cl goals
-EE (‘economic efficiency’) goals
the pursuit of AE + PE goals, deliver benefits to consumers [lower prices, higher quality and greater choice]
-wpi goals
can be translated into ee goals, thus, is wrong to name them ‘non-economic’ since they are not mutually exclusive, but compatible….eg: employment, financial stability, industrial growth, industrial policy, innovation, national security, media plurality and empowering historically disadvantaged persons
sadly, most jurisdictions today balance in favour of mergers that further ee goals, over pi goals eg:..UK(which adopted the SLC test under the EA2002, having previously adopted a pi test) and Belgium. polar opposites: usa (ee based only), and South Africa (a regime where pi is even with ee).
a merger may increase the probability of:
- harming ee = anticomps = harming consumer welfare
- hariming pis = antipis= externalitites <> [cocoo eeac]: (harms all of society: eg: environment, national security; unemployment; public security, media, banking)
A/purists (chicago school):
cl, alone, deliver optimal long-term benefits for both consumers and the public at large. WPIs can lead to uncertainty in merger assessment, and to distorted competition……This is wrong. because wpi goals enrich, rather than dilute, antitrust law, as they allow for new caselaw precedents to be developed
B/ non-purists:
pis facilitate certainty and minimise disruption to competition. antipis have lasting implications on employment, public health, national security and democracy. eg: the disastrous effects of the Global Financial Crisis of 2007-08 on the world economy…. so many states had to relax cl, ow, many more banks would have failed, …eg: many governments awarded state aid to failing banks; merger of Lloyds/HBOS in the Uk saw the Sos intervene to permit an otherwise anticompetitive merger on pis
failing firm defence:
firm A is facing insolvency and firm B is seeking to acquire it. if there is no merger, or the merger is blocked, A would have to exit the market, so there would be a loss of competition. thus, However, allowing the merger may achieve ee goals (benefit of consumers) + WPI goals (job security to the staff of A, who would otherwise face redundancy)
CONCERNS WITH ADOPTING PIS
African states are considerably more likely to assign wpis ….South Africa has attracted attention for integrating wpi development goals
North and South American states typically frame public interest criteria more restrictively
wpis (on development) goals, are a ‘necessary evil’ in some developing countries
THESE too many worldwide different types of merger assessments, result in cross-border mergers facing an excessive number of hurdles. If the merger falls to be assessed in a multitude of countries, each with their own pi criteria, makes it very difficult for the merging parties to gain approval in all jurisdictions….This deters crossborder mergers
although ee/wpi are generally compatible, conflicts may arise, and so the need to blance them…. who should balance: cma.ec, or gov?:
Cmas can better understand potential ee impacts, but not wpi potential impacts. The opposite is true for polititians. Thus, perhaps the best solution would be to appoint joint decision-makers from (Cmas, politicians and sector regulators)….however, Cmas and sector regulators have no demolegit to decide on wpis….however, gov is to lobbying from special interest groups (SIGs) to apply wpi to benefit only a few…..sector regulators are less susceptible to lobbying, but are more susceptible to bias to their areas of expertise and their industry
states may invoke wpi, or industrial policy goals, just for Protectionism (nationalism). For example:
-a state may use wpi to block a pro-competitive cross-border merger just to keep the domestic undertaking in domestic ownership
-a state may use wpi to allow an anticomp merger between two domestic firms, so that the merged entity becomes a National Champion ( able to compete on a global scale)
where states favour domestic undertakings, at the expense of foreign firms, erecting geo entry barriers, and harming the global economy….The benefit that a state can derive from protectionism is offset by the harm inflicted to trading partners [ including the risk of unforeseeable harm to the domestic firms, as they cannot grow healthily if sheltered from competition]
EU wpis
EU cp goals are just to maximise (ee = consumer welfare) and creating a single market…..however, there is scope for wpi goals to be considered:
a/ ec’s strict interpretation of Article 2 EUMR and art.3 TEU, and of Recital 23, goes against wpis…..The fundamental objectives = [Article 3 of the Treaty of EU (TEU)]: include wpi goals
Recital 23 imposes on ec a duty to regard the fundamental objectives (wpi goals)…..but is not a (positive) duty [to apply them]….but a (negative) duty [not to infringe them]… cases under Recital 23:
In the Air France/KLM joint venture, ec chose to clear the transaction – subject to remedies – despite the merger creating a sixty per cent share in routes at two prominent European airports and creating the largest airline in Europe. This is one occasion where DG Competition took account of the likely ee benefits
Boeing/McDonnell Douglas case: the mega-merger of two American multinational aerospace companies, the transaction was met with strong protectionist ec opposition, on both competition grounds and on the grounds that the merger would be contrary to the Article 3 objective of eu ‘economic and social cohesion’ ….. Although the merger was ultimately cleared
ec cleared several anticompetitive mergers in the telecoms sector, on the wpi protectionist ground of creating a pan-EU telecoms market.
however, policy-linking clauses in the (EUMR), and in the eu treaties….thus, an ec decision overlooking wpi concerns would raises significant constitutional concerns…. however, the ec has a continued reluctance to act [<> cocoo JR v. EC] on the wpi policy-linking clauses under the Treaties and EUMR….egs of [cross-sectional = policy-linking] clauses expand upon Article 7:
-
- Article 346 TFEU: a Member State may take measures to protect its national security, particularly in relation to trade in arms and information disclosure.
- Article 11 TFEU allows Article 191 to outline the specific need for EU environmental policy to contribute towards protecting the environment and combating climate change.
- employment policy assigns ec the objective of promoting ‘a high level of employment’
b/. by Article 21(4) EUMR: Member States may apply to intervene in EU-level mergers that affect legitimate national wpis…..But, abuses (of art.21.4) by Member States have led ec to treat these applications with suspicion…21.4 is largely obstructed by ec’s reluctance to cede competence to Member States
The NLPI clause = Article 21(4) EUMR = Member States may assume jurisdiction over EU-level mergers that are likely to impact upon their legitimate national interests [eg wpis]
since ec’s scope to consider wpi goals is nonexistent in practice, Member State intervention is the most likely source of wpis, by way of Article 21(4) of the EUMR [The NLPI clause]…Thus, the NLPI clause allows wpis to enter the EU merger arena ‘via the back door’, by allowing Member States to rule on mergers that lack a Union Dimension.
But the principle of proportionality limits the ability of Member States to argue wpis under Article 21(4). Member States measures must be limited to the minimum of action necessary to ensure protection of the legitimate interest
EU Guidance: the unfounded protectionist use of industrial policy (Eg to create a national champ) is not a legitimate interest.
Member State measures will have to satisfy 3 requirements:
(i) the measure does not amounts to an obstacle to trade,
(ii) the obstacle can be justified by ‘overriding wpi grounds’, and
(iii) justification is proportionate and non-discriminatory.
Member States are not allowed to use the NLPI clause in a positively way [= to clear an anticompetitive merger on wpi grounds]… but only to block a competitive merger on wpi grounds
The three eu competition tests [ All are based entirely on ee goals] :
a. the ‘significant impediment to effective competition’ (SIEC) test: determines the impact on consumer surplus.
b. the ‘substantial lessening of competition’ (SLC) test
c. the dominance test : is (out of the 3 tests) the less ee-based….Article 102 TFEU: a transaction is anticomp when it creates or strengthens a [dominant position = large market share]
ec currently utilises the SIEC test. no pis are in the eumr…however, some pis are relevant : eg. EU environment:
for example, a merger between two mining firms .The merger may allow for economies of scale and scope, that benefit consumers [eg lower prices], but also large-scale destruction of land and natural habitats.
environmental concerns should take priority over competition concerns. this is in line with ec’s Guidelines on Horizontal Agreements. also, TFEU affords scope to environmental protection, in Article 11: ec has a duty to incorporate environmental protection into each of its policy areas. Thus, anticompetitive mergers likely to benefit the environment, should be allowed [eg CECED case]…..and competitive mergers likely to harm the environment, should be blocked
the most controversial wpi, is industrial policy
industrial policy is used by govs to relax cl , so as to support ‘national champions’, or to break up ‘foreign champions’
The merger may not evoke any anticomps, but…if government thinks that the national economy would benefit from retaining domestic ownership of the firm, the government may block the merger on industrial policy grounds
EU WPIS SAMPLES
wpi: employment
Justifications for clearing anticompetitive merger: The merger is anticompetitive but will guarantee the jobs of a firm threatened with insolvency.
Justifications for blocking procompetitive merger: Merger would likely lead to a ‘consolidation of resources’ leading to redundancies
Articles 9 and 147 TFEU Article 3(3) TEU
wpi: Environmental protection
Justifications for clearing anticompetitive merger: Merger is anticompetitive but enables firms to pull resources in the manufacturing process, which will significantly reduce CO2 emissions.
Justifications for blocking procompetitive merger: Merger would lead to a destruction of natural habitat, or would result in, for example, a fossil fuel refiner obtaining a firm that possesses a patent for innovative green energy technology
Article 11 TFEU Article 191 TFEU
wpi: Financial stability
Justifications for clearing anticompetitive merger: Merger is anticompetitive but will prevent the collapse of an insolvent bank, which would destabilise the wider economy.
Justifications for blocking procompetitive merger: The merger, although procompetitive, would result in the merged financial service becoming ‘too big to fail’, ie its collapse would pose catastrophic consequences to the wider economy
Stability and Growth Pact36 Articles 127 and 141 TFEU Article 21(4) EUMR
wpi: Industrial policy
Justifications for clearing anticompetitive merger: Merger is anticompetitive but would facilitate a “European champion”, which shall trade on the global market to the benefit of the EU economy.
Justifications for blocking procompetitive merger: Merger is procompetitive but would lead to a “European champion” falling into foreign ownership, to the detriment of the EU economy
wpi: Media plurality
Justifications for clearing anticompetitive merger: Merger is anticompetitive but would result in a less conventional media ‘voice’ receiving an audience share that is more akin to mainstream voices
Justifications for blocking procompetitive merger: Merger would likely lead to the news media being concentrated between a handful of owners, potentially compromising democracy.
Article 167 TFEU Article 21(4) EUMR
wpi: Public health
Justifications for clearing anticompetitive merger: Merger is anticompetitive but is likely to ensure the future of a leading research hospital or a hospital that possesses an essential facility within a geographic region.
Justifications for blocking procompetitive merger: Merger would likely lead to the relocation of healthcare services, meaning patients in a particular geographic region may be without local healthcare
ART 168 TFEU
wpi: National security
Justifications for clearing anticompetitive merger: Merger is anticompetitive but will ensure the immediate safety of citizens in a period where the outbreak of conflict is a high possibility.
Justifications for blocking procompetitive merger: Merger would lead to the ownership of a munitions provider moving into the hands of a firm from a country that has political strains with the host country.
Article 346 TFEU Recital 19 and Article 21(4) EUMR
Article 346(1)(b) expressly decrees that the production or trade of arms should not adversely affect competition in markets for non-military-based products. positively or negatively.
ED
Recital 29 EUMR: the efficiency defence (ED) : an anticomp merger may be permitted if is likely to bring ee gains [that will offset the anticomp].eg lower prices benefits consumers.
Article 101(3) TFEU: ED is possible to allow collusive uas ( not the same as anticomp mergers)
transparency and legal certainty
merger decision documents usually exclude dissenting views and wpi considerations
DG COMP publicises (website) the commencement of an investigation, and then regular bulletins, until its final report is delivered…..Yet, it is the College of Commissioners – and not DG COMP – that makes the final merger decision, in a private confidential meeting…Yes, for each meeting, the College publishes an agenda and minutes; …but these rarely detail the reasoning behind the decision
THE UK
a policy change [from wpi to ee goals], is the ‘Tebbit doctrine’, incorporated into the Enterprise Act 2002, which introduced the ‘substantial lessening of competition’ (SLC) test.
today, uncertainty is created by the power of the SOS to intervene where a merger raises 17 possible wpis (EA2002) + sos may propose new wpi goals under s 58(3) of the 2002 Act….s 58(3) could represent something of a ‘ticking time bomb’, due to lobbying, but sos needs prior parlm approval.
To date, the Sos has only exercised his intervention power on one occasion, in October 2008 to clear the anticompLloyds/HBOS merger, on the wpi goal of ensuring the stability of the UK financial system.
NSI ACT
-17 AREAS (MA CAN BE BLOCKED ON PI + ee GROUNDS ) BY CMA…..SOS CANNOT BLOCK, BUT CAN DECIDE TO INVESTIGATE AND CAN DECIDE THAT A MA IS V THE PI (EG. for reducing public access to free , accurate news and media opinions….OFCOM can advise on media plurality)
-OUTSIDE THE 17 AREAS, MA CAN ONLY BE BLOCKED (BY CMA) ON ee GROUNDS.
egs: of 17 areas: MA bans on PI grounds: foreign companies cannot undermine UK national security , infrastructure, or essential services. eg ma banned to stop excessive chinese influence in uk tech. infrastructure. eg. ban uk bank mergers; eg. acquis of COBHAM (a private defence/aerospace company) by a private usa co, was stopped. eg. quantum tech; computer processors; military goods; dual use goods (that can be used for both civilian and military applications); eg. trump blocked the t.o. of a usa microchip maker (qualcom) by a foreign co, under the advise of CFIUS (the twin of UK CMA): ‘the foreign co would probably cut long term investment, in favour of short term profits, dangerously damaging a key usa industry’.
mandatory notification (OW: VOID MA)
companies should explain:
-Why you believe the acquisition does or does not raise any national security concerns.
-The rationale for the acquisition, including why the acquisition is being undertaken and what the intended business effect of the acquisition is (for example, consolidation of functions).
-Any relevant financial or economic information (for example, the value of the deal, the turnover (UK and global) of the target, and the market value of the parties involved).
-Whether any associated parties are in financial distress. In these circumstances, the relevant parties are encouraged to bring these matters to the attention of the government as soon as possible, especially where the statutory timelines of the NSI Act could exacerbate the financial problems. [Further guidance for acquisitions who are suffering financial distress] is](https://www.gov.uk/guidance/national-security-and-investment-act-guidance-on-acquisitions).
-Details of any related acquisitions that have not been notified to the government
-Any existing relationships between the target and acquirer (for example, supply chain relationships or competitive relationships)
Obligation to notify arises where:
-You are acquiring a qualifying entity that carries out certain activities in the UK within one of 17 sensitive areas of the economy, And any of the following apply:
i) Your shareholding stake or voting rights increase:
from 25% or less to more than 25%
from 50% or less to more than 50%
from less than 75% to 75% or more
ii) Your acquisition is of voting rights, which will enable you to secure or prevent a governing resolution
when the entity (that you propose to acquire) was formed outside the UK
There is UK mandatory notification requirement only if is in the 17 areas.
Confidentiality whilst review and assessment
The government will not make public that it has called in (for investigation) an acquisition for national security, or that the government has issued an interim order.
you also need to comply with the obligation, under the UK Market Abuse Regulation, to disclose inside information to the public as soon as possible.
publications on the NSIA
The government is required to publish notice on final orders, but not prior. This is to prevent commercial distortions.
prior (to final order) publications may be relevant sometimes , eg:
-where a party is a public company (PLC) and has statutory obligations to inform of price-sensitive information
-where a party wishes to communicate a decision publicly (for business or reputational reasons)
-where a party is seeking to raise external awareness of the government’s consideration of an acquisition
–The government will not publish the receipt (or not), or the acceptance or rejection, of mandatory notifications.
-The government may decide to publish information regarding call-in notices: where the parties disclose such information, or where the publication is in the public interest.
-government may decided to publish that an interim order has been made, but not its content.
If there is significant uncertainty about whether an acquisition is notifiable, you may contact:
investment.screening@beis.gov.uk
17 sensitive areas more likely (non-exhaustive list) to give rise to national security risks, and therefore could require mandatory notification (of a proposed acquisition) :
Advanced Materials
Advanced Robotics
Artificial Intelligence
Civil Nuclear
Communications
Computing Hardware
Critical Suppliers to Government
Cryptographic Authentication
Data Infrastructure
Defence
Energy
Military and Dual-Use
Quantum Technologies
Satellite and Space Technologies
Suppliers to the Emergency Services
Synthetic Biology
Transport
UK MERGER CASES
-the Kraft/Cadbury merger: Kraft Foods, the American grocery manufacturer, launched a successful takeover of UK Cadbury. At the preauthorisation stage, Kraft made a commitment to maintain operations at Cadbury’s ukfactory, which Cadbury had been in the process of closing down. it would ensure the continued employment of some 400 workers at the plant. … So, the merger was allowed , by the sos, on wpi grounds….However, once the takeover had been completed, it became apparent that keeping the uk factory open was not financially viable.
-US pharmaceutical giant Pfizer launched an unsuccessful bid to acquire its UK-listed AstraZeneca ….Although the Government sought extensive commitments from Pfizer on R&D and restrictions on redundancies, the Government’s negotiating position was weakened by the fact the merger would have amounted to having a EU dimension and, as such, it would have fallen to ec to assess….. the UK Government could have submitted an Article 21(4) EUMR (a member state legitimate interest) notification, in an effort to regain the jurisdiction to rule on the wpi elements (namely, protecting the R&D in the UK’s science base)….but it was very unlikely that ec would have accepted this…. thus, …had AstraZeneca decided to accept the takeover bid from Pfizer, the Government would not have been able to block it.