PRINT THIS PAGE European merger control13/04/2004. Source: SJ Berwin.
The current European merger control regulations place major restrictions on the ability of private equity houses to do deals. And as the transactions that these firms are seeking to complete grow in scale and become increasingly complex, these rules have become an increasing nuisance, according to SJ Berwin. European buy-out houses have legitimate cause to complain about the impact that
European merger control rules have on their ability to do deals and, as the deals
have got larger and more cross border, those rules have been an increasing nuisance.
On one level, the pan-European approach - which creates a "one-stop shop"
to clear larger deals - is very helpful, and avoids the need to consult several
national regulators. But problems with the rules themselves, and the way they
treat financial investors, are well known.
Radical review of the regime - announced in 2001 by the European Commission,
coinciding with a barrage of criticism and, more recently, a series of embarrassing
defeats in the courts - could have been good news for the industry. It certainly
hoped to influence the changes. There was some disappointment, then, when the
new regulation (which will take effect in May) was approved last month. Although
there were some significant changes (many for the better), the reform does not
go far enough for private equity practitioners.
True, a more flexible approach to determining which is the most appropriate
regulator to assess a transaction will sometimes be helpful, especially since
discussions will be possible pre-notification, reducing delay. A deal which
is not big enough to fall within the Commission's jurisdiction can now be referred
to it anyway if it would otherwise need to be cleared in three or more European
countries (so long as no relevant national regulator objects); and, conversely,
a deal which does fall within the Commission's jurisdiction can be referred
back to a national regulator where competition concerns arise in just that country.
Because of the extremely low domestic merger thresholds applied by a number
of countries (notably Austria, Germany, Italy, Finland and France), even relatively
small deals falling below the European thresholds can trigger a number of domestic
filings. The new process, coupled with the ability to pre-notify, should offer
a useful mechanism for speeding up completion and reducing costs in these cases.
But, contrary to expectation, the pan-European turnover thresholds remain unchanged,
and will effectively be lowered with the addition of a further ten Member States
in May. Nor does the reform deal with the artificiality inherent in the turnover
calculation, which can bring deals within the regulation when there is patently
no competition concern.
It is also good that the timetables have been reviewed. Because notification
can be made earlier in the process, approval should come sooner in straightforward
cases, while giving the Commission enough time in more complex situations. But
there is no fundamental shift in the position which requires pre-clearance of
any deal which technically qualifies for consideration; approval might come
more quickly for deals where there is no concern, but it will still be needed.
And an expected generalised exception for simple cases was struck out by the
European Parliament. That contrasts sharply with the UK system, which allows
a buyer to complete a deal if its advice indicates that there is no competition
issue, while the French authorities now automatically accept that the deal can
be closed before the clearance is granted for deals done by private equity houses
where there is no market overlap. The possibility of seeking the Commission's
permission to close a deal prior to receiving authorisation has always existed,
and hopefully the Commission will in practice grant these derogations more frequently
in the case of private equity deals. The Commission should talk to the industry
to agree suitable policy guidelines on this practice in future.
The other much-heralded change is to the test for assessing mergers. Currently
based on individual dominance', the regulator will in future consider whether
the deal 'significantly impedes effective competition' in the common market
or a substantial part of the common market, in particular as a result of the
creation or strengthening of a dominant position. The Commission has emphasised
that the amended test applies to all kinds of mergers that may have an anti-competitive
effect, including where such effects are created in oligopolistic markets, and
this change should bring Europe closer to the US/UK position. In practice, though,
it is unlikely to make any difference to the vast majority of cases. And, although
there are other changes that are aimed at improving the quality of the economic
analysis applied, many of these seem largely cosmetic. It is true that the direction
of the organisational changes taking place is encouraging: the Commission is
clearly working towards establishing better internal checks and balances, with
"scrutiny panels" representing a very significant development in this
area. However, more needs to be done to provide clear evidence that consumer
interest, procedural transparency and predictability are getting real attention.
And (despite some beefing up) the size of the team assessing mergers will still
compare unfavourably with its equivalent in the US.
SJ Berwin is a pan-European law firm with a particular focus on private
equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and
Brussels. If you would like further information on our services to the private
equity industry please contact Jonathan Blake or Simon Witney in our London
office 020 7533 2222 or visit our website at www.sjberwin.com
|
