Mergers and EC Merger Policy By Kevin Hinde

Aims –To explore the rationale for and impact of mergers in Europe. –To demonstrate the role of regulators in controlling merger developments

Learning Outcomes By the end of this session you will be able to –describe and analyse trends in merger activity in the EC in recent times. –analyse the rationale for merger activity and assess their welfare implications using Williamsons trade off model. –critically assess the institutional framework controlling European mergers.

Data

TABLE 3 3

Motives for Merger F Market Power. F Efficiency. F Financial Motives F Risk Reduction F Empire Building, Failing Firms and Ageing Owners F EC policy developments and Globalisation

Welfare Effects F Horizontal Mergers F Vertical Mergers Conglomerate Mergers

Welfare Effects F Mergers can –offer cost savings –improve long term viability of investment –enhance economic integration F But they can also –raise prices –deter actual competition –prevent potential competition

EC Merger Policy F 1990 EC introduced a new Merger Regulation. An EC taskforce must discover whether a merger/joint venture F creates a concentration F has a community dimension –World wide annual turnover of > 2.5bn ECU –EU Annual Sales of >100 Million ECU

Procedures F No concentration may be put into effect before notification or within 3 weeks following notification. F Phase 1 ends after 4 weeks whereby the Commission makes a decision as to the concentrations compatibility with the common market.

Procedures F If there are serious doubts about compatibility Phase 2 comes into effect and a 4 month investigation takes place. F Failure to abide by a Commission decision may lead to fines up to 10% of turnover of the undertakings concerned. F The Commissions decision is final though the Court of Justice acts as the body of appeal.

Action 1990 to cleared at phase 1(45 with undertakings) 51 withdrawn 51 fall outside the scope 9 full referral back to national authorities 58 required a phase 2 examination Of the latter 36 were compatible with conditions and obligations 11 compatible without obligation 11 were prohibited

Evaluation F A distinct procedure has emerged for assessing notified mergers once Community jurisdiction has been established. –determine the relevant product market –determine the relevant geographical market –assess whether a merger creates or strengthens a dominant position

Evaluation F Four elements are examined: –the market position of the merged firm (market share and other competitive advantages) –strength of the remaining competitors –customers buying power –potential competition

Prohibitions to 1999 u Aerospace/De Havilland (1991) u MSG Media Service (1994) u Nordic Satellite Distribution (1995) u RTL/Veronica/Endemol (1995) u Gencor/Lonrho (1996) u Kesko/Tuko (1996) u Saint Gobain/Wacker Chemie/NOM (1996) u Blokker/ Toys R Us (1997) u Bertelsmann/Kirch/Premiere (1998) Deutsche Telekom/Betaresearch (1998 ) u Air Tours/ First Choice (1999)

Issues F Only large mergers being caught. –Threshold levels still considered high –Dominance may persist in smaller industries. F Most mergers occurring in technologically dynamic industries. To what extent will this bring benefits? F Concerns about the relationship between member states and EC.

Test F List three trends in EC merger development over the past decade or so. F List the reasons why mergers occur. F What are the costs and benefits of mergers? F What are the main problems for regulators?

Any Questions?