EC tightens the screw on mergers and monopolies
28 January 1997
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Companies doing business in Europe and their advisers are eagerly awaiting to hear the future of merger control regulation in Europe. One of the key questions has been whether the present threshold above which mergers have to be notified to the EC's competition directorate, DGIV, will be lowered.
In November, an amendment to reduce thresholds, proposed by the Commission last autumn, suffered a serious setback when the Council of Ministers voted against it by qualified majority.
The proposal has proved to be highly controversial for the anti-trust authorities of the member states, not least because of the considerable increase in the Commission's powers which it entails. Half of the member states expressed their opposition to it.
The proposal would have lowered the worldwide turnover thresholds from ECU5bn (£7.1bn) to ECU3bn and the EU turnover thresholds of at least two of the enterprises concerned in a merger from ECU250m to ECU150m. It is now off the agenda for the foreseeable future.
The Council's decision on the other long-debated issue, that of establishing a mechanism which would end the problem of companies having to notify several different member states of a merger (multiple notification), is still awaited.
The Commission's proposal is to introduce a "one-stop shop" for transactions which qualify for examination in three or more national merger control systems and which fall below the thresholds of the EC merger control regulation.
Discussions are to continue through the early part of 1997 but it is unlikely that ministers will approve a new merger regulation before the Industry Council meeting in April. Any such approval must be made by unanimous decision.
In the meantime, under the existing regulation, Commissioner Van Miert is taking a tough enforcement line and the Commission is exercising its powers with increasing rigour, having prohibited two agreements in rapid succession in November and December 1996.
In November, the Commission blocked the acquisition of the Finnish consumer goods retailer Tuko by its rival, Kesko.
This was a case which the Commission was asked to examine by the Finnish competition authorities under the so-called "Dutch" clause which enables member states to ask the Commission to examine cases which technically fall below the regulation thresholds.
The Commission took the view that the combination of the two retailers could create a monopolistic supply, since combined market shares in the cash and carry market could vary regionally from 50 per cent to 100 per cent.
In December the Commission announced its opposition to a joint venture between two silicon carbide companies Saint-Gobain/Wacker and Chemie/Nom.
In certain of the markets for silicon carbide, the joint venture would have have had a 60 per cent market share, while the three remaining competitors in Europe would have had shares of less than 10 per cent.
In addition, there are at present several major Commission investigations still underway: in December 1996 the Commission announced that it would investigate the acquisition by the Anglo-American Corporation of South Africa of a 28.4 per cent interest in Lonrho. The Commission considers that Anglo's shareholding has conferred on it control over Lonrho.
Both companies are active in the production of platinum ground metals and the Commission is concerned that the shareholding could give Anglo a dominant position in the platinum and rhodium markets.
It must be remembered that in April 1986 the Commission prohibited the proposed merger between Impala Platinum, controlled by Gencor, and Lonrho's platinum division, on the grounds that this would have led to a duopoly on the platinum market.
In another current investigation, the Commission has just approved the acquisition by Coca-Cola Enterprises of UK-based Coca-Cola and Schweppes Beverages from Cadbury Schweppes and the Coca-Cola Corporation, but says it will continue to investigate a licensing agreement associated with the acquisition.
Phase II proceedings - the detailed second stage of a merger investigation - were opened in this case in September but the Commission last week decided that there was not sufficient evidence to conclude that the acquisition would result in the strengthening of a dominant position enjoyed by Coca-Cola and Schweppes Beverages in the UK and therefore a significant impediment to competition.
In the British Airways/ American Airlines alliance investigation, on the other hand, Van Miert has issued a statement of objections, followed up by a letter warning the UK government about the implications of the alliance. The letter is a sign of the Commission's increasingly bullish approach. At the same time some are questioning its jurisdiction to act at all in this matter.
Active investigations are apparently also under way in relation to the BT/MCI merger and also the proposed Boeing/McDonnell Douglas transaction.
There have now been a total of seven prohibitions in merger cases under the Merger Control Regulation and six of these have occurred under Van Miert. The Commissioner will not hesitate to fight to block deals which DGIV considers might seriously impede competition in the EU.
As we go forward into 1997, there is no doubt that we will continue to see tough enforcement by Van Miert in relation to clearly prohibited anti-trust practices, such as price fixing or the imposition of export bans.
The pattern of fining companies heavily can be expected to continue and the level of fines may even increase. There may also be an increased number of merger prohibitions where there are significant additions to market power in specific sectors.