Signs of a possible slowdown in the US economy have prompted fears of a knock-on effect on the rest of the world, including Europe. If these fears materialise, one might expect a reduction in the number of large mergers being reviewed in Brussels.
Merger regulation is now big business for those law firms who practise European law. Most of the major firms handling such work have a presence in Brussels and have benefited from the fact that last year more than 300 transactions were notified to the European Commission. While most of those were approved without changes, even the most straightforward transactions generate significant fees for advisers.
The steady rise in the number of notified deals (at least until now) has placed an enormous burden on the limited resources of the commission’s Merger Task Force (MTF). The commissioner responsible for the competition portfolio, Mario Monti, was apparently successful in the commission’s latest internal bargaining about allocation of resources, and we should soon expect to see the impact of the increased head count. And not a moment too soon: it is no exaggeration to say that recently the system has been creaking under the strain.
Following the introduction of the Merger Regulation in 1990, the MTF benefited from an extraordinarily long honeymoon period. Spared the need to obtain clearance in a dozen or more EU member states, companies were prepared, in exchange for the convenience of the one-stop shop, to forgive a degree of unpredictability and opacity in the commission’s handling of cases. Lawyers and businessmen had only positive things to say about the MTF – at least on the record. However, more recently a growing number have begun to voice their concerns publicly. Chief among these concerns is the fact that the short timescales for clearance under the Merger Regulation are increasingly a fiction, as the MTF often insists on a lengthy prenotification period. In addition, there has been a steady increase in the number of occasions on which it rejects notifications as incomplete or seizes on other opportunities to extend the deadlines.
More substantively, there is a feeling that companies are frequently asked to pay too high a price in order to obtain clearance. On some occasions, the commission is suspected of looking for a “scalp”, either to bolster its own tough image, or as a sop to vocal third party opponents of a deal. Very little independent examination of the market takes place, instead the MTF simply arbitrates between opposing camps and then exercises the wisdom of Solomon.
These concerns are aggravated by the lack of any effective judicial control over the commission. There is no fast track method of taking issues before the European Courts, where cases can easily take two years or more just to go through the lower of the two courts. For instance, we still await the ruling in the crucial Airtours case, disputing the commission’s approach to mergers in already concentrated markets. In this case, although the appeal was lodged in December 1999, the hearing has not yet been scheduled and a ruling could still be many months away. The harsh realities of deal timetables and share prices inevitably mean that executives are forced to comply with the commission’s demands rather than see a deal evaporate.
At the end of last year, the commission organised an extremely successful conference to mark the tenth anniversary of the Merger Regulation. The system has certainly come of age. However, if confidence in that system is to be maintained, the emphasis will have to be on introducing appropriate (and speedy) checks and balances, to temper the rough justice being dispensed by the commission.
Stephen Kinsella is managing partner of Herbert Smith’s Brussels office.