European Business Law 20132014 University of Warsaw Faculty of Management Dariusz Aziewicz LLM Obligation to notify Concentrations with the EU dimension must be formally notified to the Commission ID: 549361
Download Presentation The PPT/PDF document "Merger control" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Merger control
European
Business Law 2013/2014
University of Warsaw Faculty of Management
Dariusz Aziewicz LL.MSlide2
Obligation to notify
Concentrations with the EU dimension must be formally notified to the Commission
Generally, they cannot be put into effect until the Commission has taken a formal clearance decision
EU dimension
:
Concept of concentration
EU thresholds
One stop shop
–
exclusive jurisdiction
of the
Commission to investigate transactions
(
if EU dimension
)Slide3
Definition of concentration
Change of control on lasting basis
LEGAL MERGERS
-
the
merger of two or more previously independent undertakings
or parts of undertakings,
(
also
de facto
mergers
)
AQUISITION OF CONTROL
-
the
acquisition
, by
one or more persons
already controlling at least one undertaking, or by one or more undertakings, whether by
purchase of securities or assets, by contract or by any other means,
of direct or indirect control
of the whole or parts of one or more other undertakings
(sole/joint
control
)
Full-function joint ventures
- t
he
creation of a joint venture
performing on a lasting basis all the functions of an
autonomous economic entitySlide4
Control
Control shall be constituted by rights, contracts or any other means which
, either separately or in
combination and having regard to the considerations of fact or law involved,
confer the possibility of exercising
decisive influence
on an undertaking
in
particular
by:
ownership of the right to use all or part of the assets of an undertaking
rights or contracts which confer decisive
infuence
on the composition, voting or directions of the organs of an undertakingSlide5
Decisive
influence
The
power to determine actions
which bring about the
strategic commercial
behaviour
of an undertaking
acquisition
of
(
majority
)
shares
or
assets
minority shareholders
if specific rights are attached to it (negative control trough a veto right)
shareholders are widely dispersed
contractual basis
the
contract must lead
to
a
similar control of the management and the resources of the other undertaking as in the case
of
acquisition
of shares or
assets
option rights
other means
Purely
economic relationships
may
play
a decisive role for the acquisition of
control
situation of
economic
dependence
may lead to control on a de facto basis where, for example, very important long-term
supply
agreements
or credits provided by suppliers or customers, coupled with structural links, confer
decisive
influenceSlide6
Joint control
Where two or more undertakings or persons have the ability to exercise decisive influence over another undertaking
There is a possibility of a deadlock because two or more shareholders each have the power to veto strategic decisions
e.g.
:
equality in voting rights, veto rights of the minority s/h, de facto joint control (acting together when having majority together
-
by way of transferring right to a holding company)Slide7
Community dimension I
A concentration has a Community dimension where:
the
combined aggregate worldwide
turnover of all the
undertakings concerned
is more than
EUR
5 000 million
;
and
the
aggregate Community-wide
turnover of each of at
least
two of the undertakings
concerned is more than EUR
250
million
unless each of the undertakings concerned achieves more than
two-thirds of its aggregate Community-wide turnover within
one and the same Member StateSlide8
Community dimension II
Cumulatively:
the combined aggregate worldwide turnover of all the
undertakings concerned is more than
EUR
2 500 million
;
in each of at least three Member States, the combined
aggregat
turnover of all the undertakings concerned is
more than
EUR 100 million
in each of at least three Member States included for the
purpose of point (b), the aggregate turnover of each of at
least two of the undertakings concerned is more than
EUR 25 million
and
the aggregate Community-wide turnover of each of at least
two of the undertakings concerned is more than
EUR 100
million
unless each of the undertakings concerned achieves more than
two-thirds of its aggregate Community-wide turnover within
one and the same Member State.Slide9
Suspension
Concentrations with a Community dimension shall be notified to the Commission
prior to their implementation and following the conclusion of the agreement
, the announcement of the public bid, or the acquisition of a controlling interestSlide10
Referrals
Parties seek investigation by Member States
Parties seek investigation by the Commission
Member states seek to investigate
Member States request the Commission to investigate Slide11
Timetable for Merger Review
Phase I
25 commission working days
(
extended to 35 working days when remedies are submitted
)
make inquiries (“
market test
”) and consider submissions by interested third
parties
,
decide
whether the proposed concentration “
raises serious doubts as to its compatibility with the Common Market
”
Phase
II
90 working days
starting from the issuance of a formal decision
(
extended
to 105 working days if remedies are
proposed
)
Possibility for the notifying party(
ies
) and the Commission to “
stop the clock
” for not more than 20 days, subject to certain
conditionsSlide12
Final Decision
T
he Phase II decision clears the transaction (subject to remedies) or blocks the transactionSlide13
Formal clearance decision is issued if the merger
does not raise
“
serious doubts as to its compatibility
”
with the Common Market
Most merger operations are cleared by a Phase I decision with remedies, if anySlide14
Economic assessmentSlide15
Types of mergers
Horizontal mergers
(
mergers between competitors)
Vertical mergers
(between undertakings operating at different levels of the
same
relevant market)
Conglomerate mergers
(between undertaking operating in different product markets which are not horizontally or vertically related)Slide16
SIEC Test
A concentration which would
significantly impede effective competition
in
the common market or in a substantial part of it
,
in particular
as a result of the
creation or strengthening of a dominant position
, shall be declared compatible with the common market shall be declared
incompatible with the common marketSlide17
Competition harm
Transaction threatens—with a reasonable probability—to hurt an identifiable set of customers through:
Increased prices
Reduced product or service quality
Reduced rate of technological innovation or product improvement
(Maybe) reduced product diversity Slide18
Market shares
Market shares and concentration levels provide
useful first
indications
of the market structure and of the competitive
importance of both the merging parties and their
competitorsSlide19
Herfindahl – Hirschman Index
Squaring
the market share of each firm competing in a market, and then summing the resulting
numbers
unlikely to identify horizontal
competition concerns in
if
HHI below 1 000
unlikely to identify horizontal
competition concerns in a merger with a post-merger
HHI
between 1 000 and 2 000 and a delta below 250,
or a merger with a post-merger
HHI
above 2 000 and a
delta below 150Slide20
Unilateral
effects
A merger may significantly impede effective competition
in a market by
removing important competitive
constraints on one or more sellers, who consequently
have increased market power
. The most direct effect of
the merger will be the loss of competition between the
merging firmsSlide21
Coordinated effects
O
n some markets the structure may be such that firms
would consider
coordination
possible
,
economically rational, and
hence preferable, to adopt
on a sustainable basis a
course of action on the market aimed at selling at
increased prices Slide22
Airtours case
Product homogeneity
Stable and symmetric market shares
Stable demand
High barriers to entry
Economic analysis shows that the ability to ‘punish’ firms
who deviate from an implicit agreement is an essential
requirement for tacit co-ordination to be sustainableSlide23
Buyer power
The competitive pressure on a supplier is not only exercised by competitors but can also come from its customers
.
Even firms with very high market shares may not be in a position, post-merger, to significantly impede effective competition, in particular by acting to an appreciable extent independently of their customers,
if the latter possess
countervailing buyer powerSlide24
Bariers of Entry
When entering a market is sufficiently easy
,
a merger is unlikely to pose any significant anti-competitive risk
For entry to be considered a sufficient competitive constraint on the merging parties, it must be
shown to be
likely, timely and sufficient
to
deter or defeat
any potential anti-competitive effects of the mergerSlide25
Efficiencies
Corporate reorganizations
in the form of mergers may be in line with the requirements of dynamic competition and are
capable of increasing the competitiveness of industry
, thereby
improving the conditions of growth and raising the standard of living in the Community
.
It is possible that efficiencies brought about by a merger counteract the effects on competition and in particular the potential harm to consumers that it might otherwise have
Merger specificity/pass on to consumersSlide26
Efficiencies
Menu of customer benefits
Lower costs of production, distribution, or marketing make merged firm more competitive
Elimination of redundant facilities and personnel
Economies of scale or scope
Complementary product lines
Broader product offering desired by customers
Better integration between merging products further enhances customer value
Accelerated R&D and product improvement
Greater combined R&D assets (researchers, patents, know-how)
Complementaries
in R&D assets
Greater sales base over which to spread R&D costs
Better service and product support
More sales representatives
More technical service support Slide27
Transaction costs due to merger control
Delay/opportunity costs
Possible delay in the closing of the transaction and the realization of the benefits of the closing to the acquiring and acquired parties
Management distraction costs
Possible diversion of management time and resources into the defense of the transaction and away from running the business
Expense costs
Possible increased financial outlays for the defense of the transaction Slide28
The purpose of merger antitrust law is to
prevent the creation or facilitation of market power to the harm of customers
in the market as a whole through
:
Increased prices
Decreased product or service quality
Decreased rate of technological innovation or product improvement
[Maybe] decreased product variety Slide29
Critical substantive questions
Are prices likely to increase
postmerger
?
Are the merging companies strong and uniquely close competitors with one another?
How many other effective competitors does each merging party have?
Do customers play the merging parties off of one another to get better prices or other deal terms?
How high are barriers to entry, expansion, and repositioning?
What are the gross margins for the overlapping products of each of the merging parties?
Is the rate of innovation or product improvement likely to decrease
postmerger
?
Will the merged firm discontinue a product or product family?
If so, how will this affect current and future customers in the space?
If so, do the companies have a plan to support legacy products? Slide30
Defense menu in horizontal transactions (in decreasing order of strength)
Parties do not compete with one another
Parties compete only tangentially
Parties compete but have significant other close and effective competitors
Parties do compete, have few existing competitors, but movement into market is easy (no barriers to entry or repositioning), and
would occur quickly if merged company acted
anticompetitively
Some other reason deal is not likely to harm customers Slide31
Vertical mergers
:
Vertical foreclosure
Input foreclosure
Customer foreclosure
Conglomerate mergers
Foreclosure
Portfolio effectSlide32
Remedies
T
he
concept of restoring
competition
Structural
Divestiture
Behavioral
Application of specific behavior
obligation