by Veronica Pinotti and Martino Sforza

On 8 August 2011, the Italian Competition Authority blocked the proposed acquisition by Compagnia Valdostana delle Acque (CVA) of Deval and Vallenergia, both active in the retail sale of electricity in Valle d’Aosta, a mountain region in the north of Italy, close to the border with France. The case is interesting because, in reaching its decision to prohibit the transaction, the Authority took into account not just the parties’ market shares, but also the likely impact of local legislation granting incentives to retail suppliers of electricity. According to the Authority, as these incentives stand currently, they form increased barriers to entry.

The Authority also issued an official statement informing the local authorities of the alleged restriction to competition created by this legislation. It added that it may reconsider its assessment of the CVA acquisition if the legislation was amended to allow potential competitors to have access to the incentives.

The case shows, especially in highly regulated sectors (such as energy, water, and other former monopolies) that market share, although a useful indicator of the parties’ market power, must be considered within the regulatory context. As a result, even if the parties have relatively low market share, clients are well advised to assess carefully the likely impact on competition of any proposed transactions in regulated markets.

In addition, this case proves that the competition authorities are willing to review not only very large mergers, but also smaller deals, in terms of value of the transaction, product, or geographic size of the affected markets and, as in this case, may decide to block deals that are likely to impact relatively small local markets. It is therefore important to review any potential competition issues in the early stages of the negotiations, in order to be able to approach the relevant competition authorities well in advance of any formal filing and discuss any remedies and/or other measures required to avoid any delays in the clearance procedure.