow the state secretary to correct its decision).

And now? 

PostNL stated that the acquisition cannot be reversed as the integration has been completed, Sandd's network no longer exists and the infrastructure has been dismantled.

In a letter dated 30 June 2020, the state secretary informed the Dutch House of Representatives about (the consequences of) the court's decision. The state secretary states that the judgment does not mean that the concentration between PostNL and Sandd will be made undone, but according to her the judgment does mean that there is no license – which is required - for this concentration.  The statement that the "concentration will not be made undone" is a remarkable reaction in light of the judgment, and in particular the court's final considerations.  The Ministry is currently considering its possibilities regarding taking a new decision or appealing the judgment.

A Dutch version of this article is available at https://www.vandoorne.com/Kennisbank/Staatssecretaris-EZ-door-rechtbank-op-vingers-getikt