Monti unveils merger reform proposals based on US model

Date: 12/12/02

By Peter Chapman

COMPETITION Commissioner Mario Monti unveiled his long-awaited merger reform proposals yesterday (11 December), which will result in the EU using similar criteria to the US when it considers whether to approve take-over bids in future.

The plans, which must be backed unanimously by governments before they can become law, will clarify the way Commission officials analyse mergers. Its methods had been questioned following a string of controversial decisions which culminated this year in three of its rulings being overturned by the European Court of First Instance.

The new reforms, which could come into force in 2004, are designed to inject more flexibility into the notification and vetting process. The system for deciding whether the Commission or member states take the lead role in cases will also be simplified, with cost savings for businesses, Monti said. But crucially, the commissioner insisted he will stick by the so-called "dominance test" that his officials and the courts have grappled with since the merger rules were drawn up 12 years ago.

Experts say that that could rile the UK and Ireland, which have both adopted the "substantial lessening of competition" test used by US authorities.

Nevertheless, James Rill, former US deputy attorney-general for anti-trust, said Monti's reforms would bring the EU approach of analysing complex mergers involving oligopolistic markets much closer to the American model. This is clear from the draft explanatory "notice" that accompanies the proposed new regulation, he told European Voice.

"There is extraordinary convergence here," he said, adding that the UK and Ireland should focus on this when they vote on the new rules in the Council of Ministers next year.

"The analytical path is the same and to worry yourself over labels is really worrying over a tempest in a teapot.

"If the English are worried they should look at Shakespeare and realise that it is a rose by another name; it is much ado about nothing to worry about labels," added Rill, now a partner with US law firm Howrey Simon.

The upshot, he claims, is that politically-straining differences in opinion between the EU and US - such as the GE-Honeywell case - will be less likely in future.

Meanwhile, Monti announced separate changes, which do not require ministerial approval, to improve the quality and fairness of decision making by boosting transparency into procedures attacked by the courts and companies alike.

He plans to recruit a chief economist as an advisor. He also wants to give companies far greater access to officials and case documents throughout merger enquiries. Companies involved in a proposed merger will be able to learn at an early stage what third parties have said about it - giving them a chance to offer counter arguments.

Finally, Monti also promised that the Commission would push for even speedier reviews of his decisions by the Court of First Instance, even though CFI has recently used a new "fast track" procedure to make selected rulings inside a year.

Lawyers say this is crucial if the Commission is to finally shed its reputation as prosecutor, judge and jury in merger cases.

"The principal outstanding issue is review by the European Court of First Instance," said Matthew Hall, a solicitor at UK law firm Ashurst Morris Crisp.

"The limitations of the judicial review process will inevitably continue to make this the case unless significant reforms are made at the Court of

First Instance level," added Hall, whose firm represented packaging firm Tetra Laval in its recent court victory against the Commission which had blocked its merger with French bottling company Sidel.

Competition Commissioner Mario Monti unveiled his long-awaited merger reform proposals on 11 December 2002, which will result in the EU using similar criteria to the US when it considers whether to approve take-over bids in future.