Dutch District Court annuls first ministerial merger licence (PostNL/Sandd)

By Piet-Hein Eijssen

07-2020

On 11 June 2020, the District Court of Rotterdam (‘District Court’) annulled the decision of the Minister of Economic Affairs & Climate (‘Minister’) to grant a licence for the acquisition of rival post operator Sandd by PostNL. This was the first time since the introduction of the Dutch Competition Act that the Minister used its power to grant a merger licence on the basis of compelling reasons of general interest outweighing the expected restrictive effects on competition. The approval of the acquisition was granted by the Minister following the earlier refusal by the Dutch Authority for Consumers and Markets (‘ACM’) to approve the transaction. 

Background of the merger control case 

In February 2019, PostNL announced its intention to acquire rival postal operator Sandd. In view of the rapidly declining postal volumes, the two operators PostNL and Sandd consider(ed) the combination of their nationwide postal networks necessary to ensure continuity and affordability of postal services in The Netherlands. After an in-depth phase 2 merger control investigation, the ACM however rejected on 5 September 2019 the request for merger clearance stating that the creation of a network monopoly in the field of postal services will lead to significant price increases and is not justified by economic efficiencies nor necessary for the provision of the universal postal service. 

On 27 September 2019 the Minister de facto over-ruled the refusal by ACM and granted a licence (see also our earlier newsletter) on the basis of overriding public interests including the continuity and affordability of high quality postal services in the longer term, better protection of postal employees and the financial interests of the Dutch state. This licence was subject to conditions on PostNL ensuring that the postal tariffs are cost-based (capping the return on mail services at 9%), that the costs for integration of Sandd will not be attributed to the basic postal service and obliging PostNL to provide access to its national network for regional postal transport companies.

Judgment by the District Court: decision by the Minister contains procedural and substantive flaws  

Three smaller business partners of the former Sandd entity appealed the decision by the Minister on the basis of procedural and substantive grounds.

With regard to the procedural grounds that were raised by claimants, the District Court ruled that the public consultation period of five days for the draft access conditions that were part of the decision had not offered third parties sufficient opportunities to express their views and consequently infringed the Dutch General Administrative Law Act. The District Court considered this procedural infringement to be already sufficient to annul the decision of the Minister. Nevertheless, the court considered it to be worthwhile to also adress the substantive grounds of appeal. 

The District Court underscored the exceptional nature of the ministerial competence to grant a licence for compelling reasons of general interest as an exception to the general rule in the Dutch Competition Act that the effect on competition of a proposed concentration is leading in granting or refusing a merger licence. For this reason the District Court emphasized the need for a carefully reasoned and substantiated ministerial decision. Subsequently, the court set out a number of aspects of the ministerial decision that it considered to be insufficiently reasoned or substantiated. 

Firstly, the court considered that the Minister did not sufficiently address in its decision the concerns for effective competition on adjacent markets (such as parcel delivery) that were highlighted by ACM, even though also ACM did not make a final conclusion on these aspects in its merger control decision. 

The District Court also noted that the Minister generally referred to a large number of reports and studies to substantiate the compelling reasons of general interest for granting the licence. However, the court considered that the Minister did not refer to the specific parts of the reports and studies in the decision to grant the merger licence and this was therefore also insufficiently substantiated. 

Furthermore, the District Court considered that the Minister has cited internal documents and studies commissioned by PostNL itself to establish that the continuity of postal services in The Netherlands would be threatened without the acquisition of Sandd. According to the court, the Minister gave insufficient reasons why this data was decisive. 

Finally, claimants disputed the claim in the Ministerial decision that the condition to cap the financial return on mail services of the new combination PostNL/Sandd at 9% was a sufficient remedy to prevent the price increases on the market for business mail that were projected by ACM as a result of the transaction. Claimants also disputed the claim that the negative impact on employment would be more severe without the transaction. According to the District Court, also in these respects the decision of the Minister was insufficiently substantiated and/or inconsistent. 

The District Court concluded that while it was aware of the far-reaching consequences of annulling the contested decision in terms of the uncertainty it created with respect to the implemented transaction, not annulling the ministerial decision would unacceptably jeopardise effective judicial protection for this kind of ministerial decisions in the future. This is not the end of the debate. Representatives of the government indicated during the court hearing that they would appeal the judgment in case of an annulment. In the meantime, the Minister could also still grant a new licence through an improved reasoned decision. 

Please find the judgment (in Dutch only) here.

For more information contact Piet-Hein Eijssen.