Merger control regimes are adopted to prevent anti-competitive consequences of concentrations (as mergers and acquisitions are also known). Accordingly, most merger control regimes normally provide for one of the following substantive tests:
- Does the concentration significantly impede effective competition? (EU, Germany)
- Does the concentration substantially lessen competition? (US, UK)
- Does the concentration lead to the creation or strengthening of a dominant position? (Switzerland)
The large majority of modern merger control regimes are of an ex-ante nature, i.e. the reviewing authorities carry out their assessment before the transaction is implemented.
While it is indisputable that a concentration may lead to a reduction in output and result in higher prices and thus in a welfare loss to consumers, the antitrust authority faces the challenge of applying various economic theories and rules in a legally binding procedure.
Which mergers are examined by the European Commission?
If the annual turnover of the combined businesses exceeds specified thresholds in terms of global and European sales, the proposed merger must be notified to the European Commission, which must examine it. Below these thresholds, the national competition authorities in the EU Member States may review the merger. These rules apply to all mergers no matter where in the world the merging companies have their registered office, headquarters, activities or production facilities. This is so because even mergers between companies based outside the European Union may affect markets in the EU if the companies do business in the EU. The European Commission may also examine mergers which are referred to it from the national competition authorities of the EU Member States. This may take place on the basis of a request by the merging companies or based on a request by the national competition authority of an EU Member State. Under certain circumstances, the European Commission may also refer a case to the national competition authority of an EU Member State.
Corporate restructuring is a fact of life. There is a natural tendency for markets to consolidate over take through a process of horizontal and vertical integration.
The main issue for competition policy is whether a proposed merger or takeover between two businesses is thought to lead to a substantial lessening of competitive pressures in the market and risks leading to a level of market concentration when collusive behaviour might become a reality.
When companies combine via a merger, an acquisition or
the creation of a joint venture, this generally has a positive impact on
markets: firms usually become more efficient, competition intensifies
and the final consumer will benefit from higher-quality goods at fairer
prices.
However, mergers which create or strengthen a dominant market position can, after investigation, be prohibited in order to prevent ensuing abuses. Acquiring a dominant position by buying out competitors is in contravention of EU competition law. Companies are usually able to address the competition problems, normally by offering to divest (sell or off-load) part of their businesses. For example, in 2007, the UK Competition Commission decided that Sky would be forced to sell some of its 17.9% stake in ITV.
However, mergers which create or strengthen a dominant market position can, after investigation, be prohibited in order to prevent ensuing abuses. Acquiring a dominant position by buying out competitors is in contravention of EU competition law. Companies are usually able to address the competition problems, normally by offering to divest (sell or off-load) part of their businesses. For example, in 2007, the UK Competition Commission decided that Sky would be forced to sell some of its 17.9% stake in ITV.
How Germany killed a merger
Here is the tactful statement from BAE Systems and EADS explaining why they have buried their plans to merge:
"Notwithstanding
a great deal of constructive and professional engagement with the
respective governments over recent weeks, it has become clear that the
interests of the parties' government stakeholders cannot be adequately
reconciled with each other or with the objectives that BAE Systems and
EADS established for the merger."Read more...
