Transatlantic similarities and differences in merger policy: how the United States and the European Union evaluate transactions

Business Economics, Oct, 2002 by Debra A. Valentine, Raj De

The future welfare and prosperity of the United States and the European Union (E. U.) countries will be enhanced by approaching consistency in transatlantic merger policies. Despite one hundred jurisdictions presently having competition laws and/or merger notification laws, the costs and administrative burdens of compliance are not insurmountable & those regimes' requirements are ultimately predictable, measurable, and reasonable. However, uncertainty of outcome and unpredictable delay impose significant costs. This paper explores the similarities and differences in policies and procedures concerning transatlantic mergers in the United States and the European Union. It concludes that while the similarities are much greater than the differences, differences in culture and legal systems still impose signifcant barriers.

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Consistent competition policies built upon a solid economic foundation are of utmost importance for the future welfare and prosperity of the United States and the European Union. The goal of these policies is to promote consumer welfare in the form of increased output, lower prices, and improved quality. Inasmuch as transatlantic mergers are a growing element of economic relations between the United States and the European Union, comparing and understanding merger review and enforcement in these dominant economies is more important than ever before to business people and policy-makers alike.

Global merger activity increased fourfold over the closing years of the past century, up from approximately $282 billion in 1996 to more than $1.1 trillion in 2000. By 2000, more than a third of that activity involved cross-border transactions, of which a significant proportion--roughly thirty percent--were transatlantic deals between U.S. and European firms. Moreover, the United States and Europe together account for more than half of the world's total gross domestic product. Accordingly, while they may have different cultures and legal traditions, and differing language in their governing competition laws, it is vital that the United States and the European Union continue to work toward convergence of their respective competition policies for the sake of their mutual economic welfare as well as the health of the global economy.

The problems arising from even the slightest differences in these regulatory regimes are compounded when one recognizes that over one hundred jurisdictions presently have competition laws, of which more than eighty have merger notification laws. The notification requirements in these jurisdictions vary in a number of dimensions, including filing thresholds, waiting periods, and the necessary information that must he submitted to reviewing authorities. Jurisdictions also differ in terms of whether their notification focuses on the global or local scope of the transaction at issue. (1) Interestingly, from a business perspective, the costs and administrative burdens of complying with multiple merger-control regimes are not insurmountable if those regimes' requirements are ultimately predictable, measurable, and reasonable. Rather, the truly troubling costs today arise from the significant uncertainty and unquantifiable delay that characterize the process of multiple regulatory review. These costs become evident in a variety of ways, including dampened share-price performance, unanticipated extensions of merger financing, protracted implementation of business strategies, and attrition or damaged morale among employees.

The focus of this article is the merger policies of the United States and the European Union because those two systems are the economic center of gravity in the global economy. If they can get it right, there is hope that their success will spread. The good news is that they have largely succeeded in agreeing on sound policies and similar principles. Although transatlantic differences in merger policy gained attention in the wake of the aborted merger between General Electric (GE) and Honeywell International last year, (2) it should be no surprise that the two systems occasionally apply their shared principles differently. After all, even within the Federal Trade Commission (FTC), the various Commissioners sometimes apply legal reasoning and economic principles differently to the same facts. (3) Nor should one be surprised by divergent outcomes when crossborder mergers involve industries that face different market structures, conditions, and players on the two sides of the Atlantic. Such is often the case in pharmaceutical mergers (where national drug regulatory regimes differ), food industry mergers, beverage industry mergers, and the like. (4) Thus, while differences in the competition policies of the United States and the European Union will remain--and may well he magnified in the press--such differences are minimal when compared to the similarities. Consistent outcomes are the norm in the vast majority of cases, as evidenced by the fact that until GE/Honeywell last year, neither jurisdiction had prohibited a merger that the other had allowed.