As a closing to our Legal Framework chapter, we will discuss the European Competition Policy. In this article, you will learn about the European Union, the EU Merger Control Procedures and more.
European Competition Policy
The European Union adopted what is most commonly referred to as the merger regulation as of December 1989. However, the merger regulation policy was not put into effect until September 1990, but it was later amended.
What did the regulation focus on? It focused on mergers and joint ventures that have an impact on the degree of competition beyond one nation’s border. All mergers that have significant revenues need to receive European Commission or EC approval under the regulation.
European competition policy vs U.S. system
The European competition policy is different from the U.S. system. In the U.S system, antitrust regulators must go to court to block a merger. However, the EC’s regulatory system does not dependent on the courts.
According to Mats A. Bergman, Malcolm B. Coate, Maria Jakobsson, and Shawn. Ulrick, “Comparing Merger Policies in the European Union and the United States, ” the latest revision of the EC mergers and acquisitions regulations are now broader than the previous version. In this latest revision, they mention market dominance, however, it is now merely an example of an anticompetitive condition.
The market power is determined before and after every deal as part of its analysis. However, before that, the EC must first define the market. In addition to that, different factors including barriers to entry are taken into account as part of its determination.
European Commission Analysis
After the said analysis is finished, the EC does a further analysis. They do so by utilizing its own horizontal merger guidelines. The said merger guidelines start off with post-deal market shares greater than 50% giving rise to concerns. On the other hand, those shares that are below 25-30% tend not to raise much concern.
Additionally, the EC is less likely to raise concerns when the HH indexes are below 1,000. The same can be said when the HH indexes are below 2,000 but the post-deal delta is low (for instance, the post-deal delta is between 150 and 250). For more information regarding HH indexes, refer to our previous article titled Measuring Concentration and Defining Market Share. On the other hand, the transactions that the EC finds particularly objectionable can or may be brought to the European Court of Justice.
There are a number of companies from the United States that do business in Europe. These companies must first secure European Union approval first in addition to the approval by the U.S. antitrust authorities.
European Union
As you might think, this can be a time-consuming process sometimes. For instance, the European Union once launched an investigation into Oracle Corporation’s $7.4 billion takeovers of Sun Micro systems Inc. that lasted for over six months. The EU later approved the deal in January of 2010.
It is no secret that the U.S. antitrust authorities and their European counterparts sometimes disagree on the competitive effects of mergers and acquisitions. In fact, these instances receive a lot of attention. However, contrary to what the media says, the U.S. antitrust authorities and they often agree on the effects. You may remember when the U.S. antitrust authorities and EC disagreed with the proposed $40 billion General Electric-Honeywell merger.
The European Opposition
The European opposition to the GE-Honeywell deal raised a lot of eyebrows since there are some who felt that the European Union was using its competition policy to insulate European companies from the competition with larger U.S. rivals. There are also some who concluded that the decision was the product of an inadequate analysis on the part of the EC. The merger was not opposed to the United States.
This $40 billion conflict led to a lot of discussions to make a more consistent competition policy in both markets. Then-antitrust chief Mario Monti, who also happens to be a former Italian economics professor, used an economic doctrine that is known as collective dominance when reviewing the impact that mergers may have on the level of competition within the EU for the EC antitrust regulators.
In the EU those with market shares that are below 40% could draw enforcement of action. On the other hand, those with much higher thresholds such as 60% may apply in the United States of America.
As a way of limited monopoly power and helping consumer welfare, the European regulators have framed their opposition to certain mergers and acquisitions. However, not everyone was sold. There are still some that are cynical about their motives.
For instance, Aktas, de Bodt, and Roll analyzed a sample of over 290 proposed acquisitions
that were examined by the European regulators in the 1990s. In their analysis, they found that there is a higher chance for regulators to oppose the merger and acquisition when there is a greater chance of adverse impact on European rivals resulting from deals by foreign companies.
EU Merger Control Procedures
In able for the European Union to review a deal, the EC sets certain deal sizes or turnover thresholds. The size is defined in terms of both worldwide and EU business volume.
Before a merger is completed, the EC should first be notified. The merger partners should complete a number of prepared templates by the EC.
There are plenty of deals that do not get much scrutiny from the EC. However, if a certain deal results in a combined horizontal market share of 15% or 25% in vertical markets, you can expect the EC to do an investigation.
Usually, the investigation process starts with Phase I which is completed within 25 business days. A majority (90%) of all cases are expected to be cleared in Phase I.
The remaining 10%, however, have attracted competition concerns, these concerns will be addressed in Phase II.
Phase II
The participants of the deal are expected to put forward or agree to remedies that will guarantee continued competition during Phase II. This phase is usually completed within 90 business days. However, should they wish, the EC can apply an additional 15 days to this time limit.
Upon further review, and if the EC agrees to the remedies, it will then appoint a trustee to oversee the implementation of the remedies. This is done to ensure that the remedies are enacted.
Once Phase II is almost complete, the EC will indicate whether the deal is unconditionally clear or will be approved if remedies are implemented or if it is prohibited. All of the decisions made by the EC are also subject to a review by the General Court and potentially by the Court of Justice.
In 2014, the EU adopted a new set of rules in which companies can submit a shortened version of FormCO. Under these new rules, the parties could submit initial information-seeking EU approval stating that they did not believe the deal raises antitrust concerns.
© Image credits to Steve Johnson