Monti puts brakes on EU merger mania

Date: 23/03/2000

By Peter Chapman

There is a joke doing the rounds in EU circles that if your daughter is getting married, you had better not invite Mario Monti to the wedding or he might try to stop it from going ahead.

This uncharacteristic bout of Brussels humour follows last week's ground-breaking decision by the Competition Commissioner to block not just one but two merger cases on the same day.

The first casualty was the planned tie-up between Canadian and French aluminium companies Alcan and Pechiney, although this was saved from being recorded in the official statistics because the two companies involved decided to withdraw their notification of the deal before Monti could formally carry out his intention to veto it.

Not to be deterred, Monti followed this up by giving the thumbs down to the planned all-Swedish merger of truck, bus and coach builders Scania and Volvo.

Neither decision was unexpected. Commission officials had been hinting for weeks that the Alcan deal would have major anti-competitive effects on the EU market for beverage cans and would have created a 'duopoly' in the manufacture of certain 'flat-rolled' products at the Alunorf rolling mill in Germany which the merged firm would have co-owned with its German rival VAW.

Anti-trust regulators also made it clear early on that they believed the Scania-Volvo deal would reduce consumer choice radically in the truck and bus markets in a number of Union member states, most notably in Scandinavia.

But, behind the laughs at Monti's expense, the normally cool Brussels lawyers who advise clients caught up in the current bout of merger-mania admit to a growing sense of nervousness.

Two key issues have dominated their post-mortems on the decisions taken last week.

The first is how to define the limits of what appears to be a radical hardening of the Commission's stance on mergers since Monti took over from his predecessor Karel van Miert last autumn.

The figures, say analysts, speak for themselves (see table below). The Commission had only blocked ten deals between 1990 and September 1999, when Monti took on the job. He has now halted two formally and one informally in the space of six months, including the decision to veto a deal between UK tour operators Airtours and First Choice in the first few days of his reign as competition supremo.

Gerwin Van Gerven, a merger lawyer at the Brussels office of Linklaters & Alliance, says this has created genuine uncertainties which need to be removed so that companies know how far they can go down the consolidation path before they run into regulatory road blocks.

He argues that studying the decisions taken on recent EU merger cases adds to the confusion, when it should instead help to explain the Commission's thinking. "There are quite a number of decisions that leave the situation unsettled, and the more decisions are made the more the confusion increases because there are conflicts between these decisions," he said. "If you put them all next to each other, I think there would be a risk that the Commission itself is not clear and that they will confuse more than clarify."

As a first step towards answering the lawyers' questions, says Van Gerven, Monti should deliver on his promise to publish a notice explaining the Commission's approach to those mergers - such as the Airtours deal - which it says would have led to the creation of 'collective dominance' or oligopolies.

The second big question mark raised following last week's events was triggered by comments which Monti made following his rejection of the Scania-Volvo deal.

The ruling was greeted with howls of derision from the firms involved and their governments asking how relatively small companies - albeit powerful in their home countries - could transform themselves into world players if the Commission blocked their attempts to merge.

The former single-market chief responded by saying that he understood the dilemma, but this did not mean his decision was wrong. Rather, he said, it highlighted the need to give the Commission greater powers to remove the barriers - such as local tax regimes and technical regulations - which effectively keep foreign competitors out of domestic EU markets.

But critics such as Mike Pullen, a lawyer at UK firm Dibb Lupton Alsop, argue that what this means in effect is that the Commission is penalising companies for its own failure to use its existing powers to police the internal market effectively.

"It is a bit rich for the Commission to say we will not allow these deals because we have not achieved the completion of the single market," he said. "From a policy point of view this sends out all the wrong signals. What blocking the deal does is leave the companies concerned open to take-over by foreign competitors."

Monti and his officials are keen to answer their critics in the aftermath of last week's decisions. But they make no apologies for drawing a link between the completion of the single market and the clearance of large-scale mergers.

One Monti aide insisted that it was the Swedish government itself which brought up the single market issue. "We would prefer to have a single market for everything from jam to heavy trucks but it is not there yet," he said. "We cannot base decisions on what the world should be like, only what it is like."

Commission officials have also sought to put the nagging doubts over their supposed 'new approach' into perspective.

Monti's spokesman said the Commissioner was bound to block more deals than his predecessors simply because there are more cases being notified to the EU executive, and insisted that both of the deals now at the centre of controversy would probably have been blocked in the past.

"There has been a lot of speculation on this, but both could have been blocked before - there is nothing new," he said. Moreover, he added, neither decision focused on the emerging collective dominance issues which have most confused the merger fraternity.

But whether the rulings did in fact signal a tougher Commission stance on mergers or not, one thing is clear: the companies whose plans have been thwarted by them will now have to go back to the drawing board.

Critics of Monti's decision claim the Swedish firms are now sitting ducks for the attentions of a predator, possibly from the US. Meanwhile Alcan and Pechiney are promising to answer the Commission's concerns in a newly-formulated deal, to be completed by this autumn.

This would defy the old adage that when it comes to mergers, it is usually a case of 'once bitten, twice shy'. Experts point out that the Commission has never approved a re-jigged version of a rejected deal, but the companies concerned insist that this does not mean that the new version will inevitably be blocked.

"There is a first time for everything," said Alcan EU affairs director Marcel Daniels.

Mergers officially blocked since 1990

Source: European Commission