Clearing the way for US-style mergers

Date: 15/03/01

By Tim Jones

EVEN the European Commission can see that its glory days of seemingly unchecked merger-vetting powers are numbered.

So much so that senior officials are actively encouraging unhappy firms to take the US route and go straight to the Court of First Instance (CFI), the initial venue of appeal against Commission decisions, and apply for merger bans to be suspended subject to a final ruling.

"Parties could get suspensive effect fully or partially lifted and that would be an incentive for the Commission to go back to the drawing board and think hard about our reasoning," Enrique Gonzalez-Diaz, head of unit at DG Competition's merger task force and a former secondee to the CFI, told a conference on international merger control in Brussels last week.

If for no other reason than public relations, the Commission realises that competition must not just be done but be seen to be done. Out of 14 mergers banned since the Commission won policing powers a decade ago, as many as four have fallen under Mario Monti's short stewardship as anti-trust chief.

And that doesn't begin to tell the whole story. In the 18 months since Monti took over from Karel Van Miert,

the competition department's onerous conditions in return for clearance have led to the withdrawal of Aker Maritime's bid for shipbuilder Kvaerner and the proposed €20-billion merger of EMI and Time Warner's music businesses.

This latter decision, combined with Monti's first-ever veto of a purely American tie-up - telecommunications giant WorldCom's €120-billion merger with Sprint last summer - even prompted two US senators to write to the EU's anti-trust chief and accuse him of protectionism.

Although Monti fired back with evidence that the deal was the only US merger blocked out of 348 filed over the past ten years, the complaints won't go away. Indeed, they are about to be reignited with the inquiry into General Electric's €48-billion take-over of Honeywell.

Jack Welch, GE's outgoing chief executive, is leading the regulatory-clearance drive. He is also an industrial power behind President George W. Bush's throne.

This case risks blowing up into a repeat performance of the furore surrounding not just WorldCom/Sprint but the 1996 take-over of McDonnell Douglas by the world's biggest aircraft-maker, Boeing.

Firms rarely bother to appeal against EU executive merger rulings since they take so long to come to court that the market has moved on. A recent exception is UK package-holiday operator Airtours, which was banned last autumn from acquiring its rival First Choice Holidays.

In a ground-breaking decision, the Commission ruled that the merger would lead to "collective dominance" of the high-volume, short-haul package holiday sector even if rivals remained in the marketplace. The removal of one competitor would lead them to realise they could hike prices collaboratively and reduce choice.

"There are very few appeals because the process comes too late for merger cases," Christopher Bright, a partner at law firm Clifford Chance. "If, like Airtours, a company is told it has a glass ceiling and effectively can't merge with anyone, then it will fight because it has no choice. Otherwise, companies just look elsewhere."

The Luxembourg-based CFI, which was set up a decade ago to alleviate the Court of Justice's caseload, has become equally congested with staff cases. Even though every case in the competition, trade and intellectual property areas brought against an EU institution starts in the CFI, 25% of the appeals in 1999 alone were about settling internal staff disputes.

As a result, the few competition appeals there travel at a snail's pace. In January, when the CFI overturned a Commission decision to allow the merger of German coal producers RAG Aktiengesellschaft, Saarbergwerke and Preussag Anthrazit after an appeal from the UK's RJB Mining, it meant little since the merger had gone ahead three years earlier.

Monti argues that the threat of appeal is enough to keep the Commission on its toes, never mind how long the cases take to reach court. "It has been argued that court challenges are not a real option because they are too lengthy, but since 1990 over 30 decisions have been appealed in the Court of First Instance - and that is an effective threat to convince Commission officials to get their facts right," he said.

The CFI itself has advocated an "accelerated procedure" for merger cases, which would exclude some written stages to the appeals process, acknowledging that average waits of two years are far too long. More radical suggestions from outside the court include the idea of setting up a separate merger-appeals tribunal or taking all the staff cases out of court.

In the meantime, an application for 'interim measures' under Article 243 of the EU treaties would allow the companies - if they dared without a final ruling - to proceed with their merger as if the CFI had ruled on the validity of their appeal. This would mean firms could run the EU and US regulatory phases of their merger plans in parallel, says task force chief Gonzalez-Diaz.

The entire process would take seven months: one for the opening Commission inquiry, four for the in-depth phase and a further two for the CFI to suspend the decision and rule. Commercial lawyers scoff at the suggestion for now, claiming that the quickest any of them has ever obtained interim relief was nine months and not two.

However, if the CFI does manage to speed up its processes and firms can be sure that a case will obtain a ruling within two months of lodging an appeal, then the Union could be about to go the litigious way of the Americans.

Major feature on EU merger policy.