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European Union merger law
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European Union merger law
European Union merger law is a part of the law of the European Union. It is charged with regulating mergers between two or more entities in a corporate structure. This institution has jurisdiction over concentrations that might or might not impede competition. Although mergers must comply with policies and regulations set by the commission; certain mergers are exempt if they promote consumer welfare. Mergers that fail to comply with the common market may be blocked. It is part of competition law and is designed to ensure that firms do not acquire such a degree of market power on the free market so as to harm the interests of consumers, the economy and society as a whole. Specifically, the level of control may lead to higher prices, less innovation and production.
Mergers and acquisitions are regulated by competition laws because they may concentrate economic power in the hands of a smaller number of parties. Oversight by the European Union, the competition laws have been enacted under the Directive 2005/56/EC on Cross-border mergers and the Economic Concentration Regulation 139/2004, known as the "EUMR". The law requires that firms proposing to merge apply for prior approval from the Commission. The European Commission (EC) has exclusive competence over concentrations that meet certain thresholds. This is known as community dimension. A concentration with a turnover of the following will trigger commission jurisdiction. Mergers that transcend national borders and with an annual turnover of the combined business exceeds a worldwide turnover of over EUR 5000 million and Community-wide turnover of over EUR 250 million must notify and be examined by the European Commission. Merger regulation thus involves predicting potential market conditions which would pertain after the merger. The standard set by the law is whether a combination would "significantly impede effective competition... in particular as a result of the creation or strengthening of a dominant position..."
One reason why businesses may be motivated to merge is in order to reduce the transaction costs of negotiating bilateral contracts. Another is to take advantage of increased economies of scale. However, increased market share and size may also increase market power, strengthening the negotiating position of the business. This is good for the firm, but can be bad for competitors and downstream entities (such as distributors or consumers). A monopoly is the most extreme case, where prices might be raised to the monopoly price instead of the lower competitive equilibrium price. An oligopoly is another potentially undesirable situation in which limited competition may allow higher prices than a market with more participants.
Under EU law, a concentration exists when a...
"change of control on a lasting basis results from (a) the merger of two or more previously independent undertakings... (b) the acquisition... if direct or indirect control of the whole or parts of one or more other undertakings." Art. 3(1), Regulation 139/2004, the European Community Merger Regulation
This usually means that one firm buys out the shares of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ex ante prevention of creating dominant firms. In the case of [T-102/96] Gencor Ltd v. Commission [1999] ECR II-753 the concentration between the two companies were regarded as incompatible with the EU Merger Control regulations.
The EU Court of First Instance wrote that merger control is there "to avoid the establishment of market structures which may create or strengthen a dominant position and not need to control directly possible abuses of dominant positions." Based on the Court of First Instance (CFI) comment, the court ruled that it is within the commission's competence to block or accept mergers that exercise production outside Europe[1]. In other words, the commission was able to annul the proposed merger because a concentration that transpires overseas may also be held to account. In Airtours v Commission, the CFI annulled the commission's decision and allowed the application to take effect on the grounds of insufficient claims. The commission was unable to prove coordination between the undertakings for collective dominance.
Prior to the implementation of Regulation 139/2004 and the turn towards a more effects-based approach to EU competition law, EU merger control was governed by EEC Regulation 4064/89. Originally, there was no merger control in the 1957 Treaty of Rome. In 1973, the Commission proposed to adopt a merger regulation, which was eventually adopted in 1989 after a long battle between commissioner Leon Brittan, and two member-states which were the most reluctant (but for different reasons) Germany and Britain. Under EEC Regulation 4064/89 (the 'old' regulation), a merger or concentration was prohibited if it would
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European Union merger law
European Union merger law is a part of the law of the European Union. It is charged with regulating mergers between two or more entities in a corporate structure. This institution has jurisdiction over concentrations that might or might not impede competition. Although mergers must comply with policies and regulations set by the commission; certain mergers are exempt if they promote consumer welfare. Mergers that fail to comply with the common market may be blocked. It is part of competition law and is designed to ensure that firms do not acquire such a degree of market power on the free market so as to harm the interests of consumers, the economy and society as a whole. Specifically, the level of control may lead to higher prices, less innovation and production.
Mergers and acquisitions are regulated by competition laws because they may concentrate economic power in the hands of a smaller number of parties. Oversight by the European Union, the competition laws have been enacted under the Directive 2005/56/EC on Cross-border mergers and the Economic Concentration Regulation 139/2004, known as the "EUMR". The law requires that firms proposing to merge apply for prior approval from the Commission. The European Commission (EC) has exclusive competence over concentrations that meet certain thresholds. This is known as community dimension. A concentration with a turnover of the following will trigger commission jurisdiction. Mergers that transcend national borders and with an annual turnover of the combined business exceeds a worldwide turnover of over EUR 5000 million and Community-wide turnover of over EUR 250 million must notify and be examined by the European Commission. Merger regulation thus involves predicting potential market conditions which would pertain after the merger. The standard set by the law is whether a combination would "significantly impede effective competition... in particular as a result of the creation or strengthening of a dominant position..."
One reason why businesses may be motivated to merge is in order to reduce the transaction costs of negotiating bilateral contracts. Another is to take advantage of increased economies of scale. However, increased market share and size may also increase market power, strengthening the negotiating position of the business. This is good for the firm, but can be bad for competitors and downstream entities (such as distributors or consumers). A monopoly is the most extreme case, where prices might be raised to the monopoly price instead of the lower competitive equilibrium price. An oligopoly is another potentially undesirable situation in which limited competition may allow higher prices than a market with more participants.
Under EU law, a concentration exists when a...
"change of control on a lasting basis results from (a) the merger of two or more previously independent undertakings... (b) the acquisition... if direct or indirect control of the whole or parts of one or more other undertakings." Art. 3(1), Regulation 139/2004, the European Community Merger Regulation
This usually means that one firm buys out the shares of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ex ante prevention of creating dominant firms. In the case of [T-102/96] Gencor Ltd v. Commission [1999] ECR II-753 the concentration between the two companies were regarded as incompatible with the EU Merger Control regulations.
The EU Court of First Instance wrote that merger control is there "to avoid the establishment of market structures which may create or strengthen a dominant position and not need to control directly possible abuses of dominant positions." Based on the Court of First Instance (CFI) comment, the court ruled that it is within the commission's competence to block or accept mergers that exercise production outside Europe[1]. In other words, the commission was able to annul the proposed merger because a concentration that transpires overseas may also be held to account. In Airtours v Commission, the CFI annulled the commission's decision and allowed the application to take effect on the grounds of insufficient claims. The commission was unable to prove coordination between the undertakings for collective dominance.
Prior to the implementation of Regulation 139/2004 and the turn towards a more effects-based approach to EU competition law, EU merger control was governed by EEC Regulation 4064/89. Originally, there was no merger control in the 1957 Treaty of Rome. In 1973, the Commission proposed to adopt a merger regulation, which was eventually adopted in 1989 after a long battle between commissioner Leon Brittan, and two member-states which were the most reluctant (but for different reasons) Germany and Britain. Under EEC Regulation 4064/89 (the 'old' regulation), a merger or concentration was prohibited if it would