On this blog, we already observed that cooperations between competitors – be it on the purchasing or selling end – have become a welcomed alternative to M&A projects, especially in times of crisis. Two recent cases of the German Federal Cartel Office (FCO) give helpful guidance on if and how cooperations can be justified even when the setup might raise concerns at first glance.
As we have already noted before (see inter alia here or here), loose cooperations between competitors have become increasingly popular in recent years. It seems as if especially in times of uncertainty, cooperations might offer a number of advantages to companies suffering from circumstances like a pandemic, an energy crisis or inflation.
From the outset, the reasons are understandable: cooperations can often be set up in a simple and relatively lean manner, potentially avoiding a full-scale M&A process which in turn requires financing, due diligence, and regulatory approvals. Even in the event of failure, withdrawing from a cooperation or giving up the whole idea often seems to have a small downside compared to a failed acquisition or merger.
The antitrust starting point
From an antitrust perspective, of course, cooperations between competitors are not entirely without problems. Or, to put it more bluntly, cooperations without a justification sound, look, and feel like a cartel. Even if a cooperation as such is structured in a way which does not raise
too many antitrust issues, the exchange of competitively sensitive information can remain an issue.
On the other hand, it is widely acknowledged that the key challenges of our time, inter alia the climate crisis, energy transition or digital transformation are issues which cannot be solved by individuals or individual companies alone, but require a mutual effort within society.
It is therefore not surprising that regulators seem to be supportive of cooperations intended to help coping with crises or with achieving common goals. In the words of the European Commission’s Executive Vice-President Vestager, “horizontal cooperation may lead to substantial economic and sustainability benefits, including support for the digital and green transition. […} [B]eneficial cooperation can take place, for example when it comes to sustainability or data sharing.”
While the statements of regulators have been pointing towards a more openminded approach with a view to cooperations for quite some time (see inter alia here), two recent decisions by the German FCO contain more detailed guidance on the specifics under which “crisis cooperations” might be acceptable.
Bringing old friends together
The leading German sugar manufacturers are well-known to the FCO. In 2014, the FCO imposed fines amounting to EUR 280 million on Pfeifer & Langen, Südzucker and Nordzucker, as they had allegedly allocated sales areas.
Time has since passed, and we might never know whether the FCO initially was surprised when the very same companies (plus Cosun Beet) reached out and presented their plans to work together. More specifically, the companies agreed on making production capacities available to each other in the event of gas supply cut-offs and ensuing production stoppages at the factories affected.
Despite the common history, the FCO greenlighted the cooperation and gave insights into its considerations and the guidance provided to the companies:
- As a general and not entirely law-related remark, the FCO stressed that it generally supported crisis management initiatives within the framework of competition law. This was in particular true as production stoppages affect both producers and companies further down the supply chain. On a similar note, the FCO acknowledged that sugar manufacturers had tried to switch from natural gas to other fuels in the past, but that this had not been possible for various reasons.
- The FCO further highlighted that the cooperation was a “one off” and temporary, limited to the upcoming sugar beet campaign.
- The FCO made it clear that production capacities of other companies could only be used if energy management measures imposed by the government actually lead to a reduced or suspended gas supply, requiring production stops at individual factories. Still, every company was supposed to use alle free capacities available to it before turning to a competitor.
- The information exchange is to be limited to what is absolutely essential. To achieve that goal, an independent economic consultant is to be involved so that insights into actual production costs are not possible.
The FCO further allowed a cooperation between energy giants Uniper, RWE and EnBW relating to floating LNG terminals. According to an agreement between the German Ministry for Economic Affairs and Climate Action and the three companies, the terminals will be operated by Uniper and RWE. Liquid gas arriving at the terminals will be distributed exclusively by the three cooperating companies. Other gas importers and wholesalers are prevented from using the terminals until the end of the term in March 2024.
The FCO’s decision not to object this setup is mainly based on the following considerations:
- Again, the FCO points out that these are not “normal times” and admits that during normal times, the very same cooperation would have been assessed more critically.
- Similar to the sugar producer cooperation, the period of the cooperation is limited. This is a key element of the justification in the FCO’s view.
- With a view to efficiencies, the FCO indicated that the cooperation can create price-reducing import capacities which benefit consumers and ultimately outweigh negative effects on competition.
More room – but not for everything
Overall, the two decisions fit well into the FCO’s general approach towards cooperations in exceptional times. In the context of the pandemic, the FCO similarly accepted cooperations in the automotive sector and the pharma industry. Also there, the time limit and limiting the exchange of information to what is absolutely necessary were essential elements and conditions for the FCO’s sign off.
So, the FCO has clearly shown its willingness to carefully consider the overall economic and political situation when assessing cooperations between competitors. Procedurally, it has mainly made use of its discretion to not further investigate, and also shown that it is open to efficiency arguments.
In any case, companies should take away that the FCO has given the impression that it appreciates to be contacted in advance and that it can show flexibility in its assessment.
Photo by Nicole Baster on Unsplash
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