The Conflict Between Global M&A And Regional Competition Regulation

Competition clearance for transactions has always been one of the challenges faced by corporate M&A professionals. For companies involved in global M&A transactions inconsistencies in how competition policy is applied in different jurisdictions has added another level of complexity.

In 2000 the European commission blocked the proposed acquisition of Honeywell by General Electric in the EU. The deal had been cleared by US competition authorities but the EU rejection stopped the deal in its tracks. The GE – Honeywell deal remains the only deal to date to have received clearance in the US and yet be blocked in the EU, but the threat remains for any deal that creates high levels of concentration in one jurisdiction, but lower levels in another.

Global deals that create high levels of market concentration in a particular jurisdiction are relatively easy to spot and manage for the M&A professional – often by selling off part of the activity in the problematic territory. More difficult to manage are deals where the jurisdictions involved take a markedly different approach to competition issues.

Understanding Differences In The Way Jurisdictions Handle Competition Issues

The EU and the US have similar ambitions in setting competition policy but operate in completely different ways. EU competition policy is rules-based. The European Commission issues guidance for future deals based on its past decisions. In the US merger decisions are based mainly on legal precedent arising from the civil courts. Both approaches have their merits, consistency in the case of the EU system, less policy-driven interference in the US approach.

Although EU v US issues have made headlines, bigger challenges arise for multinationals navigating competition policies in emerging markets. China for example often uses competition policy to restrict the entry of foreign firms or limit the expansion of companies with existing Chinese subsidiaries. Latin America and Eastern Europe are both regions in which multinationals are actively looking for expansion, but have markedly different approaches to competition policy. As a generalisation, Latin America has tended to follow the more legalistic US approach, and Eastern Europe the rule-based EU model, but in either of these regions, direct political intervention on nationalistic policy grounds is not uncommon.

A perfect illustration is found in the market for air travel. National flag carriers are under continuing pressure from low-cost airlines, but countries protect their flag carriers with subsidies and other anti-competitive practices. Attempted combinations between national carriers to meet the low-cost challenge are often blocked by nationalistic political interference.

Is A Global Approach To Competition Policy Likely To Emerge?

The philosophical difference in approach that lies at the heart of the regional differences in competition policy might prove difficult to resolve. By and large Western jurisdiction are committed to the economic logic of allowing global companies to exploit economies of scales to the benefit of their customers, but keen to prevent concentrations of market power that might lead to monopoly pricing. Many emerging markets governments find it difficult to come to terms with the loss of control implied by this laissez-faire approach.

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