Published on Jan 13, 2022
Konecranes (HEL: KCR) and Cargotec (HEL: CGCBV) this week lambasted the Competition and Markets Authority’s (CMA) provisional findings that their proposed merger is anticompetitive, calling the UK antitrust watchdog’s view of the $5.3 billion deal “wrong as a matter of fact and law.”
But sharp criticism from companies rarely, if ever, changes CMA enforcers’ minds, and Konecranes and Cargotec face a daunting challenge in receiving the agency’s green light without at the very least agreeing to a significantly beefed-up divestiture.
The Finnish cargo handling equipment suppliers said in a detailed response published Monday on CMA’s website that the agency failed to carry out a sufficient market investigation. The companies also said CMA didn’t give enough credit to the constraint posed by Chinese state-owned or state-backed rivals, exaggerated barriers to entry and expansion, and made numerous procedural and factual errors concerning the parties’ competitive positions in various markets.
Fierce criticism of the CMA by companies that come under its scrutiny isn’t unusual. Companies ranging from Meta Platforms’ Facebook (FB) to supermarket giants J Sainsbury and Asda Group have attacked the UK authority’s negative provisional findings about their mergers. But the criticisms have had little effect as the CMA tends to staunchly retain its provisional findings in the agency’s final conclusions on a transaction.
The watchdog ultimately ordered Facebook to unwind its takeover of Giphy and blocked the Sainsbury/Asda merger.
That could be bad news for Konecranes and Cargotec even though they’re prepared to offer undertakings to attempt to allay regulatory misgivings about their deal.
Back in November, the CMA said in its provisional findings that the merger should either be prohibited or approved subject to the divestiture of a cargo handling equipment division. The CMA said such a remedy could comprise either Cargotec’s Kalmar unit or Konecranes’ Port Solutions unit, subject to several caveats.
“Strongly reject.” The companies disagreed with both the CMA’s overall competition assessment and view on remedies. Konecranes and Cargotec “strongly reject” the suggestion they should sell a whole container handling equipment division, according to the parties’ remedy response paper.
They said such a solution would “impose an unacceptably high and disproportionate cost,” and would dissuade several potential purchasers that are active in one or more cargo handling equipment sectors. That’s because requiring the acquisition of a whole unit would “burden purchasers with elements of the divestiture which they may not wish to have, or which may result in competition concerns,” Konecranes and Cargotec said.
In the European Commission’s parallel, ongoing review of the merger, the companies have formally offered to sell Cargotec’s straddle carriers and cranes businesses and Konecranes’ mobile equipment business, including reach stackers, containers handlers and forklifts.
That remedy submission indicated the companies weren’t willing to meet the CMA’s more substantial provisional demands, an implication affirmed by the parties’ submission to the UK authority.
The CMA has accepted partial divestiture solutions as recently as last year during its review of Viagogo’s acquisition of ticketing rival StubHub. The authority ultimately approved Viagogo/StubHub subject to the divestiture of StubHub’s business outside North America—addressing the concern that the parties compete closely against each other in the UK’s secondary ticketing market.
For Konecranes and Cargotec, though, achieving a partial divestiture solution acceptable to the CMA appears to be a greater hurdle than in the earlier case. In its notice on remedies, the CMA said any such partial sale should “constitute, as a minimum” a whole cargo handling equipment division.
Whereas the CMA’s remedy notice in Viagogo/StubHub appeared to give some leeway for the eventual solution, the regulator would have to significantly backtrack on the notice given to Konecranes and Cargotec to accept their current proposal.
Profusion of criticism. In its provisional findings, the authority said the deal would result in horizonal unilateral effects in the supply of a host of cargo-handling equipment.
The watchdog said its in-depth investigation had analyzed a wide range of evidence, including data on bidding for previous contracts, the merging parties’ internal documents, and interviews with customers, competitors and other industry players.
In responding to the CMA, Konecranes and Cargotec leveled a profusion of criticisms.
The parties claimed the CMA didn’t follow in its own process and conducted an inadequate market investigation. The regulator obtained only a partial picture “at best” of the industry’s competitive dynamics because it didn’t seek the views of foreign customers active in the same purchasing markets as UK customers, the companies said.
In one of their more biting comments, Konecranes and Cargotec said the UK watchdog received “strikingly less feedback” than the EC, meaning that the CMA didn’t take “reasonable steps” to get information.
Concerning the CMA’s dismissal of the competitive constraint from Chinese rivals, the parties continue to argue that those firms have cost advantages, and are surpassing Konecranes and Cargotec technologically.
Chinese competitors can “rapidly increase their share of supply” on a scale that doesn’t reflect normal competition conditions due to government support, the parties said.
As for the CMA’s view that barriers to entry are “significant” in the industry, the parties said this conclusion is “unreasonable and is premised on serious logical and methodological flaws.” Konecranes and Cargotec referred to the ability of Chinese state-backed and state-owned rivals to enter markets and expand.
The companies also took aim at the regulator’s view that having a local track record is an important competitive advantage—alleging this conclusion is based on third-party feedback “that is, at best, mixed,” and documents “of little to no probative value.”
“Unreasonable and indefensible.” On specifics of the CMA’s competitive analysis, the parties said they “strongly disagree” with the “unreasonable and indefensible” findings on geographic market definition and competitive dynamics in the markets for mobile equipment. Konecranes and Cargotec pointed to the CMA’s conclusion that the merger would be anticompetitive in automated stacking cranes—finding that China’s Shanghai Zhenhua Heavy Industries Company is a weaker competitor for smaller volume tenders. The parties said the EC finding on this issue “directly contradicts that of the CMA.”
To be sure, the tough language used by Konecranes and Cargotec and their response to the provisional findings isn’t out of step with other companies that have faced CMA prohibition.
Facebook last year said the authority had fallen “well short” of the evidentiary threshold and failed to apply the correct legal test, resulting in “erroneous and unsustainable conclusions.” In addition, Facebook said the regulator’s provisional findings “irrationally disregard real-world evidence” that
Giphy, a supplier of short, looping videos, never was considered a serious rival in display advertising.
Sainsbury and Asda likewise alleged a “multitude of fundamental errors and flaws” in the CMA’s analysis of their failed merger. The companies said the CMA analysis was “inadequate in many respects” and meant the authority reached conclusions that were “fundamentally incoherent and at odds with any real-world sense checks.”
In seeking to overturn the CMA’s provisional findings and notice on remedies, Konecranes and Cargotec are attempting to persuade the UK watchdog to do something it seldom does.
The CMA in 2020 did change its rationale for unconditionally approving Amazon’s minority stake in Deliveroo, moving away from its provisional finding that the deal qualified for clearance based on a failing firm defense. But the CMA’s move to clear the acquisition—backpedaling from concerns it had identified earlier in the probe—was driven by the UK pandemic-related lockdown fundamentally re-shaping the markets in question.
In 2018 the CMA dropped the London region as an area of concern in its investigation of a waste scrap metal deal involving Ausurus Group’s purchase of Metal & Waste Recycling Limited. Likewise in 2018, the CMA excised an area of concern following its provisional findings that Cygnet Health Care Limited’s purchase of the Cambian adult services division of Cambian Group was anticompetitive. The CMA’s decision panel split on whether to include the West Midlands as an area of concern and, without the required two-thirds majority, couldn’t require remedies for that region.
In 2016 Celesio had to sell pharmacies in 12 areas of England and Wales to get CMA clearance for the takeover of Sainsbury’s pharmacies business—down from 13 areas in the authority’s provisional findings. Also in 2016, the CMA’s final report on BT Group’s purchase of wireless telecom company EE saw the authority’s decision group unanimously conclude the merger wouldn’t result in competition concerns on the wholesale mobile market. In the watchdog’s provisional findings the CMA group was evenly divided on the issue.
Greater concession. Arguably, none of those CMA changes were significant, and Konecranes and Cargotec are seeking a far greater concession from the authority in requesting a lesser divestiture than either Cargotec’s Kalmar or Konecranes’ Port Solutions unit. To obtain UK clearance, the companies will either have to accept a bigger divestiture, or the CMA will have to perform a rare volte-face.
“We are working closely with the authorities in various jurisdictions,” a Konecranes spokesperson said, declining to comment further. A Cargotec spokesperson declined to comment.
The CMA’s review timetable envisages receipt of all parties’ final responses and submission by the middle of February, with the final decision coming either at the end of next month or in early March. The UK watchdog’s ultimate decision deadline is April 1.
The EC meanwhile has a March 3 review deadline—a date that can’t be pushed back further unless the commission suspends its review.
A CMA spokesperson declined to comment. An EC spokesperson declined to comment.