May 18, 2016 By FTI Consulting
EU Merger Control has clear rules on when a merger of two companies needs to be examined by the EU competition authority. The idea is two-fold: give legal certainty to companies and ensure that all potentially harmful merger projects are actually reviewed by a responsible competition authority. The current rule book developed from EU antitrust case law and the first merger regulation dates only from 1989. It was revised in 1997 and recast in 2004. Even though the Commission has published a White Paper with ideas for a new revision in 2014, and consulted widely on the issue, no proposal has been made to date.
There could be many reasons for rules staying unchanged for so long. If one could assume that the rules have become better at every revision, it might simply have become more difficult to improve further. But the economy, and thus mergers, are a moving target. And – in today’s world – they seem to move ever faster. Indeed, reading recent remarks from EU Competition Commissioner Margrethe Vestager on the issue of merger reform, one could be excused for getting the impression that the ideas from the White Paper, while respectable, are already outdated.
For example, the value of intellectual property or data, and how they link to innovation, was scarcely touched upon. Instead, there was a whole discussion about when minority shareholdings might be problematic which, however, “hasn’t convinced” Vestager that any change is needed.
Here is another theme that has emerged only after the White Paper: whether the thresholds for notification of a planned merger to the Commission are still adapted to the regulator’s real needs. Should we expect a proposal on this soon, and what might it be?
To answer these questions, let’s see what we can learn about Commissioner Vestager’s overall goals for merger review from her speech. There are two fundamental points:
1. As light as possible, as strong as necessary: EU merger control needs to work “for everyone, business and consumers alike.”
2. Legal certainty: “[T]here should be no doubt whether you need to notify a particular merger.”
Two main ideas for updating the thresholds have been put forward to date: 1. Taking into account, in addition to the existing revenue-based thresholds, the transaction value of a merger, e.g. the price paid in a takeover; and 2. enabling a review already if the existing thresholds are essential met by only one of the companies concerned (put forward in the German Monopolies Commission’s extensive special report on digital markets, § 461).
Commissioner Vestager and others point to the need of picking “just the right level” for a transaction value threshold. However, it is difficult to see how any particular threshold applied in an automatic fashion (for legal certainty) could catch all important mergers that today go uncaught, while simultaneously not catching any additional ones that should not be caught.
The price for a more selective merger control that is not blind even to very recent technical developments might thus very well be to drop at least one of these goals.
Everybody could see that Facebook/WhatsApp was a transaction the Commission should want to look at. Perhaps it would not be much more difficult to see quickly that another future merger should actually be left alone, regardless of its transaction value. This would call for a flexible approach to a new threshold, possibly with a very light notification in case of significant transaction value, and then a quick decision from the competition authority whether it is to be reviewed or not.
Taking a step back, though, we indeed have to ask whether there really are many (or even any) “important mergers we might be missing” (just as the Commission has actually not missed Facebook/WhatsApp).
If not, and if “successful enforcement is all about focusing on the things that matter”, maybe right now an update of EU merger control should not be one of those things…