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Should Merger Control Be Repatriated To The UK (And All Other Member States)?
- AuthorStephen Hornsby
Since 2012, the Government has been conducting an audit of EU powers (or “competences” to use the jargon) with a view to seeking whether their repatriation to the UK in appropriate cases. In a recent consultation, it has got round to asking interested parties on about the current division of regulatory responsibilities between Brussels and London in relation to merger control.
There are good reasons to question this division that the consultation does not mention, let above address; indeed, there are even good reasons for seeking repatriation of powers as part of the UK’s attempt to renegotiate the terms of the UK’s membership.
It will be recalled that prior to the adoption of the specific EC merger control regulation in 1990, the EU had no merger control powers save for those provided for in relation to iron and steel products. At that time, few Member States had any merger controls laws of their own. At the time this was perceived as detrimental to the single market goal as it enabled local national monopolies to develop.
In 1990, there was also concern that such national merger control laws that actually existed could be misused for nationalistic or protectionist purposes to prevent takeovers of national champions by “foreign” EU companies. The prohibition of the acquisition of British Sugar by Ferruzzi SPA appeared to give some credence to a concern for which an objective transnational regime based in Brussels might provide a solution.
The third justification for merger control at EU level was that mergers having an impact on a large number of states could be prohibited by one Member State but permitted in others. Such an outcome was considered to be unacceptable for reasons of consistency (a somewhat weak justification since competitive impact can vary between Member States). There was also an aspiration articulated mostly by multi-national companies that an EU merger control law would create some kind of “one-stop shop” for filing merger clearance applications and thus reduce compliance costs.
In the event in order to accommodate Member States, concerns about loss of control over mergers that had an impact on national markets, the jurisdictional boundaries were set in such a way as to allow Member States to exercise their own controls in respect of mergers where most of the turnover of the companies concerned took place in one and the same Member State. Moreover, where there was a particular impact on local markets, Member States could request jurisdiction be granted to them by the Commission even over mergers above the turnover thresholds. At the same time there was a perceived need for Member States to retain jurisdiction over mergers giving rise to the concerns such as media plurality and they retained powers in relation to such issues.
The net outcome was that the compromise between corporate needs for a ‘one stop’ shop and national sovereignty was that subject to some exceptions, very big mergers were assessed in Brussels and smaller ones in all the Member States.
Subsequent developments have case doubt on most of the above rationale for the EU to have exclusive jurisdiction above the high turnover thresholds. Since 1990, Member States have filled in the gaps in the patchwork of merger controls by introducing their own. There are now a very large number of merger control regimes in operation in the EU. This has led to even more complicated jurisdictional lines being drawn to try and save some elements of “one-stop shop”. This has scarcely assisted clarity. Very many mergers fall beneath the thresholds and are now subject to a panoply of national merger control regimes. The burden of such multiple notifications tends to fall on smaller transactions with the big ones (usually involving the larger companies) getting the benefit of the reduced compliance costs from the “one-stop shop”. Added to which, mergers qualifying for investigation in the U.K. are liable to six figure clearance fees payable to the OFT!
The second development is that different aspects of the same merger have had to be considered in two different jurisdictions. When News Corp attempted to buy the shares of Sky it did not already own plurality issues were considered locally in the UK with competition issues being examined in Brussels. From the perspective of the citizens, this division of competencies seemed manifestly absurd and can only help to reinforce disengagement from the whole process.
The third rationale (consistency of approach) which was never strong, has also been weakened. For example, there has recently been a prohibition in one Member State of the merger falling beneath the threshold which has been allowed in a number of other Member States. Thus Akzo Nobel was prohibited from acquiring an Italian company by the UK Competition Commission in circumstances where every other national merger control authority allowed it (presumably because the impact of the deal was less pronounced in their jurisdictions). The roof has not fallen in as a result of this.
In the circumstances, there does not seem to be an overwhelming need for EU competence to be exclusive above the threshold and it is to be noted that the Commission’s website does not advance a single reason for its powers. Taking subsidiarity seriously should mean that decisions are taken closest to the level of those who are affected by them. It is well arguable therefore that any merger, irrespective of its dimension, that has an impact on competition in a Member State should be decided by the authorities in that Member State leaving Brussels to act as a ‘long stop’ to prevent protectionist national decisions.
Of course any type of repatriation of powers may not happen, despite the arguments in favour of it. Just like the re-negotiation the terms of the UK membership itself, re-negotiation of the EU merger regulation requires the agreement of all Member States which cannot be counted on. Also, large corporates and their advisors are broadly content with the Brussels status quo in respect of this particular policy – as they are in respect of many others. But just because they are content it does not mean that they are right. The current consultation exercise (which raises none of the issues discussed above) will hopefully at least examine the issues carefully.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact Stephen Hornsby or your usual Goodman Derrick contact.