Mergers and EC Merger Policy

1. Mergers and EC Merger Policy By Kevin Hinde

2. Aims Aims • To explore the rationale for and impact of mergers in Europe. • To demonstrate the role of regulators in controlling merger developments

3. Learning Outcomes By the end of this session you will be able to • describe and analyse trends in merger activity in the EC in recent times. • analyse the rationale for merger activity and assess their welfare implications using Williamson’s trade off model. • critically assess the institutional framework controlling European mergers.

4. Data

7. TABLE 3 3

12. Motives for Merger • Market Power. • Efficiency. • Financial Motives • Risk Reduction • Empire Building, Failing Firms and Ageing Owners • EC policy developments and Globalisation

13. Welfare Effects • Horizontal Mergers • Vertical Mergers • Conglomerate Mergers

15. Welfare Effects • Mergers can • offer cost savings • improve long term viability of investment • enhance economic integration • But they can also • raise prices • deter actual competition • prevent potential competition

16. EC Merger Policy • 1990 EC introduced a new Merger Regulation. An EC taskforce must discover whether a merger/joint venture • creates a concentration • has a community dimension • World wide annual turnover of > 2.5bn ECU • EU Annual Sales of >100 Million ECU

17. Action 1990 to 1999 • 1027 cleared at phase 1(45 with undertakings) • 51 withdrawn • 51 fall outside the scope • 9 full referral back to national authorities • 58 required a phase 2 examination Of the latter • 36 were compatible with conditions and obligations • 11 compatible without obligation • 11 were prohibited

18. Evaluation • A distinct procedure has emerged for assessing notified mergers once Community jurisdiction has been established. • determine the relevant product market • determine the relevant geographical market • assess whether a merger creates or strengthens a dominant position

19. Evaluation • Four elements are examined: • the market position of the merged firm (market share and other competitive advantages) • strength of the remaining competitors • customers’ buying power • potential competition

20. Prohibitions to 1999 • Aerospace/De Havilland (1991) • MSG Media Service (1994) • Nordic Satellite Distribution (1995) • RTL/Veronica/Endemol (1995) • Gencor/Lonrho (1996) • Kesko/Tuko (1996) • Saint Gobain/Wacker Chemie/NOM (1996) • Blokker/ Toys ‘R’ Us (1997) • Bertelsmann/Kirch/Premiere (1998) • Deutsche Telekom/Betaresearch (1998) • Air Tours/ First Choice (1999)

21. Issues • Only large mergers being caught. • Threshold levels still considered high • Dominance may persist in smaller industries. • Most mergers occurring in technologically dynamic industries. To what extent will this bring benefits? • Concerns about the relationship between member states and EC.

22. Test • List three trends in EC merger development over the past decade or so. • List the reasons why mergers occur. • What are the costs and benefits of mergers? • What are the main problems for regulators?

23. Any Questions?