Merger Law Research Articles

Ranking the Rules Applicable to Cross-Border Mergers

Since the implementation of the Tenth directive on cross-border mergers (CBMs) in the national laws of the Member States of the European Union, a clear statutory framework for cross-border legal mergers of limited liability companies exists which underlies the laws of different Member States of the EU. However, when implementing a cross-border legal merger, specific problems may arise in legal practice due to the principle of the cumulative application of the national merger laws and procedures governing the parties to the CBM.

JUDICIAL SCRUTINY OF MERGER DECISIONS IN THE EU, UK AND GERMANY

AbstractThe appropriate role of the courts in controlling the discretion of merger authorities has become one of the key issues in European merger law and policy in recent years. This article investigates judicial review of merger decisions, taking a comparative approach by examining cases from the EU, UK and Germany. We observe an apparent increase in the willingness of the EU and UK courts to scrutinize merger decisions, and a long-standing tradition of close scrutiny in Germany. In respect of the EU and UK, we consider agency theory offers a convincing explanation—that increased scrutiny is explained by the need to enhance the credibility of merger policy. In Germany, the constitutional basis of judicial review differs significantly, and the relatively close scrutiny exercised by the court is better explained by the very different constitutional context.

The impact of the global financial crisis on competition policy in the Australian banking sector

This article explores how the current crisis is likely to affect competition policy, in particular merger reviews in the Australian banking sector. This article also considers how and why the global financial crisis happened and the extent to which deregulation and globalisation, in opening up the financial markets to competition, may have fuelled the crisis. It also provides an overview of the laws and policies that play a part in regulating bank mergers in Australia. In particular, the article focuses on the way in which bank mergers are treated under the Trade Practices Act 1974. In Australia, bank mergers are subject to assessment by the Australian Competition and Consumer Commission (ACCC) under the Trade Practices Act. The Federal Treasurer also has powers under the Banking Act 1959 to review, and if necessary, to prevent mergers between banks. In 2008, two significant bank mergers were allowed: Westpac Banking Corporation and The St GeorgeBank Limited and Commonwealth Bank of Australia and BankWest and St Andrew's Australia. Both mergers took place in the context of one of history's worst financial crises, raising concerns about whether the Australian banking sector will see a shift in merger law and policy such that the importance of preserving financial stability will come at the cost of competition. The article also considers the possible future impact of the global financial crisis, including the impact of “rescue packages”, on competition between banks in Australia – and whether these “bailouts” make good economic sense or are likely to threaten competition between banks.

Second Supplemental Declaration of J. Gregory Sidak Concerning the Competitive Consequences of the Proposed Merger of Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc. (July 24, 2007)

In this declaration, I critique two reports submitted to the Federal Communications Commission in July 2007 on behalf of XM and Sirius in support of their proposed merger: one by Professor Thomas W. Hazlett and another by Dr. Harold Furchtgott-Roth. I have previously addressed some aspects of both reports in my supplemental declaration, which can be downloaded from the Social Science Research Network.The reports of Professor Hazlett and Dr. Furchtgott-Roth fail to provide evidence that informs the relevant product market definition for this proceeding - namely, whether satellite digital audio radio services (SDARS) customers perceive alternative audio entertainment sources (including MP3 players, Internet radio, and terrestrial radio) as being sufficiently close substitutes such that a hypothetical monopoly provider of SDARS could not profitably increase prices. More importantly, both experts appear to reject the current antitrust paradigm for analyzing mergers. In its place, they offer novel theories for merger review. Even if XM's and Sirius's experts are correct about radically redesigning the framework for antitrust analysis of horizontal mergers, it is not appropriate for the FCC to announce some alternative merger guidelines without a proper rulemaking simply because doing so would suit the current merger proponents.I begin in Part I with a critique of Professor Hazlett's report. Professor Hazlett mischaracterizes which party bears the burden of proof in this merger proceeding, claiming that the burden falls on both merger opponents and regulatory agencies. I demonstrate that by focusing on quality-adjusted prices, Professor Hazlett ignores the merged firm's ability to increase commercials. Professor Hazlett also omits mentioning that SDARS customers would be required to subscribe to a new, more expensive package to receive any increase in quality according to his concept of a quality improvement.Next, I analyze Professor Hazlett's novel tests for product market definition. According to Professor Hazlett, a product market can exist only if the market value of all suppliers of the service exceeds the present value of funds invested. In a later section of his report, Professor Hazlett suggests another novel test for market definition, which considers the relative market value of terrestrial broadcasting properties to satellite radio operators. I demonstrate why these and other novel antitrust theories offered by Professor Hazlett are incorrect and should not be used. Finally, I respond to Professor Hazlett's criticisms of my original declaration.In Part II, I critique Dr. Furchtgott-Roth's report. Dr. Furchtgott-Roth seeks to extend the standard two-year window for entry analysis in merger cases so that nascent services like mobile Internet radio can have time to develop. That approach is not consistent with existing merger law. Dr. Furchtgott-Roth also repeats Professor Robert Willig's argument in the DirecTV-EchoStar proposed merger - that XM and Sirius do not compete against one another, yet each does compete against terrestrial radio and other services. I argue that this interpretation of the extent of existing competition between XM and Sirius is not plausible.Finally, in Part III, I perform an event-study analysis to test XM's and Sirius's hypothesis that the proposed merger would expand output and decrease prices (the procompetitive hypothesis). I examine the abnormal returns of satellite equipment manufacturers around the day on which the proposed merger of XM and Sirius was announced. I find that the market perceived the announcement of the proposed merger between XM and Sirius as bad news for satellite equipment manufacturers, which implies that the proposed merger would result in higher prices for SDARS customers.

Converge? Diverge? A Comparison of Horizontal Merger Laws in the United States and European Union

This article summarizes the similarities and dissimilarities of horizontal merger laws in the United States and the European Union focusing on legislative regulations, horizontal guidelines, internal measures and available remedies.The article examines substantive and procedural dimensions of US and EU horizontal merger laws. In addition it considers important constituent factors of their horizontal guidelines, basic models and levels of their economic analyses, judicial review and due process as well as two types of remedies. This article has been shortlisted for the 1st World Competition Young Writers Award.

Saving Section 2: Reframing Monopolization Law

Antitrust law has three main targets—collusion, mergers, and monopolization. The first two are relatively uncontroversial targets. While facts and theories in specific cases may be disputed, the overall rationales for these doctrines are widely accepted. Monopolization law, originating in Section 2 of the 1890 Sherman Act, is notoriously different. Unlike other branches of antitrust, which target decisions by firms not to compete with each other, monopolization is portrayed as a dominant firm protecting itself by harming nascent rivals. Since competition—offering more and better products at lower prices—also harms rivals, antitrust observers fall into two warring camps. Skeptics argue that because monopolization is likely to be confused with competition that could benefit consumers, Section 2 cases should bear very high burdens of proof. Activists, on the other hand, believe that one can protect competition by protecting some competitors against the actions of another. The focus on protecting rivals has also led to legal requirements that make little economic sense. One, prior dominance, paradoxically asserts that one cannot monopolize without already having a monopoly. This conflates the nature of the offender with the nature of the offense and undercuts claims that alleged abuses have competitive relevance. Another, profit sacrifice, states that practices cannot be anticompetitive unless they cause the perpetrator short-run losses. This requirement, confusing intent with effect, is neither necessary nor sufficient for economic harm. No one would argue that mergers or collusion should be stopped only if those undertaking them were losing money. We could avoid spurious requirements and limit controversy by recasting monopolization law to make it more like collusion and merger law. This entails focus not on rivals but on monopolization of otherwise competitive complementary markets, e.g., in production inputs, distribution channels, or retail outlets. Complementary market monopolization (CMM) is necessary and sufficient for anticompetitive harm. This focus would allow courts to eliminate dubious requirements and adopt widely accepted tools from other areas of antitrust, e.g., merger guidelines. CMM provides a way to assess exclusionary tactics such as bundled discounts and predatory pricing, bringing to light important and neglected differences between cases regarding direct harms and those based on indirect strategic effects. Moving to CMM could be effected by deleting “or maintain” from the “create or maintain a monopoly” definition of monopolization in Section 2 law.

THE FAILING FIRM DEFENSE*

This paper evaluates the welfare consequences of the failing firm defense (FFD) in the EU and U.S. merger laws. To this end, I combine an oligopoly model with an ‘endogenous valuations’ auction model. The FFD is shown to work reasonably well for consumers unless small firms are too small. The FFD may, however, lead to total surplus losses, due to a ‘least danger to competition’ (LDC) condition which favors small, and thus possibly inefficient, firms. It is also shown that, in a multi-firm setting, the FFD increases the incentive for predation only when the assets are industry-specific.

Bubble merger model for the nonlinear Rayleigh–Taylor instability driven by a strong blast wave

A bubble merger model is presented for the nonlinear evolution of the Rayleigh–Taylor instability driven by a strong blast wave. Single bubble motion is determined by an extension of previous buoyancy-drag models extended to the blast-wave-driven case, and a simple bubble merger law in the spirit of the Sharp–Wheeler model allows for the generation of larger scales. The blast-wave-driven case differs in several respects from the classical case of incompressible fluids in a uniform gravitational field. Because of material decompression in the rarefaction behind the blast front, the asymptotic bubble velocity and the merger time depend on time as well as the transverse scale and the drive. For planar blast waves, this precludes the emergence of a self-similar regime independent of the initial conditions. With higher-dimensional blast waves, divergence restores the properties necessary for the establishment of the self-similar state, but its establishment requires a very high initial characteristic mode number and a high Mach number for the incident blast wave.

The role of UK competition agencies in the regulation and deregulation of utility service industries: reflections of a former regulator

During my time as Director General of OFWAT, my relations with the Office of Fair Trading and the Monopolies and Mergers Commission (MMC), now the Competition Commission (CC), primarily covered: – Appeals to MMC/CC against price determinations where the relationship was of primary jurisdiction and appeal body. – Merger cases involving OFT (where water: mergers were a compulsory reference) and where practical considerations were significant in the administration of the law, including, in one case, EU merger law. – Competition Act cases (none in my time as regulator). We needed to be clear about how concurrent powers would work. It was important to issue early guidelines so that suppliers and potential suppliers should know where they stood.

EC Merger Control: From Separate Jurisdictional Zones to a Cooperation Based Architecture?

The EC Merger Control Regulation(MCR) established an architecture ofconcentration control based on separate,non-overlapping jurisdictional spheres forMember states and the European Commission, withthe Commission alone having jurisdiction overconcentrations with a competition concern thatpotentially have a Community interest. Therationale is that this will help guarantee thelevel playing field for business and safeguardthe Single Market. This, of course, is verymuch dependant on the architecture working inpractice. The Community Dimension (CD) testsare at the centre of the architecture ofseparate jurisdictional zones, determiningwhich concentrations have a CD and hence aCommunity interest. The paper reveals that thecurrent form-based CD tests are flawed,undermining the effective operation of thearchitecture. It explores three competingproposals put forward to remedy the above flaw:an enhanced role for Article 22 MCR, a singlefine-tuned threshold test and, thirdly, theCommission's multiple notification approach.The paper contends that these proposals aloneare not sufficient to make the architectureeffective. It argues that what is required isan improved CD test applied in conjunction witha harmonised Articles 2 and 9 MCR approach. Inline with the Commission's desire to considerthe long term shape of EC merger control, thepaper concludes by looking at a radicalalternative to the efforts to fine-tune thearchitecture of separate jurisdictionalspheres. By way of stimulating debate, itconsiders an EC merger control based on anetwork of cooperation involving Member states'regulators and the Commission, and with allapplying EC merger law.

On the Social Welfare Objectives of Canada's Antitrust Statute

The Competition Act is arguably one of the most economically sophisticated legal statutes ever enacted in Canada. As such, it has been argued that the paramount objective of the merger provisions of the Competition Act should be the promotion of economic efficiency. This paper examines the underlying normative objective of Canadian merger law from a positive perspective by looking at the legal framework established in Canadian jurisprudence. An argument is developed that demonstrates the existence of distributional objections to wealth redistribution caused by an increase in market power with respect to the status quo allocation of economic resources. This social welfare objective is inconsistent with the commonly held view of the functions of competition policy institutions in Canada.

Portfolio Effects in EC Merger Law

Portfolio Effects in EC Merger Law

Scrutiny: The Legitimate Interests of Member States in EC Merger Law

Scrutiny: The Legitimate Interests of Member States in EC Merger Law

Predation and mergers: Is merger law counterproductive?

This paper extends the literature on predation and mergers to a multi-firm setting. Two new arguments why predation is rational when a merger is an alternative are provided. First, predation is less prone to the free-rider problem, since mergers concentrate the costs of eliminating a rival with one firm, whereas predation allows the costs to be spread out. Second, predation can be profitable since it limits the negative effects of the bidding competition for the prey. It is also shown that a restrictive merger policy might be counterproductive by “helping” predators avoid the disadvantageous bidding competition for the prey.

The European Commission's GE/Honeywell Decision: US responses and their implications

One way of gaining insight into differences between legal systems and assessing their significance is to examine what they — i.e., their representatives — say about each other. The European Commission’s prohibition of the proposed merger between GE and Honeywell in the summer of 2001 led to US responses that reveal much about differences between the US and EU merger laws. They also have potentially important implications for the development of US-European cooperation in the area of competition law. Although there has been general discussion of these responses, there have been few serious attempts to analyze them and to explore their implications for legal development. In this article, I suggest some lines of analysis that may provide insights into the US responses and their potential importance.

Merger Laws, Globalization, and Corporate Value

This paper is the first attempt to isolate the direct effect of competition laws on a country's merger activity and indirectly on corporate value. We find that, although the direct relationship between merger laws and Tobin's Q is positive and significant, once we control for the net cross-border merger flows in a country, the relationship vanishes. We conclude that the positive effect of merger laws on corporate value is driven by their deterring effect on horizontal, cross-border, anti-competitive mergers. To the extent that the trend towards globalization in the world has dramatically increased merger flows from some countries to others, we argue that there is a need for competition laws that make up for the pervasive effects of the global market on some countries. We also show that the European Merger Directive has had a negative impact on corporations value.

The Relevant Firm in European Merger Law: Spillover Effects and Control

The Relevant Firm in European Merger Law: Spillover Effects and Control

Book Review: Two Books on Merger Law: Mergers and Joint Ventures in Europe: The Law and Policy of the EEC

Book Review: Two Books on Merger Law: Mergers and Joint Ventures in Europe: The Law and Policy of the EEC

Is predation rational? Is it profitable?

Predation, according to New Learning theorists, is defined "as a firm's deliberate aggression against one or more rivals through the employment of business practices that would not be considered profit maximizing except for the expectations either that (1) rivals will be driven from the market, leaving the predator with a market share sufficient to command monopoly profits, or (2) rivals will be chastened sufficiently to abandon competitive behavior the predator finds inconvenient or threatening" (Bork, 1978, p. 14). In the case of price predation, they contend, a "firm contemplating predatory price warfare will perceive a series of obstacles that make the prospect of such a campaign exceedingly unattractive. The losses during the war will be proportionally higher for the predator than for the victim; merger law will make it all but impossible for the predator to purchase the victim, so the campaign will have to last until the victim's organization and assets are dissolved; ease of entry will be symmetrical with ease of exit; and anticipated monopoly revenues, being deferred, must be discounted at the current interest rate", (Bork, 1978, p. 149). Therefore, the New Learning advocates conclude, predatory pricing "is most unlikely to exist . . . attempts to outlaw it are likely to harm consumers more than would abandoning the effort" (Bork, 1978, p. 155). This view has found resonance not only among economists,1 but has also penetrated the antitrust bar and the courts. Its dominance was assured when the Supreme Court, in a series of landmark antitrust decisions, held that predation is so irrational and so fraught with uncertainty and perils that a rational profit-maximizing

De Facto Merger in Texas: Reports of Its Death Have Been Greatly Exaggerated

This comment examines three issues of Texas de facto merger law. First, whether the Texas Legislature's 1979 amendment to Article 5.10 of the Texas Business Corporations Act was intended to eliminate the de facto merger doctrine, regardless of how closely a transaction resembles a merger. Second, whether the 1987 and 1991 amendments to Article 5.10 are additional evidence of a legislative intent to eliminate the de facto merger doctrine. And, if so, whether it was sound public policy to completely eliminate the de facto merger doctrine.