Unrest in the European Commission: the changing landscape and politics of international mergers for United States companies.

• Author: Peterson, Jeffrey M.

1. INTRODUCTION

   U.S. companies planning significant mergers now have more to worry about than just the U.S. Justice Department and the Federal Trade Commission. (1) The European Commission (EC) asserts the right to investigate any merger involving a company with a significant presence in EU markets. (2) There is growing concern among companies, particularly in the United States, about the accountability of the EC's merger review procedure, the changing environment of the merger review process, and the opportunity given to companies to present their case.

   Increasingly, companies face overlapping authority from the United States' two trust-busting agencies: the Justice Department and the Federal Trade Commission, from the EC, and even from individual U.S. states. (3) Today, some eighty countries have competition laws and more than half of these laws were enacted in the last ten years. (4) Many additional countries are currently drafting competition laws. (5) Any company contemplating a merger of any significance will be forced to pay a small fortune on antitrust attorneys. (6) Given the uncertain outlook for global economies and markets, companies may become more cautious about launching future bids, particularly when there may be regulatory problems. (7)

   In September of 1999 "Super Mario" (8) Monti was appointed the European commissioner in charge of competition policy. (9) In the year following Monti's appointment, the EC struck down three mergers, though it blocked only ten in the prior decade. (10) Making his presence felt immediately, Monti blocked a deal between British package-holiday operators in his first week at work. (11) In June 2000, Monti upstaged U.S. antitrust departments by rejecting WorldCom, Inc.'s $115 billion merger with Sprint Corp. one day before the U.S. Justice Department filed suit to block the deal. (12) It was the first time the EC had vetoed a deal involving two non-European companies. (13) Just over one year later, Monti again made headlines as the EC blocked General Electric Co.'s proposed $41 billion takeover of Honeywell International, Inc. (14)

   Although the EC approved the $106 billion merger of Time Warner, Inc. and America Online, Inc. in October 2000, Time Warner was forced to discontinue its attempt to merge with EMI Group PLC, a move that would have joined two of the world's five biggest music companies. (15) Additionally, America Online was forced to cut ties with Bertelsmann AG, a German media conglomerate, and Vivendi SA to stop the merged company from dominating online music delivery in Europe. (16)

   The EC's increasing action has raised eyebrows in the United States. On October 9, 2000, the EC dismissed suggestions from two U.S. senators (17) that its merger review process discriminated against U.S. companies in favor of European firms. (18) The senators explained that they were troubled by the possibility that the EC's analysis and outcomes have been influenced in part by "pan-European protectionism rather than by sound competition policy." (19) The senators cautioned the commission to steer clear of "protectionist sentiments." (20) Less than a week after the date of the letter, on October 13, 2000, the EC approved France's Vivendi SA's $34 billion merger with Seagram Co. of Canada. (21) That deal was cleared with apparent ease, as opposed to the five-month probe by the EC concerning America Online's merger with Time Warner. (22)

   In 1990, when the EC began to regulate mergers, of the twelve cases it considered, five involved U.S. companies. (23) By 1999, 129 U.S. companies were involved in the 292 mergers reviewed by the EC. (24) The pace of European mergers and acquisitions slowed in 2000 (due in part to a tougher regulatory climate). (25) However, the EC's policies must remain at the forefront of any merger discussions. (26)

   Part II of this Comment discusses and analyzes how protectionism guided the development of the European Union and the formation of the European Merger Regulation. Part III discusses the how the Merger Regulation has functioned, including historical incidents of European protectionism, how European protectionist policy affects U.S. companies, and current shortcomings of the Merger Task Force. Part IV assesses the possible effects of proposed legislation currently under review in various legislative bodies in Europe. Part V looks at the need for solution in light of the protectionist atmosphere in Europe.

2. THE DEVELOPMENT OF THE EUROPEAN UNION

   1. From the European Coal and Steel Community to the European Commission

      The European Union is the result of a practice of cooperation and assimilation that began in 1951 among six countries. (27) The European Coal and Steel Community (ECSC), established in 1952, included the six founding countries and focused on combined price and output controls, investment subsidies, tariff protection, and competition rules. (28) The European Community was formed by the signing of the Treaty of Rome on March 25, 1957, thus creating the Common Market. (29) The six member countries aspired to build on the ECSC's success and use the organization to economically advance all of the members without sacrificing their own individuality, culture, or sovereignty. (30)

      Article 2 of the European Community Treaty states the goals of the community:

      It shall be the aim of the Community, by establishing a Common Market and progressively approximating the economic policies of Member States, to promote throughout the Community a harmonious development of economic activities, a continuous and balanced expansion, an increased stability, an accelerated raising of the standard of living and closer relations between its Member States. (31) The goal of the European Community was the achievement of the free movement of people, goods, services, and capital and the eradication of the barriers to the establishment of business through the establishment of a single, integrated common market. (32)

      However, as these ambitious goals were not realized, members of the European Community enacted the Single European Act (SEA) in 1987. (33) The SEA paved the way for further integration of the European Community, although leaders of the member countries remained divided in their vision of Europe. (34) Eventually, the member nation leaders met in Maastricht, the Netherlands and hammered out the historic agreement known as Maastricht Treaty, (35) which went into effect November 1, 1993. (36) The treaty has been described as having three pillars. The first is the expansion of the existing Treaty by bolstering the role of the Community and establishing a timetable and conditions for economic and monetary union in certain specific phases. (37) The second and third prongs address a common foreign and security policy and justice and home affairs. (38)

      The Treaty of Rome, as amended by the Treaty on European Union, established five institutions to act on behalf of the Community--a European Parliament, a Council, a Commission, a Court of Justice, and a Court of Auditors. (39) The European Commission is the EU's competition law enforcement agency and the body that has the right to initiate legislation. (40) Presently, the EU has fifteen Member States and is looking to enlarge, possibly in eastern and southern Europe. (41)

   2. Development of the European Merger Regulation

      Articles 81 and 82 of the European Community Treaty (42) and the more recent Merger Regulation set forth the principal rules of competition. (43) Article 81(1) generally prohibits concerted market behavior that restricts or prevents competition within the Common Market. (44) Article 82 prohibits the abuse of a dominant position within the Market. (45)

      The shortcoming of Articles 81 and 82 was a lack of express language applicable to corporate mergers. (46) Over time, the EC and the European Court of Justice succeeded in compensating for this deficiency by broadly interpreting articles 81 and 82. (47)

      Attempts by the EC to enact merger control legislation date back to 1972, when negotiations began to solve the dissatisfaction with the way in which articles 81 and 82 dealt with mergers. (48) The Council of Ministers adopted Regulation 4064/89 on December 21, 1989 (49) and it became effective on September 21, 1990. (50) This regulation was created to replace articles 81 and 82 as the only instrument that applied to concentrations at the Community-wide level. (51)

      During negotiations, however, it became clear that Member States had different ideas about how much control the Merger Regulation should possess over them. (52) Smaller states wanted a tough, low threshold regulation, as those countries had no effective merger controls in place and the Community mergers regulation would therefore have been of great assistance. (53) In contrast, the states with highly developed domestic regulatory control were reluctant to see their control of mergers transferred to a supranational organization. (54)

      As a basic principle, if it is applicable, the Merger Regulation will preempt any national merger rules, i.e., the Merger Regulation provides "one stop shopping" for the approval of any given transaction. (55) This regulation requires prior notification be given to the Commission and control by the Commission of mergers, acquisitions, joint ventures, and other business combinations that fall within the scope of the Merger Regulation. (56) The EC has an initial thirty days to determine whether the transaction is subject to the Merger Regulation, and if it finds that it indeed is, the Commission has another four months to investigate and possibly invalidate the proposed concentration. (57)

      The main conditions that must be fulfilled for EU merger control to apply are twofold. (58) First, the potential transaction must constitute a "concentration." (59) According to the Merger Regulation, "a concentration shall be deemed to arise when two or more previously independent undertakings merge or one or more...