Merger Control: The First Ever Two Prohibition Decisions in Portugal 

April, 2006 - Mr. Luís Romao

Since its creation by Decree-Law No. 10/2003 of January 18, the new Portuguese Competition Authority (“PCA”) has analysed more than 150 concentrations. It is said to analyse around 5 concentrations a month. In 2004 and 2005, the PCA reported 130 notified concentrations, 125 of which had issued decisions and 11 cases in which said decisions were reached following second phase proceedings. In 9 of said decisions, the PCA imposed conditions for the approval of the underlying concentrations and adopted, for the first time, two decisions opposing notified concentrations. BARRAQUEIRO/ARRIVA On November 2005, the PCA adopted its first ever decision opposing a notified concentration, by prohibiting the concentration that involved the acquisition of joint control of the company Arriva Transportes da Margem Sul (ATMS) by the Barraqueiro and the Arriva Groups on the grounds that it would be liable to create or reinforce a dominant position that could result in significant barriers to competition in the market for public road and rail passenger transport covering all the Setúbal/Lisbon routes crossing the “25 de Abril” bridge (bridge over the Tagus River). The post-merger scenario envisaged that the Barraqueiro and Arriva Groups would acquire joint control of ATMS, to which they would transfer undertakings from both Groups, engaged in public transport sector activities, namely Fertagus and TST (Transportes Sul do Tejo). The PCA considered that the two involved undertakings competed, prior to the transaction, with each other (Fertagus has a market share of 73% and TST has nearly 22%, while Carris holds the remaining 5%). In addition, the PCA considered the existence of a related market for public road passenger transport on the south bank of the Tagus River, with services that do not cross the bridge. These are operated by TST (Transportes Colectivos do Barreiro) and the SulFertagus service. TST was considered by the PCA has holding a dominant position in said market. Hence, the PCA considered that if the concentration was to take place, the situation would change from one in which, essentially, two undertakings were active (Fertagus and TST) to one in which there would be an effective quasi-monopoly situation, with a single operator that would have a 96% share of the relevant market, with an average of 73,600 passengers per day. Also, said the PCA, in view of the severe entry barriers to the relevant market, the scenario of a near-monopoly could prove to be particularly oppressive since a single operator would have the ability to influence service quality and the formation of prices in a way that could harm consumers. The PCA also reported that the notifying parties presented both behavioral and structural commitments, including an undertaking to disinvest. However, the PCA argued that the latter proposal not only arrived late in the day (at a second preliminary hearing, which is not required by law) but contained no demonstration that it would effectively prevent the dominant position predicted by the envisaged merger. Since the PCA was of the opinion that it was up to the notifying parties to produce proof of said demonstration, it ruled that they had not shown that the commitments proposed would remove the competition concerns resulting from the operation. Thus, it was the PCA’s understanding that the consequences of this merger would be potentially serious for both road passengers (TST) and rail passengers (Fertagus) across the bridge, given that the new entity resulting from the merger would not be subject to competitive pressure and could manipulate fares and the regularity of routes as well as the timetables of the trains and would no longer have the incentive to improve service quality, clearly to the detriment of consumer’s well being. Having regard to the aforesaid, the PCA decided to prohibit the concentration, on the grounds that it had not been shown that the commitments proposed would remove the its competition concerns, specifically regarding the total elimination of effective competition, which would culminate in the creation of a dominant position in the relevant market that would be liable to create significant barriers to competition. There are several aspects of this decision that do not seem to have been properly taken under consideration by the PCA and seem thus questionable. First and foremost, the fact that the road and rail transport sectors are heavy regulated markets and subject to both EC and national policies which could mitigate significantly the application of competition law. Secondly, the relevant and related market definitions seem to differ from the EC case-law in transport cases, which usually refer to relevant routes by reference to points-of-origin/points-ofdestination. And finally, to what extent the remedies offered by the Parties were submitted in due course (as the Competition Act does not set any time-limits for their submission) and indeed could settle all competition law issues raised by the PCA, also due to the fact that the case-law of the EC courts seems to contravene the PCA’s understanding that it was up to the Parties to prove that the remedies would effectively prevent the creation or reinforcement of a dominant position by way of the envisaged merger. In any event, it remains to be seen whether this first time decision will be judicially confirmed since the Barraqueiro group has publicly announced that if filled an appeal against the PCA’s decision in the Lisbon’s Commercial Court, sustained, as publicly announced, by legal opinions of PLMJ’s senior partner José Luís da Cruz Vilaça and Carlos Botelho Moniz, senior partner of MLGT. GALP/ESSO The PCA also issued, in December 2005, another decision prohibiting Galp’s acquisition of the coloured diesel-fuel service stations held by Esso on the grounds that it would be liable to create or reinforce a dominant position from which could result significant barriers to competition in the markets for the sale of coloured diesel fuel at fuel stations in the relevant markets of the fishing ports of Matosinhos, Figueira da Foz, Peniche, Lisbon, Portimão and Olhão. Galp planned to acquire, by transfer, all the equipment, customers and credit, certain contracts related with the establishments, and all the other elements that are legally part of the establishments in relation to port services stations in Matosinhos, Figueira da Foz and Peniche, as well as in Lisbon-Pedrouços, Portimão and Olhão. The PCA concluded that in the relevant markets, Galp would obtain a dominant position that could result in barriers to competition since: ■ Galp, a vertically integrated company, supplies over 90% of the fuel consumed by the national market and occupies a privileged position in the fuel import, storage, refining, distribution and marketing chain in the national market; ■ As a result of the merger, Galp’s market share on four of the relevant markets would exceed 50% and would be over 60%, 70% and 80% in three of these markets; ■ In four of the six relevant markets, only one other competitor besides Galp would remain as an operator, a situation that would aggravate the already high degree of concentration in these markets; ■ In general, Galp’s list prices are already above those of its closest competitors; ■ There was a great loyalty to the company among Galp’s direct customers as a result of the trading conditions available, in particular as regards terms of payment with longer average delay periods. This indicated that Galp enjoys a significant capacity to act independently of its competitors and, therefore, wields substantial market power; ■ Galp’s upstream position in the fuel market is unique and cannot possibly be duplicated by a competitor, a fact that represents a formidable barrier to entry in the relevant markets. These decisions are the first ever by a Portuguese Competition Authority locking concentrations, thereby showing that the recently instituted PCA is more and more willing to scrutinise thoroughly mergers, exercise to the full extent its powers under the new Competition Act and fearless of the repercussions. Undertakings and their legal advisers should therefore be more aware of the competition issues resulting from the transactions they wish to pursue and carefully and in advance prepare the notifications of operations, in particular of those where competition concerns are bound to arise.



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