Home 
Publications Online Publications Document
|
Competition Law Toolkit : Practices Controlled by Competition Law
MergersA third issue that competition laws usually (though not always) address is the need to prevent or modify mergers between independent undertakings that would substantially lessen competition in the market. The purpose of competition policy is to prevent firms with market power from restricting output and raising price above the level that would prevail in a competitive market. It is obviously sensible to provide competition authorities with the opportunity to review transactions that lead, or would lead, to a change in the market structure. However, rivalry for the control of firms through mergers and acquisitions is itself part of the competitive process, and should not be unduly interfered with. Only a small number of mergers is likely to harm competition to a substantial extent.
Some competition law regimes do not have specific rules on mergers: indeed US, UK, and EU laws all began with rules on anti-competitive agreements and monopolization/abuse of dominance before subsequently introducing merger control at a later stage. Singapore's Competition Act 2004 was entered into force on 1 January 2006 for the control of anti-competitive agreements and the abuse of market dominance, but the sections in the legislation on mergers will enter into force at least 12 months after that date. For small, developing and transitional economies, mergers may be particularly helpful for local businesses if this means they can grow to an efficient scale that will enable them to compete more effectively in international markets; although this does not mean that they should be allowed if they are harmful to competition in domestic markets. As a general proposition, firms that learn to compete effectively at home tend to be better at competing effectively abroad. It is thought that about 75 out of the 100 or so systems of competition law in the world today do provide for the investigation of mergers. Most of them require the pre-notification to the relevant competition authority of mergers that exceed prescribed thresholds. Typically, these thresholds are based on the turnover of the undertakings involved in the transaction. For example, the European Community Merger Regulation requires that the European Commission must be notified of mergers where the parties have a combined worldwide turnover in excess of €5 billion and where at least two of the parties have turnover in the EU of at least €250 million, unless more than two-thirds of that turnover arises in one and the same member state. Some systems of merger control use other jurisdictional thresholds, such as the value of the assets to be acquired (this is the case in Japan) or the likely market share that the parties would have after the merger (UK law includes a test of this kind.) Whatever thresholds are used, it is important that they are set at a level that is not over-inclusive, since considerable resources are needed for the vetting of mergers (both for the businesses themselves and for the competition authorities): the law should be designed in a way that only transactions that could produce serious anti-competitive effects within a particular jurisdiction should be investigated in depth by the authority of that jurisdiction. Typically, the law will say that a transaction above the prescribed thresholds cannot be implemented until the competition authority, within a fixed time period, has decided whether it would lead to a substantial lessening of competition/lead to the creation or strengthening of a dominant position. Section 6(1) of the Indian Competition Act of 2002 prohibits mergers if they would cause, or be likely to cause, "an appreciable adverse effect on competition within the relevant market in India." The test in Article 28 [ PDF ] of the Indonesian Act of 1999 is whether a merger would cause "monopolistic practices and/or unfair business competition." Article 18 [ PDF ] of the Vietnamese Competition Act of 2004 prohibits mergers that would lead to a market share of more than 50%. A few systems of law do not mandate that the transaction should be pre-notified, but provide that the competition authority has the power to investigate it within a prescribed period of becoming aware of it, even if this does not happen until after the event: this is true, for example, of the systems in the UK, Australia and New Zealand. Where pre-notification is not mandatory, businesses still tend to bring transactions to the attention of the competition authority beforehand, since it is unattractive to go ahead with a transaction and then find that the competition authority has decided to investigate and, in some cases, even require the transaction to be reversed. This does happen sometimes: in the UK for example, the Competition Commission was asked in July 2004 to investigate the completed merger between Emap plc/ABI Building Data Ltd. In January 2005, the Commission required Emap to divest itself of the ABI business it had acquired [ PDF ]. The Council of the OECD adopted a Recommendation on Merger Review on 23 March 2005 that addressed a number of issues arising from systems of merger control, and invited non-member countries to associate themselves with the Recommendation and to implement it. The Recommendation dealt with matters such as the need for merger review to be effective, efficient, and timely; for procedures to be transparent and fair; and for merger laws to treat foreign firms no less favorably than domestic firms in like circumstances. It also dealth with the desirability of coordination and cooperation between countries when applying their merger laws; the need for competition authorities to have sufficient powers to conduct efficient and effective merger review; and the need for countries periodically to review their merger laws and practices to seek improvement and convergence towards recognized best practices. The ICN has established a number of Working Groups looking into aspects of merger control in a multi-jurisdictional context. The ICN adopted Guiding Principles for Merger Notification and Review Procedures in 2002. They outline eight precepts on which merger regimes should be based: sovereignty; transparency; non-discrimination on the basis of nationality; procedural fairness; efficient, timely and effective review; coordination; convergence; and protection of confidential information. The ICN has also adopted a set of Recommended Practices for Merger Notification and Review Procedures [ PDF ]. These address 13 areas that public and private sector representatives have identified as the most important to facilitating convergence toward best practices in merger review.
The Principles and Recommended Practices [ PDF ] are non-binding. It is for governments and agencies to implement them as appropriate. By April 2005, "46 percent of ICN member jurisdictions with merger laws ha[d] made or ha[d] proposed changes that bring their merger regimes into closer conformity with the Recommended Practices; an additional 8 percent [were] planning to make such changes." The Merger Guidelines Workbook [ PDF ] was finalized for the ICN's Cape Town conference in early May.
|
RSS Feeds
Back
Top of page