PostNL/Sandd: Dutch court annuls first ministerial merger licence

The District Court of Rotterdam on 11 June 2020 annulled the Minister of Economic Affairs’ decision to grant a licence for the acquisition of Sandd by PostNL. The Dutch Competition Authority (Autoriteit Consument & Markt – ACM) had previously prohibited this merger.

In September 2019, the ACM had objected to the proposed acquisition by PostNL of Sandd. PostNL was the Dutch incumbent postal operator and Sandd was the only competitor to also possess a network covering the entirety of the Netherlands. In its phase 2 decision, the ACM prohibited the intended acquisition, finding that it would result in a monopoly in relation to postal delivery, which could increase prices for business mail by an estimated 30-40 per cent.

For the first time since the introduction of the Dutch Competition Act, the Minister made use of its power to grant a licence for compelling reasons of general interest, which from her perspective prevailed over the competition concerns identified by the ACM.

On 27 September 2019, the Minister granted a licence (subject to certain conditions) and indicated that the benefits of the acquisition to the public would outweigh the risks to competition. The conditions included a ceiling on returns of 9 per cent on Dutch postal services (including business mail) to prevent the anticipated price increases and a commitment to grant competing postal services providers access to the network.

The Court has now annulled the decision to grant a licence by the Minister for the merger, leaving much uncertainty regarding the future of the combined PostNL-Sandd merger.

Minister makes substantive and procedural errors

Following the issuance by the Minister of the licence clearing the acquisition of Sandd by PostNL, several small business customers of the former Sandd entity lodged appeals against that decision. The appellants raised both procedural and substantive grounds of appeal. The Court has now found that the decision to grant a licence is vitiated by both procedural and substantive flaws.

Procedural flaws

The appellants raised two main procedural arguments; the Minister was allegedly biased, and the interested parties were given insufficient or no possibilities to be heard.

As regards the alleged bias of the Minister, the Court has ruled that it does not consider that to be the case. As regards the possibility to be heard, the Court considers that a public law body is subject to strict laws regarding the rights to be heard. Such laws also apply to a decision to grant a licence by the Minister, which means that interested third parties must be offered sufficient possibilities to make their views known.

At the request of the Minister, the ACM conducted a public consultation of only five days (9-13 September 2019) regarding the conditions of the decision to grant a licence. A number of interested third parties complained that this was insufficient time to submit a well-reasoned briefing paper or provide any meaningful feedback. 

The Court has ruled that this consultation did not offer third parties sufficient possibilities to express their views and thereby infringed the Public Administrative Act (Algemene wet bestuursrecht) regarding the right to be heard. The Court considers this infringement to be so significant that it warrants the annulment of the decision.

Substantive flaws

The Court considered it necessary to also address the substantive grounds of appeal, with a view of giving an as complete as possible judgment, even though it would have annulled the decision on the basis of the procedural infringement already.

In the ACM’s phase 2 decision (refusing to grant a licence), the ACM highlighted a number of concerns that could result in a significant impediment to effective competition. The Court considered that, whereas it is obliged to do so, the Minister did not address any of these concerns in the decision. 

According to the Court, at a very minimum the Minister should have consulted the ACM to inquire as to these concerns. Given that it has an official period of 13 weeks to issue to grant a licence, and that it did so within three weeks, the Court considered that there was ample opportunity for the Minister to consult with the ACM.

The Minister has cited compelling reasons of general interest as a ground for granting the licence. Although the notion of 'compelling reasons of general interest' is not further defined in the law, it is meant to comprise both economic and non-economic elements. Although the Minister furnished a large number of reports that allegedly underpin its decision, the Court has found that, in the decision to grant a licence, the Minister has not cited a single one of these reports or studies. As such, the Court considered that the decision contains vitiated reasoning.

As regards the continuity of Dutch postal services, the ACM had found that despite the arguments of the parties, the prospective analysis it conducted (three to five years) did not evidence a threat to the continuity of the Dutch postal services (ie within three to five years, post in the Netherlands would still be delivered). The Minister has cited internal documents and studies of PostNL itself to confirm that there would be a threat to the continuity of Dutch postal services without the transaction. The Court considered that this was insufficiently motivated and noted that the Minister did not ask a third party to verify the PostNL data.

The ACM had previously found that the transaction would most likely lead to a price increase of 30-40 per cent on the market for business mail (around 90 per cent of the total postal market in the Netherlands). In the decision to grant a licence, the Minister had included a condition that would cap the maximum profit of the PostNL/Sandd entity at 9 per cent. 

However, the Court has found that, as the appellants had indicated, in past years (including some very successful years with twice the postal volume) the profits realised by PostNL were far lower than 9 per cent. 

In addition, the Court considered that there are other ways to influence the profit margins to the PostNL/Sandd entity’s advantage. These concerns are not addressed in the decision, which is, therefore, insufficiently motivated.

Finally, the decision concludes that absent the concentration, the impact on employment would be more severe. The Court also considered that the reasoning of the decision contained inconsistencies in this regard and was insufficiently motivated.

What next happens now?

Given that decision to grant a licence has been annulled by the Court, the acquisition of Sandd by PostNL now has no legal basis. The Minister needs to consider whether to appeal the judgment (the judgment mentions that the Minister indicated it would appeal the judgment) and/or whether to grant a new licence (through a better reasoned decision). It seems unlikely that the merger will be unwound (closing and integration having already taken place), although that possibility cannot be ruled out entirely.

The case is very interesting as for the first time since the Competition Act was introduced, the Minister made use of its power to grant a licence for compelling reasons of general interest, which has now subsequently been annulled for insufficient motivation and procedural errors. The judgement confirms that these decisions – which require a different reasoning and balancing than the merger control decisions of the ACM and for which the Minister has significant discretion according to the text of the statutory provision – need in any case to be carefully prepared and reasoned.

The Court has closely scrutinised the reasoning around internal documents and market reports, and noted that the decision to grant a licence insufficiently takes into account such reports (failing to cite relevant paragraphs, pages or key facts or mention the reports at all).

Although it remains to be seen what happens next, this case has proven to be a landmark case in Dutch competition and public law.

Given that the preparation of this decision is subject to the same laws as other public law decisions, it provides useful context to the level of scrutiny the courts give to matters of the rights of interested parties, the right to be heard and the degree of motivation and reasoning required.

Finally the judgment demonstrates the significant hurdles the Minister faces to set aside a prohibition decision of the ACM, particularly when such a prohibition is based upon solid quantitative and qualitative evidence covering the future prospects of the undertakings involved and the competitive interaction and dynamics on the relevant markets.