Has EU merger control turned into an ever-escalating arms race between the Commission and merging parties? I believe it has. Last month the General Court handed down a decision that may further feed this arms race. Here are a few thoughts and 4 questions to think about.
Last month the General Court annulled the Commission’s 2016 decision to block the U.K. mobile network operator Three’s acquisition of rival operator O2. The appeal of this 4-to-3 merger gave the General Court a novel opportunity to determine the standard that the Commission must meet to block a transaction under the EU merger regulation’s central substantive test (the SEIC-test). The General Court used that opportunity to raise the bar for that standard, holding that the Commission failed to meet both evidentiary and substantive requirements.
Other recent examples of the Commission being reprimanded by the court over merger review decisions include the annulment of the Liberty Global/Ziggo approval decision and the annulment of the UPS/TNT Express blocking decision.
The EU member states gave the thankless task of reviewing every significant merger that takes place in the EU to the Commission. A task the Commission takes very seriously.
The Commission takes its task to review mergers very seriously and does not appreciate being slapped on the wrist by the court like this. Over the years, the Commission’s go-to response to the court’s annulment of its merger decisions has been to further tighten the screws on merging parties in subsequent merger reviews.
merging parties have responded to the Commission’s tightening of the screws by escalating their own efforts, spawning a thriving merger review consulting industry
This is perhaps best illustrated by the length and scope of its merger reviews. Under the formal review deadlines, a review should never take longer than 35+125 working days. But actual review times—from first contact with the Commission to the decision being adopted—routinely swell to two or three times that. How come?
This happens because the Commission forces months of pre-notification discussions, coerces merging parties to “voluntarily” extend review periods, and “stops the clock” when merging parties fail to meet impossible-to-meet-deadlines for submitting information. The scope of information gathered and economic analysis conducted by the Commission in merger reviews has also grown beyond bounds of reason.* All to avoid appeals and court annulments.
In turn, merging parties have responded to the Commission’s tightening of the screws by escalating their own efforts, spawning a thriving merger review consulting industry. To get their mergers approved, merging parties deploy not only huge teams of attorneys, but also competition economists, lobbyists and data forensic technicians. These consultants—many of whom have joined the party through the revolving door from the Commission—get paid top euro to leave no stone unturned in meeting the Commission’s tighter and tighter demands, no holds barred.
This current state of European merger control can best be described as an ever-escalating arms race between two superpowers. Between one bureaucratic behemoth, the Commission, and one economic steamroller, merging parties. As I speak to other practitioners about this, many agree that there is an arms race and some point out that it has been going on for a long while. However, there seems to be fairly few broad and critical questions that are being asked about the arms race. I want to propose a few.
4 questions I propose we think about:
This arms race is clearly a boon for the consulting industry. But is it ultimately good for the EU citizens?
The General Court's message in the Three/O2 annulment ruling was clear: the Commission must find better evidence and its economic analysis must be robuster. What consequence will this have for the merger review arms race going forward?
Should, and can, the EU courts take this arms race and its consequences into consideration when assessing merger decision appeals?
What effect does the the revolving door between the Commission and the roaring consulting industry have for the arms race?
Any thoughts? Let me know on email@example.com.
* Take some of the stats of the now unblocked Three/O2 transaction as an example. The Commission’s decision in this case was adopted around 14 months after the deal was announced and amounted to a whopping 570 pages, excluding annexes. In its investigation, the Commission sent out over 500 requests for information and received over 300 000 internal documents from the merging parties. The Commission also conducted a survey of over 1 200 private customers. Since this decision was adopted in 2016, the Commission has tightened the merger review screws even further.