Chapter 1
INTRODUCTION
1.1 The aim of the thesis
The purpose of this thesis is to explore the possible strategies for the regulation of
transnational mergers. It may be helpful to clarify at the outset that the meaning
given to the term of transnational mergers in the present context includes those
merger operations whose economic effects are felt in the territory of more than one
country.
1
The globalisation of economic activities has greatly innovated the traditional
structure and dimension of markets. The liberalisation of the international trade
regime, which has removed the barriers hindering the flow of trade and investment
across countries, has triggered the process of globalization.
2
Accordingly, economic
activities have an increasingly international breadth and firms strive to expand their
business by entering foreign markets. Mergers enable firms to acquire the control of
the assets they need to establish or consolidate their market positions more rapidly
than is provided by mere internal growth. Thus mergers are a useful medium
through which firms can pursue expansionary strategies.
3
Statistics reveal that over the last decade the number and value of transnational
merger operations have constantly increased- with the notable exception of the
years affected by economic recession. In 1990 the value of transnational merger and
acquisition deals was $151 billion. By 1999 this figure had soared to $720 billion.
The annual growth rate in the number of transnational mergers and acquisitions
1
For a more detailed explanation see chapter eight.
2
Maher Dabbah, The Internationalization of Antitrust Policy (Cambridge University Press,
Cambridge 2003) 13.
3
Joseph Wilson, Globalization and the Limits of National Merger Control Laws (Kluwer Law
International, The Hague/London/New York 2003) 29. For an explanation of the reasons underlying
the merger &acquisitions activities, see UNCTAD, Press Release, TAD/INF/PR055 03/10/00,
Survival in Global Business Arena is Key Driver of Cross Border Merger and Acquisition Boom.
Questions Mount in Developed and Developing Countries as Merger Activities Hits Record Levels,
States New UNCTAD Report
<http://www.unctad.org/Templates/Webflyer.asp?docID=2928&intItemID=1890&lang=1> (visited
2 October 2006).
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between 1991 and 1995 was 23%. By 1998 this rate had more than tripled, reaching
76,4%.
4
1.2 The problems regarding the regulation of trans-national
mergers
Ictu oculi, the basic question that competition law enforcers and practitioners have
to address when dealing with transnational mergers is which national competition
authorities can exert jurisdiction on a given transaction. The identification of the
competent competition authorities in transnational mergers is complicated by two
factors. Firstly, transnational mergers affect several national markets; but, on the
other side, the scope of application of national competition laws and - of national
merger control laws- is usually limited to the territory of the regulating countries.
Secondly, the great number of countries that have adopted competition law in their
national legal systems must be borne in mind. Some scholars have estimated that in
2002 about 90 countries have enacted competition law and many more are planning
to do so.
5
As of March 2006, almost 100 competition authorities have joined the
International Competition Network.
6
Thus, if a merger affects several national
markets, the competition authorities of the countries where such effects are felt may
wish to regulate this operation with the aim of protecting their national economic
interests. Transnational mergers are therefore likely to be subjected to the review of
several national competition authorities, each applying their respective national
competition laws. National laws, however, may regulate the various aspects of
merger control regime differently, such aspects ranging from procedural to
substantive rules; from policy goals to the allocation of regulatory powers.
The multi-jurisdictional review of trans-national mergers can raise several problems
which may be subsumed into three general categories:
4
UNCTAD, World Investment Report 2000 Cross Border Merger and Acquisitions and
Development, <http://www.unctad.org/en/docs/wir2000_en.pdf> (visited 2 October 2006); ibid.,
World Investment Report 2002, Trans-national Corporations and Export Competitiveness,
Overview, Table I.1, Selected Indicators of FDI and International Production 1982-2001,5,
<http://www.unctad.org/en/docs/wir2002overview_en.pdf> (visited 2 October 2006).
5
Wolfgang von Meibom and Andreas Geiger, ‘A World Competition Law as an Ultima Ratio’,
[2002] ECLR 445, 445.
6
International Competition Network, ICN Membership Contact List,
<http://www.internationalcompetitionnetwork.org/icn_membership_list.pdf> (visited 2 October
2006).
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• Legal problems. The regulating competition authorities may take
inconsistent decisions on the validity of mergers. For example, one authority
may decide to approve an operation, another authority may decide to disallow it,
while a third authority may decide to conditionally authorize the merger. The
risk of inconsistency may be attributed to the different substantive standard tests
adopted by national merger control laws. Inconsistency may be also created by
diverging policy goals pursued by national competition laws and by the
discretionary power of competition authorities in the evaluation of facts.
7
• Business problems. The merging parties may have to notify the merger
operation to many competition authorities and handle many merger control
procedures. The parties and their counsels have therefore to examine the
different national laws applicable to the merger control procedure. The
application of different national laws may result in negative consequences for
the merging parties: for example, they may be required to provide different data
in the notification forms, which obliges the parties to collect different sets of
data for each merger control procedure. Multi-jurisdictional review compels the
merging parties to commit considerable financial and human resources to deal
with the different merger control procedures, thus increasing compliance costs.
Furthermore, the multi-jurisdictional review may decrease the legal certainty
with respect to the outcome of the review of mergers.
• Political problems. The divergent views of competition authorities about
mergers may fuel diplomatic tensions between the countries concerned. This is
all the more true when the merger operations affect important national interests.
Inevitably, such frictions may complicate the execution of the proposed merger
operation.
These problems will be labelled as the ‘global competition problems’ in the field of
merger control. They emerge when a competition authority assesses the competitive
effects of a transnational merger by focusing on the effects of the transaction on its
domestic markets. The priority attached to national interests and policies seriously
undermines the capacity of competition authorities to take into account the foreign
economic interests that are equally affected by the transaction. The consequence is
7
The most famous case on which the regulating competition authorities take conflicting decisions is
the General Electric/Honeywell merger that will be comprehensively examined below in chapter
four.
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that competition authorities are unable to appreciate the overall economic effects of
the merger on international markets. There exists a gap between the international
scope of trans-national mergers and the scope of application of national competition
laws. Such a gap weakens the viability of the application of national competition
laws as an effective regulatory tool for trans-national mergers.
A new model for the governance of business activities which is attentive to their
international nature can bridge this gap. This model should pursue the
internationalisation of competition law and, more specifically, of merger control
law. In this regard, the proposed internationalisation will not only touch on the
contents of the merger control provisions but also on the way in which merger
control is administered. Firstly, it implies the harmonisation of the procedural and
substantive merger control rules. Secondly, it requires the establishment of
mechanisms for cooperation and coordination between national competition
authorities.
The internationalisation of merger control should be advantageous for both
competition authorities and firms. The advantages for the former would consist in
fostering mutual trust; providing efficient criteria for the allocation of merger cases;
and in developing common methodologies for the purpose of the assessment of
merger operations. The gains for firms would be increased legal certainty and less
compliance costs.
The question now is which is the best approach to pursue the objective of
internationalisation. Different options are theoretically open, which can be better
presented in the form of the following questions: Should the internationalisation be
pursued with instruments of soft law or with instruments of hard law? Should it
cover only bilateral cooperation agreements or should it also include multilateral
agreements? Should it require a full unification of national merger control laws or
should it be limited to mere harmonisation through general competition law
standards? Should it be based on a complex institutional framework or would
establishing mechanism for cooperation and coordination be sufficient?
Before specifically addressing these questions, it is important to bear in mind that
countries are not usually willing to cede their regulatory powers in the field of
15
merger control as this would amount to an unacceptable curb of national
sovereignty. In the light of the above observation, preference should be therefore
given to those ideas which are less threatening to national sovereignty.
This thesis will review different ideas for the internationalisation of merger control,
which may fall within two general categories: the bilateral strategy and the
multilateral strategy. The former covers bilateral cooperation agreements, which
normally are not serious menaces to national sovereignty. However, the benefits of
bilateral cooperation are enjoyed only by the countries that are party to the
agreements and by individuals and firms belonging to these countries. The
multilateral strategy includes instruments of hard and soft law. The ideas that
incorporate the instruments of hard law are normally sophisticated and complex and
the key element of these ideas is the imposition of legally binding obligations on
countries. However, their practicability is weakened by the restrictions they place
on national sovereignty. The feasibility of the ideas that embody instruments of soft
law may be, on the other hand, undermined by the lack of legally binding force.
In the view of this author, the proposed formula for internationalisation revolves
around the creation of an international merger control framework (hereinafter
IMCF), which will rest on a formal and an informal pillar. The latter includes
instruments of soft law in the shape of international competition principles and has
a general scope of application as it will apply to all transnational mergers affecting
the participating countries. The formal pillar embraces bilateral cooperation
agreements and its scope of application is limited to the mergers affecting the two
countries that are party to a cooperation agreement.
1.3 The structure of the thesis
The structure of the present thesis is as follows. Chapter two examines the unilateral
strategy, namely the extraterritorial application of competition law. Chapters three
and four contain a comparative analysis of the procedural and substantive merger
control rules enacted by the US and the EC. Chapter five compares the merger
control laws adopted in different jurisdictions from the EC and US. Chapter six
studies the bilateral strategy. This chapter not only discusses bilateral cooperation
agreements, but it also examines the regional trade agreements that contain
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competition rules. Chapter seven focuses on multilateral instruments of hard law.
Chapter eight concerns multilateral instruments of soft law. It includes a detailed
analysis of the activities of the International Competition Network and suggests
how the international framework for merger control should be created. Chapter nine
draws conclusions.
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