Merger regulation in the EU: Understanding EU Antitrust Enforcement

When discussing M&A at European level, the European Commission and the 139/2004 EU Merger Regulation (EUMR) play a crucial role. The former being the institution of the EU that has exclusive competence on Competition Policy, and the latter being the primary legal instrument governing mergers.

The European Commission considers the M&A activity as beneficial when it allows merged companies to develop new products more efficiently, as long as they don’t distort competition. According to Art. 4 of EUMR:

Such reorganisations are to be welcomed to the extent that they are in line with the requirements of dynamic competition and capable of increasing the competitiveness of European industry, improving the conditions of growth and raising the standard of living in the Community.

The European Commission has the power to unconditionally or conditionally approve mergers or completely prohibit them in case serious competition concerns arise.

What is the rationale behind the Commission's final decision?

Several factors are taken into account when a merger is investigated, including:

• Potential for Market Dominance, it is likely that if a company gets into a dominant position, it would engage in either exclusionary or exploitative behaviours

• Market Structure and Concentration, the Commission assesses market shares and whether the merger would result in excessive concentration

• Barriers to Entry, would it be more difficult for new competitors to enter the market post-merger?

• Consumer Welfare, would the merger hinder innovation, reduce diversity or negatively affect consumer prices?

How does the Merger Control Procedure work?

Through the lenses of the notable GE and Honeywell (2001) case, a deeper and more practical explanation of the procedure shall be outlined.

General Electric Company (GE) is a diversified industrial corporation active in fields including aircraft engines, appliances, information services and many more. Honeywell is an advanced technology and manufacturing company serving customers worldwide with aerospace products and services and automotive products.

The Merger Control Procedure is a system of ex-ante assessment, meaning that a merger has to be first notified to the Commission before it takes place. Usually, the Commission only examines large mergers that reach certain turnover thresholds.

The two major companies, GE and Honeywell, proposed a merger that surpassed the EU notification thresholds, as follows: their combined worldwide turnover exceeded €5000 million, and each company had EU-wide turnovers exceeding €250 million.

Simplified Procedure

If the merger meets certain conditions defined in the Notice on Simplified Procedure it will receive a green light, otherwise a full investigation will take place.

The merger in discussion, however, did not qualify for this first preliminary procedure due to the size and nature of the businesses involved, especially given their positions in overlapping markets.

There are two phases of investigation:

1. Phase I Investigation, after notification, the Commission has 25 working days to analyse the deal. Over 90% of the cases are cleared through this preliminary phase. The rest of the cases which raise competition concerns go to the second phase.

In this phase, the EC determined that the merger raises serious competition concerns, particularly because it would create a dominant position for GE in the aircraft engine and enable Honeywell to benefit anti-competitively from GE’s market position.

2. Phase II Investigation is an in-depth analysis in which the Commission has 90 working days to make a final decision in line with the EUMR.

The more in-depth analysis of the economic factors, market studies and feedback from competitors and consumers led the EC to conclude that the competition will certainly be at risk.

Remedies

If the Commission believes that a merger is detrimental to competition, the companies involved, during the aforementioned phases can offer “commitments”, that is, propose certain modifications that would spur competition, rather than diminish it.

GE and Honeywell offered commitments to address the Commission’s concerns, such as divesting parts of their business.

Final Decision

After the phase II investigation and the revision of the proposed remedies, the Commission can clear the merger, approve a merger subject to remedies or completely prohibit it.

The merger GE-Honeywell was approved by U.S. antitrust regulations and blocked by the EU. The EC ruled that GE would enter a dominant position in aircraft engines and allow Honywell’s avionics and financing arm to create anti-competitive damage.

Judicial Review

The final decision taken by the Commission is subject to review by the General Court and ultimately by the Court of Justice.

Even if GE and Honeywell could have appealed EC’s decision, they dropped the case.

This case is particularly notable because, while U.S. and EU antitrust models often reach similar conclusions regarding cartels and abusive conduct in mergers, they diverge significantly when it comes to single firm exclusionary practices and the creation of market structures that enable such collisions.

In the light of a better understanding of the merger procedure, another case that deserves our attention is Facebook and Gyphy (2021), because for the first time the EC required a complete merger to be reversed.

In 2021, the Commission ordered Meta to undo its acquisition of Giphy (popular GIF platform), arguing that the merger would hinder competition in the display advertising market and strengthen Meta’s dominant position.

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Final Thoughts

Analyzing both cases, it is to be noted how the European Union, regulating its own market, has the power to  shape the legal climate globally. This concept is known as the Brussels Effect, and belongs to writer Ana Bradford. EU merger control rules apply to all mergers around the world, regardless of the origins of the companies. This is because companies outside the EU can impact the intra-european markets.

The merger regime control imposed by the European Union has a vital role in protecting consumers from monopolistic practices. From 2005 to 2023, around 99.3% mergers were approved in some form, the exceptions however being condemned and prohibited. From this number we can translate the openness of the European Union to foster a healthy competitive dynamic that would boost growth,  accompanied however by a strong condemnation of abusive practices on consumers.

As markets evolve, particularly in the digital economy, EU antitrust authorities will definitely refine assessment criteria to address new challenges.

CC: Alessandra Albescu