The Italian Competition Authority opens a II-Phase enquiry into a multi-utility merger


In the Case C-12125 2i Reti Gas/Nedgia the Italian Competition Authority (ICA) has opened a Second Phase investigation into the proposed acquisition of Nedgia Spa (Nedgia) by 2i Reti Gas Spa (2RG). The merging parties operates in the market for the services for distribution of natural gas and also supply drinkable water for a few municipalities.
Though the notified merger potentially affects several relevant product markets, the ICA had only concerns on the competition impact of the transaction in the market for the provision of services for the distribution of natural gas. Considering that under the Italian legal system this activity is subject to a legal monopoly regime, the ICA explained that competition in this market is ‘competition for the market’. Indeed, the only form of competition in such markets is bidding for the award for the concession contract for the provision of distribution service of nature gas for the territorial ambits (ATEM) determined in the tender notice. Consistently with its decisional practice, each competitive tender procedure organized for the choice of the gas supplier in a given ATEM constitutes a relevant product market. The competition impact of the merger should be then assessed with regard to the competitive tender procedures that will be called for in future by the contracting authorities.
In that regard, the ICA considered the factors that post-merger may be liable to affect the outcome of the competitive tender procedures. First, the fact that a merging party is the incumbent supplier in an ATEM may confer on it a competitive advantage over rivals. That can be an incentive for the entity resulting from the merger to submit competitive offers. Previous ICA’s decision indicated that incumbent enjoy such competitive advantage when the market share, calculated on the basis of points of gas supply (PDR), was close to 50%. Moreover, whether the incumbent of an ATEM is a major gas supplier may put off rivals from bidding for the future concession contracts, thereby lessening the contestability of this ATEM.
That said, the ICA went on by identifying the ATEM where both Negdia and 2RG operated and calculated their combined market shares as a function of the PDR owned by them. Then, the ICA shortlisted 18 problematic ATEM and divided them into four groups depending on the expected effects of the merger on competition:
A) In the ATEM of Agrigento, Bari 2 and Foggia 1, belonging to the first group, the notified transaction is a 3-2 merger. The merging parties are the two largest suppliers with similar market shares. The merged entity will have a 60% market share, which may discourage potential competing bidders.
B) Post-merger, the third more important supplier, Nedgia, will leave the market in the ATEM of Catania 1 and Frosinone 2, strengthening the market position of 2RG as the largest incumbent. All that could make the market position of 2RG less contestable by competitors.
C) One of the merging parties pre-merger already enjoyed a certain market power in the ATEM of Catania 2, Isernia, Salerno 3, Messina 2 and Palermo. The implementation of the merger will strengthen the position of the merged entity. 
D) In the ATEM of Brindisi and Taranto the merging parties were pre-merger the largest gas supplier, though 2RG had a much larger market share of 80% in these ATEM. Following the consummation of the merger, the merged entity will be quasi a monopolist in the ATEM.
For the above reasons, the ICA reached the conclusion that the consummation of the notified merger operation might lead to the strengthening of the dominance position of the merged entity, which requires a more careful examin

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