Mergers And Acquisitions Under The European Union Legislation And Jurisdiction Between The Eu And National Courts

1. Introduction

1.1 Merger Control Regulation

The EC Merger Control Regulation (MCR) is the exclusive Community instrument for the control of concentrations. The MCR, which entered in force on 21 September 1990 , provides procedures for Commission notifications and investigations, which are applicable specifically to concentrations. The MCR does not conflict with Regulation 17, since the latter has been misapplied to concentrations. The effect of this misapplication is that the Commission has greatly diminished powers to apply Article 85 and 86 to concentrations. The MCR rectifies a number of shortcomings in the application of Article 85 and 86 to concentrations. Broadly, a merger occurs where two or more formerly independent entities unite. Obviously, a number of different transactions and agreements concluded by undertakings could result in a unification of the independent undertakingsÑž decision-making process. Every jurisdiction needs to adopt a definition of what constitutes a merger for the purposes of any merger control legislation. The MCR applies to concentrations.

1.2 The purpose of the MCR

The purpose of the MCR is to enable competition authorities to regulate changes in market structure by deciding whether two or more commercial companies may merge, combine or consolidate their business to one. Mergers naturally create a more permanent and lasting change on the market than agreements. It might be expected that many mergers would be forbidden. Mergers may raise severe competition concerns. In particular, they may result in the undertakings acquiring or strengthening a position of market power and, consequently, in an increase in the market price of the products or services on the relevant market. However, mergers also give the owner of a business the opportunity to sell it. Without this possibility, entrepreneurs might be reluctant to start a business. Further, mergers provide many other efficiency opportunities. The task of the competition authorities is to identify and to prohibit those mergers, which have such an adverse impact on competition or society that any benefits resulting from them are outweighed or should be ignored. Although, the motives for, and benefits of mergers are important, the key to effective merger control is to identify why and when a merger should be prohibited.

1.3 The aims of MCR

The aims of the EC anti-trust policy may be summarised as (i) diffusion of economic power, even with the sacrifice of efficiency, (ii) economic freedom of market participants, specifically of small and medium-sized firms and (iii) efficient allocation of resources and the maximum satisfaction of consumers. These aims are not entirely consistent with each other.

1.4 The drive for MCR the Community level

The drive to introduce legislation at the Community level specifically focused on merger control was led by the Commission. In 1966 first acknowledged, in its publication of its Memorandum on the Concentration of Enterprises in the Common Market, that some form of the EC merger control was necessary. The Commission believed that its inability to control mergers inhibited its capability to operate effective competition control. In 1973 the Commission first adopted a legislative proposal for a merger control regulation. The dangers posed by market dominance were apparent to a number of the European States. Any regulation on merger control had to passed unanimously by the Council. For a long time there was no consensus amongst the Member States that merger control was necessary at all. Those Member States that did recognise a need for merger control were reluctant to cede power to the Commission and to relinquish their economic sovereignty. Many Member States wished to retain control over changes in industrial structure in their territories. In addition, early drafts of the MCR gave the Commission board discretion in assessing whether or not a merger was in the Community interest. Member States were divided on what substantive criteria should be used appraise Community mergers. The UK, for instance, was adamant, at least in later negotiations, that only the effects on competition should be taken into account, fearing perhaps that any exception to this strict approach would be used to allow social and industrial policy considerations in through the back door. There were, therefore, two major sticking points:

1. Jurisdiction. Whether, and if so at what point, control should be relinquished by the Member States to the Commission and what the relationship between European and national law should be.

2. Appraisal criteria. If factors should be other than competition be taken into account in assessing whether a particular merger was compatible or incompatible with the common market.

2. The EEC Merger Control Regulation: Jurisdiction and Substance

2.1 The elements of a “Concentration”

Pursuant to Article 1 (1) of the Merger Control Regulation (MCR), the MCR applies to all concentrations having a Commission dimension. Although the MCR does not provide a working definition of the term “concentration”, Article 3 sets forth three instances in which a concentration “shall be deemed to arise”. These are: mergers, acquisitions of control and concentrative joint ventures.

2.1.a Mergers

Article 3(1)(a) provides that a concentration results when ÐŽtwo or more previously independent undertakings mergeÑž. Although the terms ÐŽmergeÑž and ÐŽmergerÑž are not defined by the MCR, it would appear that Article 3(1)(a) would consider the following operations to be mergers where the companies concerned are previously economically independent: (i) Company A acquires all the assets and liabilities of Company B, the latter is subsequently dissolved, and its shareholders in Company A. (ii) Companies A and B transfer their assets and liabilities to newly-formed Company C, and Companies A and B are then dissolved. (iii) Company A acquires all of the shares of Company B and the latter remains in existence. It would appear, however, that Article 3(1)(a) would not apply to transactions whereby most but not all of the shares or assets of Company B are acquired by Company A. This result is accounted for by that acquisitions of ÐŽcontrolÑž constitute a form of concentration, which is subject to the MCR.

2.1.b Acquisition of control

The MCR states that a concentration may result