EU Governments Call for Creation of European Champions in Revision of EU Merger Control Policy

Bryan Cave Leighton Paisner
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Perhaps this is an indication of the way things are going to be after Brexit. The Governments of Germany, France and Poland have recently published a document calling for a radical review of the EU merger rules to allow a stronger emphasis on industrial policy considerations .

Remove the UK from the equation with its strong belief in competition only based assessment of mergers and more politically motived industrial policy concerns are likely to fill the vacuum. More and more they are likely to become a focus of future EU competition policy. Despite strong resistance from the EU Commission which is wedded to a competition based assessment of concentrations the combined forces of the two leading member states (and it has to be added the main EU paymasters) supported by Poland are likely to be an substantial force.

Stung by the EU Commission’s decision to block the proposed acquisition of French engineering company, Alstom, by German competitor, Siemens, on the basis that the deal could harm competition in markets for railway trains and signalling systems, the French and German Governments allied with Poland want more flexibility in EU merger analysis to allow for the creation of European Champions . The rationale for such a move is that the promotion of European champions will help these companies to effectively compete with state backed companies particularly those backed by the Chinese Government .

In their paper entitled ‘Modernising EU Competition Policy’, the three Governments call for a review of the way horizontal mergers are assessed. In particular they want EU merger rules to take into account the global competition context in which companies have to compete thereby allowing regulators greater flexibility to protect the strategic European interest. This would require, among other things, taking a more flexible approach to geographic market definition thereby permitting an analysis of wider global markets rather than a narrower EEA wide definition. In addition the paper suggests that greater emphasis should be placed upon the assessment of potential competition, including imports-related competition from outside the EEA. They argue competition policy should have a long term outlook to the development of markets. It should also pay attention to the trade and industrial policy approach of third countries. Therefore whilst competition from third countries’ state-backed or subsidised companies could initially be attractive to European consumers it could create long-term market conditions detrimental to those same consumers where European competitors are weakened or driven out of the market.

Armed with state subsidies low profitability of entering the EU market is not a significant barrier to these subsidised foreign companies which, with their deep pockets, can afford to take a long term strategic approach to contesting EU markets.

The report states that EU merger rules do not sufficiently take into account “third countries state interventions in merger control” and the subsidies that these countries grant to companies. The three Governments are therefore calling on the EU Commission to consider in its decisions the state control exerted on entities when calculating turnover and when deciding whether a merger is likely to impede effective competition in the EU. The EU Commission also comes in for criticism from the three Governments for its enforcement efforts in regulating the mergers involving big tech companies . The document calls for the Commission to speed up merger control and competition enforcement activities involving big tech mergers. In particular it says further work is needed to adequately capture potential “predatory” acquisitions aimed at snuffing out potential competition to big tech at an early stage. It also calls for the possibility of exploring such combinations ex post although it is not clear how this could easily be done if it comes with a potential ex post divestment remedy

The report concludes with a call for an early discussion of merger policy and the competitiveness of EU industrial sectors at the Competitiveness Council in the near future.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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