The EU Merger Regulation: A One-Stop Shop or a Procedural Minefield?

Posted by Social Science Research Network

The EU Merger Regulation: A One-Stop Shop or a Procedural Minefield?

Laura McCaskill (Independent)
Abstract:      In 2001, the proposed $42 billion merger between US companies GE and Honeywell was precluded by the European Union after receiving a stamp of approval from the Department of Justice and 11 other jurisdictions. This case provided startling evidence that the jurisdiction of European Union antitrust regulators is certainly capable of impacting business on this side of the Atlantic. This decision made it clear that US attorneys advising US companies and structuring M&A transactions need to be familiar with the antitrust laws of the European Union.

The antitrust principles of the European Union are set out in the TFEU and merger control is governed by Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings. In the European Union, merger control is divided between the European Commission and the Member States. The European Commission and the Member States do not have concurrent power to handle merger control. The Merger Regulation aims to create a “one-stop shop system” by providing the European Commission with jurisdiction to review mergers that transcend national borders. The jurisdiction of the European Commission applies to all concentrations with a community dimension, irrespective of where the companies are registered or where their headquarters or production facilities are located.

There are two primary reasons that mergers between US companies may need the approval of the European Commission. First, due to the considerable number of US companies that either own subsidiaries or generate revenue in Europe and the Merger Regulation’s definition of “community dimension,” the antitrust laws of the European Union are likely to affect the ability of US companies to complete M&A. Secondly, in several aspects of merger control, the European Union’s approach diverges from the approach taken by US antitrust authorities.

From an economic standpoint, the European Union’s emphasis on competitors, instead of efficiency and consumer welfare is divergent from the approach adopted by US regulators. This divergence has the potential to affect merging US firms, as the GE/Honeywell case demonstrates. From a procedural standpoint, the EU Merger Regulation employs a Referral System, which causes jurisdictional uncertainty, legal uncertainty, and increases delay and expense. Although the referral system was set out to create a more flexible system of merger review in the European Union, it is both conceptually flawed and procedurally flawed. The referral system reduces the effectiveness of the one-stop shop and increases legal and jurisdictional uncertainty, especially through the use of partial referrals. The Referral System is inefficient and places a significant burden on businesses.