Presentation on theme: "Administration in International Organizations PUBLIC COMPETITION LAW Class VI, 17th Nov 2014 Krzysztof Rokita."— Presentation transcript:
Administration in International Organizations PUBLIC COMPETITION LAW Class VI, 17th Nov 2014 Krzysztof Rokita
Merger Control Why do firms merge? Advantages/disadvantages/risks? Why would competition law be concerned with mergers?
Merger Control Theories of competitive (or consumer) harm Non-coordinated (unilateral) effects – as a result of merger the merged entity (and sometimes also other firms) will possess such high degree of market power that it will be able to unilaterally exercise the market power to the detriment of consumers Coordinated effects – arise where, under certain market conditions (e.g., market transparency, product homogeneity etc.), the merger increases the probability that, post-merger, merging parties and their competitors will successfully be able to coordinate their behaviour in an anti-competitive way
EU Merger Control Articles 101 and 102 TFEU were utilized so as to prevent anti- competitive mergers (See Continental Can - C-6/72) The original merger control regulation was Council Regulation 4064/89 of 21 December 1989 (Repealed); Currently in force: Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (hereafter the EU Merger Regulation)
EU Merger Regulation - Jurisdiction The EUMR applies to concentrations with EU dimension Concentrations Mergers Acquisition of control Some newly created JVs are deemed to be concentrations
EU Merger Regulation - Jurisdiction Mergers two or more independent undertakings amalgamate into a new undertaking and cease to exist as separate legal entities an undertaking is absorbed by another, the latter retaining its legal identity while the former ceases to exist as a legal entity the combining of the activities of previously independent undertakings results in the creation of a single economic unit (e.g. two undertakings establish common management)
EU Merger Regulation - Jurisdiction Acquisition of control occurs where there is a change in control of an undertaking Control may be acquired by an undertaking acting alone (sole control) or by a number of undertakings acting jointly (joint control); Control relates to the possibility of exercising decisive influence over an undertaking on the basis of rights, contracts or other means; Decisive influence in turn means the power to determine the strategic commercial behavior of an undertaking
EU Merger Regulation - Jurisdiction Sole control one undertaking (or person controlling one or more undertakings) alone can exercise decisive influence on another undertaking De jure control, e.g. shareholding which gives the majority of the voting rights; De facto control, e.g. shareholder does not have the majority of the voting rights, but due to factual circumstances (dispersed ownership of the remaining shares) may nevertheless exercise decisive influence Encompasses positive and negative control
EU Merger Regulation - Jurisdiction Joint control exists where two or more undertakings or persons have the possibility of exercising decisive influence over another undertaking; in practice, it extends to all those undertakings or persons who can block strategic commercial decisions
EU Merger Regulation - Jurisdiction Changes in the quality of control: a change between sole and joint control in joint control scenarios (an increase in the number or a change in the identity of controlling shareholders);
EU Merger Regulation - Jurisdiction The creation of a full-function joint ventures a JV must perform the usual functions of an undertaking operating on a particular market (it has a management, access to sufficient resources and assets to be able to conduct its business activity); a JV cannot be regarded as full-function if it is only assigned one specific function within its parents’ commercial activities without having access to the marketplace; Duration of a JV is also relevant
EU Merger Regulation - Jurisdiction The EUMR aims to apply to concentrations with EU dimension (Article 1(2) and 1(3) of the EUMR)
EU Merger Regulation - Procedure 1.Notification 2.Suspension of the implementation of concentrations 3.Phase I (decisions: a)concentration does not fall within the scope of the EUMR; b)concentration is approved either unconditionally or conditionally; c)when concentration raises serious doubts as to its compatibility with the internal market, a decision initiating Phase II is issued) 4.Phase II (decisions: a)concentration is compatible with the internal market; b)concentration is compatible with the internal market but after a modification; c)concentration is incompatible with the internal market [prohibition])
EU Merger Regulation - Substantive appraisal The Commission must make a prospective determination of whether a concentration would significantly impede effective competition in particular as a result of the creation or strengthening of a dominant position - the SIEC test.
EU Merger Regulation - Substantive appraisal Horizontal mergers occurs between undertakings operating at the same level of economy; Market shares and concentration levels (Herfindahl-Hirschman Index - HHI); Non-coordinated effects: merger removes competitive constraints on one or more firm on the market which consequently have increased market power Coordinated effects: Mergers in highly concentrated markets (oligopolistic markets) may impede competition through the creation of collective dominant position or even by making coordination easier
EU Merger Regulation - Substantive appraisal Vertical mergers concluded between firms at different levels of production in the economy (but in the same chain of production) Input foreclosure Customer foreclosure
EU Merger Regulation - Substantive appraisal Conglomerate mergers occur when merging entities have no horizontal or vertical links, so they operate in different branches of economy; very unlikely to bring anti-competitive concerns; may result in practices such as tying and bundling
EU Merger Regulation - Substantive appraisal Undertakings may claim that even though some anti-competitive effects may occur, they will be outweighted by other considerations. Examples: Efficiencies: must benefit consumers, be merger specific, and verifiable Failing firm defence: The failing firm would in the near future be forced out of the relevant market because of financial difficulties, if not taken by another undertaking; There is no less anti-competitive alternative to the transaction in question; In the absence of the merger, the assets of the failing firm would inevitably exit the market.
EU Merger Regulation - Substantive appraisal Commitments (remedies) to enable clearance must be proportionate to, and entirely eliminate, the competition problem identified during the course of the administrative proceedings; Structural remedies (e.g. divestiture of assets) Behavioral remedies (obligation to undertake a particular action)