Mixing-and-matching – it all depends on perspective

Quote of the month

“If the market thinks that this will solve the problem — because it is not just us, we ask market participants, we ask customers, we ask competitors: 'do you think that this will work?' If they say, 'hmm, yeah, it might actually work,' well, then we have very little discretion.”

EVP Vestager, April 2022, on Cargotec/Konecranes

So what triggered Rhino’s rather defensive reaction? The Commission had approved a merger between two cargo handling equipment manufacturers, Cargotec and Konecranes, subject to a divestiture remedy. One month later, the UK competition authority, or as we like to call it, Platypus, rejected the same remedy and prohibited the deal. It seemed that Platypus had stricter standards for the viability of the business to be divested. Not a good look in a world where no regulator wants to be seen as overly accommodating with concentrations. Rubbing salt on the wound, the US authority also took a stricter stance on the deal and the Commission was left feeling red in the face for its arguably lax approach towards mix & match remedies.

Mixing and matching: what is it and what is the Commission’s approach?

Mixing and matching remedy assets allow minimising the pain of a divestiture and minimising the strategic leakage of divestiture remedies. The trick is to solve a competition problem not by selling one existing business but by creating a new one by combining assets from both sides. The Commission is very critical of mix-and-match remedies (See for example para. 37 of the remedies notice: ‘only if the viability of the business is ensured’; the EC’s rejection of a mix-and-match remedy in M.8492: ‘the mix-and-match of carved out assets from both Quaker and Houghton presented serious implementation risks’; and the EC defending a remedy in M.9331 because it was not mixed-and-matched: ‘the Commitments only comprise assets from the Notifying Party and therefore do not include any mix-and-match elements, which allows the Purchaser to realise certain efficiencies’). Our editorial board has seen multiple mix-and-match solutions informally tested with case teams and quickly being shot down. In fact, there are only a handful of recent cases where mix-and-match remedies worked within the same market (see table below).

Diverging views on Cargotec / Konecranes explained

But was the Cargotec/Konecranes proposal really a mix-and-match remedy? Well, it seems to be a matter of perspective. The Commission’s press release refers to two distinct competition issues. One in the market for port cranes and the other in the market for mobile equipment.

The first could be addressed by the divestment of Cargotec’s KAS unit, an existing business. The solution for the second was the divestment of Konecranes’ MEQ unit. Both businesses could be acquired by different purchasers thus, Rhino would say that no new business has been formed by mixing and matching assets.

Platypus, however, wanted to ensure ‘portfolio breadth’ built into the divestiture package. In other words, this breadth should be in the package instead of brought on by the divestiture buyer. Therefore, both businesses had to go to a single buyer. The combination that made them a mix-and-match was a request of the CMA following an assessment of customer purchasing patterns, evidence from third parties and internal documents.

In short, the divergence may not concern mix-and-match remedies, but rather the portfolio breadth issue flagged by the CMA. Does this suggest that the CMA and EC received different customer feedback, is it a sign of a wider philosophical debate or did Platypus merely see an opportunity to step out of Rhino’s shadow?

Examples of mix-and-match remedies in the EC decisional practice