The EC’s competition concerns focused on the market for express deliveries, which take place on the next day. Undertakings in this market segment (a.k.a., “integrators”) use sophisticated processes and adequate infrastructure, such as fleets of trucks and air transport network. Today, there are only four integrators in Europe: UPS, TNT, Deutsche Post/DHL, and FedEx. The EC considers that national postal operators, delivery companies, and freight forwarders cannot compete in this market, because they rely heavily on road rather than air transport.
Thus, according to the EC, the EUR 5.2 bn worth deal is a “four to three” concentration. This would facilitate price increases or quality decreases in the express delivery market, especially given the high barriers to entry involved. But the EC’s concerns were not only about the number of competitors in the market but also about their characteristics: TNT, which would be eliminated, is seen as a maverick always providing low-price alternatives. On the other hand, FedEx, which would remain, only has a limited intra-European network in some Member States.
UPS argued that these negative effects are outweighed by the significant efficiencies created by the merger, such as network efficiencies to which the postal industry is naturally prone. UPS argued that bringing together its own and TNT’s networks would generate savings to be passed on to the consumer. The EC insisted that, in at least 15 Member States, serious competition concerns would remain despite the efficiencies because in these countries FedEx was particularly weak and the transaction could create a duopoly.
To dispel these concerns, UPS proposed remedies. It offered to divest all TNT’s subsidiaries in the 15 Member States (plus Spain and Portugal under additional conditions). If the purchaser is not an
integrator and had no aircraft capacity, UPS also proposed to give access to its air network at a “competitive rate” for 5 years. Against this background, UPS has been negotiating over the past months with the French group La Poste/ DPD.
The EC remained dubious about the effectiveness of this remedies package. To limit the uncertainty, the EC proposed to UPS/ TNT an “upfront buyer” solution, whereby UPS would commit today to sign a binding agreement with a suitable buyer, say, DPD. The EC would then clear the deal within the deadline, and UPS would be given additional time to negotiate with DPD and sign the deal. UPS was not happy with that scenario, presumably because this would give huge leverage power to DPD in the negotiations following the clearance. Lacking such an “upfront buyer” commitment, the EC ended up prohibiting the merger.
What is interesting is that although UPS rejected the “upfront buyer” solution, it was willing to negotiate and sign the agreement prior to the adoption of an EC decision (“fix it first” solution). To help out with “fix it first”, the EC could extend the 5 February deadline and agree to take its decision a bit later, e.g., by relying on Article 10(3) EUMR. But apparently, the EC was not prepared to do so. And this begs the question: why not? Does this mean that a strong remedy package combined with a “fix it first” solution could not do the trick for the EC? Did the EC effectively decide that “upfront buyer” is necessarily better than “fix it first”, when e.g., the DoJ takes a more careful position? Or none of this is true, and the EC had fundamental doubts about the remedies package itself, as alluded to in the Press Release?
When published, the EC Decision might give replies to those questions and help understand the full consequences of the case. To be continued…