Monti paper chase means merging firms can’t see the wood for the trees

By Peter Chapman

Date: 06/05/04

IF EUROPEAN Union lawyers are to be believed, Mario Monti, the competition commissioner, has some explaining to do to his colleague in charge of the environment, Margot Wallström.

Not for being too kind to smokestack industries churning out CO2, but for foisting a massive increase in the paperwork upon merging companies.

The culprit is the new form - or CO in the jargon - that firms must fill in and send to the European Commission to get big, pan-European deals approved under a new EU merger regime, that entered into force this week.

"The biggest additional burden is the extra 12 paper copies that must be filed - bringing the total up to 36 copies," says Jonathan Uphoff, a merger expert with US firm Morgan Lewis & Bockius.

"A complete Form CO with annexes can easily run to well over 1,000 pages. At 1,000 pages, a single complete notification will weigh 180 kilogrammes and measure more than eight metres end-to-end," says Uphoff, adding the situation gets worse if companies try to get a case referred from Brussels to a single national competition authority.

"The cost of assembling, copying and delivering the Form CO easily runs into thousands of euro. The Commission has left open the possibility of revisiting the form-of-filing-requirements and we hope they will, sooner rather than later," he adds.

But it is not just a question of forcing the office junior to spend his or her weekend standing at the photocopying machine.

Lurking underneath the paper pile-up is a host of serious merger policy issues.

Stephen Kinsella, a partner at Herbert Smith in Brussels, says the form-filling nightmare is a direct result of the stinging criticism handed down by the European Court of First Instance.

The Commission, he says, wants to protect itself from criticism that it has not explored all the angles - so it is asking more questions throughout investigations.

The form puts many of these extra questions all in one large document.

A major gripe, however, is that many of the questions are unnecessary and that the Commission would probably not have time to read the answers.

"It is as though there is a group of civil servants in a room and they are saying to each other 'what else can we ask them?'" says Kinsella.

Amelia Torres, Monti's spokeswoman, insists the data mining is necessary to keep the Commission's relatively short time frames for handling merger probes intact.

Furthermore, she says the Commission has cut down some details demanded in certain areas following a consultation of companies and lawyers and firms can be allowed to ignore some questions.

Yet Johan Ysewyn, a partner at Linklaters, pinpoints two key areas where the Commission has gone too far.

The most difficult one, he says, will be the section on efficiencies, which will now be considered as part of the merger analysis.

Having to demonstrate efficiencies is likely to be a tough job since many economists, including Monti's own chief economist Lars-Hendrik Röller, are reportedly sceptical about whether they actually exist.

Companies would no doubt prefer to skip efficiencies until a later stage in the Commission's inquiries and only if the going gets tough.

"But in my view," says Ysewyn, "it is very clear: if you want efficiencies to be considered as a defence, you're going to have to deal with it upfront - and you'll have to fill in the section of the form - no doubt about it".

The second problem area will be the need to provide very detailed information on markets on which there is no overlap but on which there could be an impact.

"Depending on the number of markets falling in these categories, [this] can result in huge amounts of additional information to be provided."

Possibly the biggest hassle, says Stephen Kinsella, is the burden the Commission's interrogations can have on third parties in merger cases.

The extra cost of filing a merger is written off by companies as part of doing the deal, along with other necessary evils, such as employing an investment bank to look at the corporate finance issues.

But it is a little-known fact that companies not involved in a merger can be handed huge fines if they fail to respond to questions about how rivals getting together would affect them.

Detailed questionnaires from the competition directorate-general are "asking for information that the companies just don't have, so they have to spend time and money getting it", Kinsella says.

The costs can easily run into tens of thousands of euro.

But, if third parties are interested in getting a merger blocked, the onus ought to be on them to approach the Commission or suffer in silence, he claims.

To help them come along, DG Competition might consider issuing a summary of the information about the potential impact of a deal, using data gleaned from the merging parties.

If it is wrong, third parties should be invited to submit their comments within a specific timeframe, suggests Kinsella, otherwise the data should be assumed to be correct.

In the meantime, smiles Johan Ysewyn,

"it is a lawyers' paradise, but I feel sorry for the trees".

The European Union's new merger regime entered into force in May 2004, bringing with it a massive increase in the amount of paperwork for merging companies.

• Primary Source

European Commission: DG Competition http://ec.europa.eu/competition/index_en.html

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