Combining the activities of different companies may allow them to develop new products more efficiently or to reduce production or distribution costs. Through their increased efficiency, consumers may benefit from higher-quality goods or services. However, some mergers reduce competition in a market, notably by creating or strengthening a dominant player. This is likely to harm consumers through higher prices, reduced choice or less innovation.
Mergers are welcome to the extent that they do not impede competition. The objective of examining proposed mergers is to prevent harmful effects on competition. Mergers involving companies active in several Member States and reaching certain turnover thresholds are examined at European level by the European Commission. This allows companies trading in different EU Member States to obtain clearance for their mergers in one go (the “one stop shop”).
Application of EU merger control rules
EU merger control rules apply to all mergers no matter where in the world the merging companies have their registered office, headquarters, activities or production facilities. This is because even mergers between companies based outside the European Union impact markets in the EU if the companies do business within the EU. If the annual turnover of the combined businesses exceeds specified thresholds in terms of global and European sales, the proposed merger must be notified to the European Commission. Below these thresholds, the national competition authorities in the EU Member States may review the merger, under the applicable national merger control rules.
According to Article 22 of the EU Merger Regulation, the European Commission may also examine mergers which are referred to it from the national competition authorities of the EU Member States. This takes place on the basis of a request by the national competition authority of an EU Member State. Under certain circumstances, the European Commission may also refer a case to the national competition authority of an EU Member State.
Reasons for approval or prohibition of a proposed merger
In assessing proposed mergers, the Commission considers whether they can be expected to significantly impede effective competition in the EU. If they do not, they are approved unconditionally. If they do, and no commitments suitable to remove the impediment are proposed by the merging firms, problematic mergers must be prohibited to protect businesses and consumers from higher prices or a more limited choice of goods or services. Proposed mergers may be prohibited, for example, if the merging parties are major competitors or if the merger would otherwise significantly weaken effective competition in the market, in particular by creating or strengthening a dominant player.
Most problematic mergers are nevertheless approved, with specific conditions. In the course of the merger review process, companies have the opportunity to propose and negotiate solutions with the European Commission. Therefore, even if the European Commission finds that a proposed merger could distort competition, the parties may commit to taking action to try to correct this likely effect. They may commit, for example, to sell part of the combined business or to license technology to another market player. If the European Commission is satisfied that the commitments would maintain or restore competition in the market, thereby protecting consumer interests, it gives conditional clearance for the merger to go ahead. It then monitors whether the merging companies fulfil their commitments and may intervene if they do not.