1
Protecting Against Protectionism – The Case of Merger Control Ágnes A. Sipiczki
11315741
University of Amsterdam
LLM. International and European Law Competition Law and Regulation Track LL.M. Thesis Project
Supervisor: Dr. Katalin Cseres 21-07-2020
2 Abstract
Politically sensitive merger operations have traditionally been subject to selective state intervention. This is due to the fact that governments consider that industrial reorganisation and change of control over strategic undertakings sometimes interfere with national interests. Therefore, providing legal grounds for state intervention in both domestic and EU merger control is justified by the privilege of democratically elected governments to protect legitimate public interests, which competition rules fail to take into account. However, due to the normative nature of these public interests, the legal grounds for state intervention in merger control can become vulnerable to unjustified political goals. The need for an effective legal framework for addressing unjustified state intervention in merger control is grounded in the observation that EU Member State governments have repeatedly shown favouritism towards national undertakings, and have often relied on state intervention grounds to influence merger operations with the aim to prevent foreign takeovers of strategic companies, therefore facilitating so-called ‘national champions’. This paper aims to reassess the effectiveness of the legal framework addressing the problem of protectionist state intervention under domestic and EU merger control.
3
Table of Contents
1. Introduction ... 4
2. Methodology ... 6
3. A legal-historical overview of the evolution of merger control ... 6
3.1. Merger control in the post-war Europe ... 6
3.2. En route to EU Merger Control ... 9
4. Analysis of the legal framework addressing protectionist state intervention in merger control ... 12
4.1. The legal framework for state intervention under national merger control ... 13
4.1.1. EU safeguards against protectionist intervention in domestic merger control ... 15
4.1.2. The two-thirds rule ... 21
4.2. The legal framework for state intervention under the EUMR ... 25
4.2.1. The Commission’s enforcement record under Article 21(4) EUMR ... 27
4.2.2. Evaluating the procedural framework of Article 21(4) EUMR ... 29
5. Conclusion ... 35
5.1. Recommendations ... 37
4 1. Introduction
Throughout the last two decades, European governments have often interfered with politically sensitive merger operations. Based on the body of case law, it is argued that the legal grounds for state intervention in merger control – both under EU and national law, are often instrumentalised by governments to implement protectionist policy goals such as the promotion of national champions or the disruption of foreign takeovers of strategic companies.
The Commission has been assertive in these cases and handed down a number of decisions condemning Member States for interfering with large cross-border mergers in an unjustified manner in the past. Nevertheless, the Commission’s enforcement record in this area is still open to criticism for being ineffective and for not preventing irreversible harm to the market and to undertakings’ economic rights. Furthermore, it has been argued that the current division of competences between the EU and its Member States in the field of merger control leaves too much leeway for national governments to interfere with both domestic and cross-border merger operations in a protectionist fashion. It appears that in times of protectionist upheavals, the current legal framework sometimes lacks teeth for addressing the problem of protectionist state interference with merger operations.
The need to revisit this legal problem is amplified by current global political and economic events. In recent years, Europe has witnessed yet another cycle of economic protectionism. Amongst others, the protectionist economic policies adopted by European governments are seen as a reaction to the offensive trade policy of the Trump administration in the US and to the emergence of Chinese industrial giants in the high-tech sectors.1 These processes have also
triggered a paradigm shift for European industrial policy and led to Member States becoming increasingly concerned with shielding domestic businesses from external economic forces and promoting national and European champions that can compete on the global stage.2
The current pandemic, which has induced a serious economic downturn and peaking levels of unemployment all across the world, also holds risks for renewed protectionist strategies. Indeed,
1 Marcel Fratzscher, ‘Populism, Protectionism and Paralysis’ (2020) 55 Intereconomics 1.
2 ‘A Franco-German Manifesto for a European Industrial Policy Fit for the 21st Century’ (Gouvernement.fr)
<https://www.gouvernement.fr/en/a-franco-german-manifesto-for-a-european-industrial-policy-fit-for-the-21st-century> accessed 17 June 2020.
5
general experience shows that significant economic shocks and distrust in the growing global economic interdependency trigger protectionist policies.3 Inward-looking economic policies and
increased state activism in the area of merger control have already appeared in some European states. Most recently, following the merger offer between two possible Covid-19 vaccine manufacturers - the Anglo-Swedish AstraZeneca and the American Gilead Sciences, many EU Member States have launched negotiations in order to keep strategic assets (i.e. drug manufacturing) of AstraZeneca inside Europe.4 Considering that policy experts expect that state
activism will also become common in other economic sectors, this paper aims to provide timely contribution to addressing the risks of protectionist state interference in merger control.
Currently, there exists a gap in the literature on the assessment of different national and EU legal frameworks for state intervention in merger control. Although some scholarly contribution is available on the topic, those have traditionally limited their discussion to either the domestic or the EU legal frameworks. This paper aims to fill this gap by discussing both legal frameworks and by examining the interaction between domestic and EU law in this context. Against this background, the paper examines the following question:
To what extent is the current EU legal framework effectively addressing protectionist state intervention in merger control?
To answer the research question, the paper will first provide a legal-historical overview of how the role of state intervention in merger control developed over time. This is followed by an extensive analysis of the effectiveness of the current legal framework for state intervention in merger control on the national and EU levels. The paper closes with a conclusion and offers some recommendations.
3 Patricia Wruuck, Barbara Böttcher and Martina Ebling, ‘Economic Patriotism’ (2007) 35 New game in industrial
policy.
4 ‘Covid-19 Vaccine: AstraZeneca Has “Approached Gilead over Possible Merger”’ The Guardian (7 June 2020)
<https://www.theguardian.com/business/2020/jun/07/covid-19-vaccine-astrazeneca-approached-gilead-over-possible-merger> accessed 11 July 2020. See also Gerardo Fortuna, ‘Coalition of Countries Aims to Keep COVID-19 Vaccine Manufacturing in Europe’ (www.euractiv.com, 16 June 2020)
<https://www.euractiv.com/section/coronavirus/news/coalition-of-countries-aims-to-keep-covid-19-vaccine-manufacturing-in-europe/> accessed 11 July 2020.
6 2. Methodology
The primary approach of this paper for answering the research question is a doctrinal analysis of the relevant legal sources such as EU Treaties, secondary EU legal sources, national competition laws, and government decrees. Case law and decisions made by competition authorities building on these legal sources are also taken into account. The paper comprises of doctrinal, theoretical, and case study elements. The research objectives are evaluative and explorative. Due to the interdisciplinary nature of the research problem, the research is informed by political theories such as protectionism and economic patriotism.
3. A legal-historical overview of the evolution of merger control
This section offers a legal-historical perspective of the evolution of merger control in France, Germany, the UK, and on the EU level. This perspective is useful for understanding how the current legal framework regulates state intervention in merger control. By placing competition policy in the wider framework of economic policy, we can understand how the dominant views on the goals of merger control, on the role of state intervention, and on the need for merger control to accommodate non-market public interests changed over time.
3.1. Merger control in the post-war Europe
Academic literature has labelled the post-war economic order as ‘state organised capitalism which gave primacy to active state interventions and social protection over the invisible hand of the market’5. In this period, European governments were facing the challenge of repairing the
economic consequences of the Second World War. They considered that market forces alone were not adequate to recover national economies from the economic crisis, and therefore, these governments assumed a strong presence in the market and supported far-reaching interventions in the economy.6 This period was also marked with a primarily inward-looking, protectionist policy
orientation that prioritised national economic interests over international economic integration.7
5 Hubert Buch-Hansen and Angela Wigger, The Politics of European Competition Regulation: A Critical Political
Economy Perspective, vol 32 (Routledge 2011) 57.
6 Geoffrey Owen, ‘Industrial Policy in Europe since the Second World War: What Has Been Learnt?’ (ECIPE
Occasional Paper 2012) Research Report 1/2012 <https://www.econstor.eu/handle/10419/174716> accessed 12 May 2020.
7
European states conducted strong industrial policy in this period.8 Already then, industrial
policy served a two-fold purpose. On the one hand, the ‘defensive aspect of industrial policy’ served as an ‘attempt to rehabilitate distressed industries’9. On the other hand, state intervention
was also directed at ‘catching up’ with the United States in terms of technology and innovation and consequently recouping international competitiveness of European industries.10 Therefore,
strategic sectors in this period, including coal, steel, energy, and the railway sectors, received considerable state support.11The governments saw that the consolidation of national industries
required high levels of concentration of capital in the strategic sectors of the economy. This idea has induced a number of large state-sponsored mergers with the aim to create national champions.12
It was in this period that Germany, the UK, and France set up Europe’s first national merger control regimes.13 This was an important development because, while European competition law
already existed that prohibited cartels and the abuse of dominance, merger law was not yet Europeanized. The need for merger control was induced by the high levels of concentrations that emerged in many industries.14 Therefore, these states decided to subject merger operations to
specific rules on corporate reorganisations. However, unlike today, these early merger regimes reserved a central role for political decision-makers and applied a less competition-based test.
In the UK and in France, the decision-making competence in merger proceedings was left to members the government such as the British Secretary of State for Trade and Industry and the French Minister of Economy.15 In Germany, the role of the government was more limited. The
initial merger analysis and authorization decision was in the hands of an independent competition agency.16 Nevertheless, the Minister of Economy had a wide discretion to overrule that decision if
he considered that the ‘overwhelming public interest’ justified that.17
8 Owen (n 6). 9 ibid 5. 10 Owen (n 6). 11 ibid.
12 Buch-Hansen and Wigger (n 5).
13 The three states adopted their first merger rules after each other, the UK in 1965, Germany in 1973, and France
in 1977.
14 Buch-Hansen and Wigger (n 5).
15 Maher Dabbah, Merger Control Worldwide (Cambridge University Press 2012). 16 Section 24(3) of the Gesetz gegen Wettbewerbsbeschränkungen
17 Jürgen F Baur, ‘The Control of Mergers Between Large, Financially Strong Firms in West Germany’ (1980) 136
8
The substantive criteria used in merger analyses were also not based on solely competition factors. In the UK, mergers were assessed according to ‘public interest criteria, rather than merely anti-competitive effects’18. While these criteria included the promotion of effective competition,
they were also equally concerned with other non-market public interests such as ‘the balanced distribution of industry and employment’19. In France, the substantive criteria were also relatively
‘soft’, which is explained by the fact that political leadership at the time did not actually find high economic concentration in the market problematic.20 Instead, introducing merger rules on the
national level served as a defense mechanism against the Commission’s growing ambition to gain competence on the EU level to assess large cross-border mergers in Europe, which they saw as a threat to French industrial policy objectives.21 In Germany, apart from the public interest exception,
a strict competition-based analysis was used. Mergers ‘resulting in or strengthening of market dominating positions’22 were scrutinized ‘unless the involved companies showed that the merger
resulted in improved competitive conditions’23.
It is therefore apparent that non-market public interests and state intervention had a central role in these early merger regimes. In contrast to other areas of competition law, merger control was seen as a more politically sensitive area where the state should assume a role in order to avoid outcomes in the market that do not fit into the industrial strategy of the state. Therefore, in many cases, merger control was used as ‘an industrial policy tool to promote the emergence of “national champions” or to block takeovers of strategic domestic companies by foreign competitors’ in order to achieve the ‘consolidation of national industries’24. These characteristics of the early merger
regimes show that the reconciliation of industrial policy and state intervention with merger control is not unconceivable. Quite the contrary, in most part of Europe, merger control was traditionally more concerned with non-market public interest goals than with maintaining competitive market structures. Nevertheless, such systems proved to be ineffective in the long-run. The next section
18 Buch-Hansen and Wigger (n 5). 19 ibid.
20 ibid.
21 George W Comanor and others, Competition Policy in Europe and North America: Economic Issues and
Institutions (Psychology Press 2001). See also Buch-Hansen and Wigger (n 5).
22 Helmuth Lutz, ‘Merger Control in the Federal Republic of Germany Developments in Merger Control in France,
West Germany and the United States: Report’ (1976) 4 International Business Lawyer 527, 527.
23 Buch-Hansen and Wigger (n 5).
9
will demonstrate how the EU’s merger control regime developed against this background. As the reader will see, it was exactly this state-centred and non-market public interest-oriented approach that made reaching a compromise among Member States take 16 years of intensive political bargaining.
3.2. En route to EU Merger Control
As a result of the gradual economic integration among European states, the number of cross-border mergers was steadily increasing since the 1970s.25This motivated the Commission to
pursue a supranational merger regime. However, because of the political context of the early national merger regimes described above, conferring competence to the EU level was marked by heavy debates between political camps.26 The main controversies concerned the nature of the
substantive test, the role for state intervention, and the jurisdictional threshold.
At the start of the negotiations, France and the UK advocated for a substantive merger test that included ‘exemption rules on the basis of industrial, regional and social policy considerations’27, and a division of competences that would allow national governments to retain
a wide discretionary role for merger operations. In contrast, the Commission envisaged a substantive test that used competition as an economic concept and which did not take into account national industrial or socioeconomic policy considerations. It was also difficult to reach compromise regarding the jurisdictional threshold. While Member States would have preferred to keep control over strategic mergers that impact national interests, the Commission preferred to have a wide competence for significant mergers involving a cross-border dimension. As a consequence, both the Commission’s first proposal in 1973 and the amended proposal from 1981 were voted down in the Council.28
What is often described as the ‘neoliberal shift’ was the reason why compromise could eventually be reached among Member States and the Commission. In the 1970s and 1980s, a series of economic crises generated general distrust in the interventionist approach.29 European leaders
turned to the neoliberal school, and a free market approach that minimizes state intervention started
25 Geradin and Girgenson (n 24). 26 Buch-Hansen and Wigger (n 5). 27 ibid.
28 Geradin and Girgenson (n 24).
10
to gain support.30 As a result, national merger regimes also gradually transitioned towards using a
more economics-based substantive test and simultaneously refined the role of the state by conferring the primary decision-making competence in merger proceedings to independent competition authorities.31 Another important factor leading up to the final compromise was the
growing pressure from market actors. As a reaction to the economic downturns, large national undertakings had strong economic incentives to expand internationally. The rising number of cross-border mergers necessitated establishing an EU merger regime in order to increase administrative efficiency.32 These processes together put considerable pressure on governments to
finally agree.
In 1989, the EC Merger Regulation33 was adopted which gave the Commission power to
assess mergers which met the so-called Community dimension criteria. The above-mentioned neoliberal turn was mainly reflected in the substance of the regulation. An economics-based approach was adopted as a basis for the substantive test which did not include non-market public interest considerations. The test amounted to a market dominance test, according to which, mergers which created or strengthened a dominant market position would be prohibited.34 The regulation
was seen by many as the ‘triumph of neoliberalism’.35 Throughout the early years, however,
international criticism over some transatlantic mergers such as General Electric/Honeywell36
placed pressure on the Commission to move towards an even ‘more economic approach’. The critique centred around two issues. Firstly, critiques targeted the Commission for not resisting political pressure and for allowing nationality-based considerations to influence their decision.37
Secondly, it was argued that the market dominance test applied by the Commission failed to take account of the pro- and anticompetitive effects of a given merger by placing too much emphasis on structural appraisals in the market.38 As a result of the modernization package, the currently in 30 ibid.
31 Geradin and Girgenson (n 24). 32 Buch-Hansen and Wigger (n 5).
33 Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between
undertakings OJ L 395, 30.12.1989, p. 1-12.
34 Ibid Art 2.
35 Geradin and Girgenson (n 24).
36 General Electric/Honeywell (Case No COMP/M.2220) Commission Decision 4064/89 EC [2004] OJ L 48/1. 37 Arndt Christiansen, ‘The" More Economic Approach" in EU Merger Control: A Critical Assessment’ (Research
Notes 2006).
38 Arndt Christiansen, ‘The Reform of EU Merger Control - Fundamental Reversal or Mere Refinement?’
11
force EU Merger Regulation 139/200439 was adopted, which included a refined substantive test
with a ‘significant impediment to effective competition’ criteria (“SIEC test”).40 The new test
moved away from a structure-based merger analysis in the direction of an effects-based doctrine.41
According to the SIEC test, unless there is a significant reduction of competition as a result of the merger, the antitrust agency should clear that.42 The ‘significance’ criterion plays an
important role, as competition between merging parties will always be reduced to some extent (or even completely eliminated in the case of horizontal mergers).43 The reason why mergers are not
prohibited per se even where competition is completely eliminated between the merging firms is the assumption that such transactions sometimes result in ‘efficiencies’ which can be economically quantified under the consumer welfare standard.44 Therefore, the SIEC test considers whether the
efficiencies of a merger outweigh the consumer harm resulting from the elimination or reduction of competition.45 Efficiencies should be distinguished from non-market public interest such as such
as social and industrial policy considerations which were commonly included in the early national merger tests. Those interests serve normative goals and were not included in the substantive merger test of the EUMR. Instead, the EUMR has reserved a role for Member States to protect those interests when exceptional circumstances justify that.
The reason for keeping such a legal basis for state intervention in merger control is the idea that some public interests are ought to be protected even at the expense of competition.46 For this
reason, an albeit limited, yet potentially far-reaching legal ground allowing state intervention for protecting narrowly defined public interests was inserted in the EU, as well as in many national merger regimes. However, given the normative nature of these public interest grounds, they can sometimes become vulnerable to illicit political motives. The following analysis will focus on this issue.
39 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings
2004 OJ L 24, 29.1.2004, p. 1–22.
40 Ibid Art 2.
41 Christiansen (n 37).
42 Council Regulation (EC) No 139/2004 (n 39) Article 2.
43 Stefan Thomas, ‘Normative Goals in Merger Control: Why Merger Control Should Not Attempt to Achieve
“Better” Outcomes than Competition’ [2020] Available at SSRN 3513098.
44 ibid. 45 ibid.
46 Oliver Budzinski and Annika Stöhr, ‘Public Interest Considerations in European Merger Control Regimes’ [2019]
12 4. Analysis of the legal framework addressing protectionist state intervention in
merger control
State intervention that frustrates market-driven (cross-border) merger deals in favour of protecting the domestic market actors is commonly motivated by a protectionist economic (and political) agenda. Protectionist state intervention in merger control deploys two main strategies. Firstly, the facilitation of national champions via authorizing otherwise anticompetitive mergers in order for those to be able to effectively compete internationally.47 Secondly, blocking foreign
takeovers targeting strategic domestic firms.48 Because the second strategy is also concerned with
the promotion of large domestic firms by shielding them from foreign competition, scholarship has collectively referred to these types of state intervention strategies as the promotion of national champions.49
Empirical evidence suggests that state-sponsored national champions are often not the most efficient and competitive companies in the long-run (Type II error), and therefore, they often have considerable welfare reducing effects.50 Conversely, blocking otherwise competitive cross-border
mergers does not only defeat fairness in the market but also deprives consumers from the welfare enhancing effects of pro-competitive mergers (Type I error).51 Therefore, both political and
economic reasons justify why state intervention in merger control should be minimized and should only be used where that genuinely aims at the protection of narrowly defined public interests.
The purpose of the following analysis is to explore the effectiveness of the EU legal framework for preventing the protectionist uses of public interest grounds for Member State intervention in merger control. The analysis aims at giving an overview of those elements in the legal framework that are important in the interplay between national and EU law in the context of merger control. The analysis takes account of the relevant substantive and procedural rules that apply to state intervention on the domestic and EU levels. The reason for addressing both levels is that although the one-stop-shop principle demarcates the boundaries of national and EU
47 Geradin and Girgenson (n 24).
48 Jonathan Galloway and NORWICH UEA, ‘EC Merger Control: Does the Re-Emergence of Protectionism Signal the
Death of the “One Stop Shop”?’, Draft Paper to the 3rd Annual CCP Summer Conference (2007).
49 Geradin and Girgenson (n 24). 50 Galloway and UEA (n 48).
51 Julian Barquin and others, ‘The Acquisition of Endesa by Gas Natural: Why the Antitrust Authorities Are Right to
13
competence in the area of merger control, the effects of protectionist state intervention under national merger regimes are still a concern for the EU because they pose risks to the internal market.
4.1. The legal framework for state intervention under national merger control
The one-stop-shop principle allocates jurisdiction over mergers to the either domestic competition authorities or the Commission based on the so-called Community dimension criteria stipulated under Article 1 EUMR.52The rationale behind the Community dimension criteria is to
provide the Commission with the competence to assess mergers that can cause ‘significant structural changes the impact of which…[go] beyond the national borders of any one Member State’53. This threshold is primarily based on the combined turnover of the undertakings concerned.
In addition to the turnover thresholds, the Community dimension criteria includes a two-thirds rule which excludes mergers from the EU’s jurisdiction where they meet the turnover threshold but where ‘each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State’54. Unlike in the decentralized
enforcement regime of Regulation 1/2003 for Articles 101 and 102 TFEU, under the one-stop-shop principle there is no parallel applicability of national and EU merger rules. Consequently, neither the substantive, procedural or institutional frameworks for domestic merger control have been harmonised. Therefore, where the merger does not meet the Community dimension criteria, Member States have full discretion to decide how those mergers will be assessed.55
Over the last decades, Member States developed similar national frameworks for merger control. Today, most domestic regimes apply a primarily economics-based substantive merger test similar to the SIEC test in the EUMR.56 Furthermore, the assessment of mergers falls under the
competence of national competition authorities (“NCA”) in all Member States. A recent empirical research highlighted that despite this convergence, there are still considerable differences among Member States in whether and how they include public interest considerations in their national
52 Council Regulation (EC) No 139/2004 (n 39) Article 1. 53 Council Regulation (EEC) No 4064/89 (n 33) Recital 8. 54Council Regulation (EC) No 139/2004 (n 39) Art 1. 55 Budzinski and Stöhr (n 46).
14
competition laws.57 At least 11 Member States expressly provide for public interest policy tools in
their respective competition laws in addition to those states which include public interest considerations on a case-by-case basis without an explicit legal basis.58 Where such legal grounds
are expressly provided, that predominantly takes the form of reserving a role for either the government or sectoral regulators to intervene in merger procedures in exceptional cases on the basis of public interest grounds.59
The OECD defined this as a ‘dual responsibilities’ model for merger control.60 In this
model, competition authorities are not responsible for taking into account wider public interests under the substantive merger test. Instead, responsible political decision-makers or sectoral regulators can intervene in merger cases on prescribed public interest grounds.61 Practically,
intervention can take two forms: the government or sectoral regulators can (i) override the NCA’s decision to block a merger on competition grounds or, (ii) they can block a deal previously authorized by the NCA. For the purpose of this paper, reference will be made to these forms of intervention as positive and negative state intervention respectively. The rationale behind this model is two-fold. Firstly, because these public interests have a normative nature, it is believed that NCAs are not the best placed to take account of them as opposed to political bodies whose primary aim is to promote those interests.62 Secondly, being responsible for enforcing public
interest considerations ‘could expose competition authorities to political pressure and affect their independence and impartiality’63.
Most European countries included public interest considerations in their competition laws such as media plurality64, security of supply65, employment considerations66, the competitiveness
57 David Reader, ‘Accommodating Public Interest Considerations in Domestic Merger Control: Empirical Insights’
[2016] SSRN Electronic Journal.
58 Budzinski and Stöhr (n 46). 59 Reader (n 57).
60 Aranka Nagy, ‘Public Interest Considerations in Merger Control – Background Paper by the Secretariat’ (OECD
2016).
61 ibid. 62 ibid. 63 ibid 10.
64 Austria, Ireland, Portugal, UK 65 Finland, Hungary
15
of strategic industries67, prudential rules68, national security69, R&D70, environmental protection71
and other vaguely defined goals such as ‘general economic interests’72. Where they consider that
in a given merger these public interests deserve protection even at the expense of competition, governments legitimise their intervention on the ground that in a democratic society it ‘must be allowed to value the conflicting goal higher than the welfare effects of effective competition’73.
Indeed, it is not contestable that democratic legitimisation can justify state intervention in merger control, and in general in the economy. However, it is important that the legal framework for such state intervention in merger control is not used by governments to attain illegitimate political goals as opposed to protecting legitimate public interests. Therefore, the question that the following analysis will aim to answer is whether the EU legal framework can effectively prevent such protectionist interventions in domestic merger control.
As explained above, because of the one-stop-shop principle, EU law does not harmonise domestic merger rules or the framework for state intervention therein. EU law, however, provides some safeguards against discriminatory intervention with cross-border corporate transactions. Furthermore, the two-thirds rule in the jurisdictional threshold of the EUMR should in principle enable the Commission to have competence over mergers which have an important impact on the EU’s interests. Provided that the two-thirds rule creates an optimal allocation of cases, state interference with mergers having a Union significance would be governed by the EUMR as opposed to domestic rules. The following sections will analyse the effectiveness of these rules.
4.1.1. EU safeguards against protectionist intervention in domestic merger control
The Cross-Border Merger Directive (“CBMD”)74 is seen as having a wider material scope
than the EUMR.75 This is due to the fact that while the EUMR only applies to cross-border mergers
67 France, Germany. 68 Italy, UK.
69 Spain, UK. 70 Spain. 71 Spain.
72 Austria, Germany, Hungary, Italy, Portugal. 73 Budzinski and Stöhr (n 46) 4.
74 Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border
mergers of limited liability companies [2005] OJ L310/1.
75 Marco Corradi and Julian Nowag, ‘The Relationship Between Article 4 (1)(b) of the Cross-Border Merger Directive
16
which meet a high threshold of combined turnover of merging parties, the CBMD applies to all cross-border corporate transactions. Therefore, it is seen as a fall-back legal instrument for addressing the possible problems resulting from the divergence in the national legal frameworks for state intervention in merger control.
Article 4(1)(b) of the CBMD provides that:
‘The laws of a Member State enabling its national authorities to oppose a given internal
merger on grounds of public interest shall also be applicable to a cross-border merger where at least one of the merging companies is subject to the law of that Member State. This provision shall not apply to the extent that Article 21 of Regulation (EC) No 139/2004 is applicable.’
This provision allows Member States to apply their national rules governing state intervention in merger control on public interest grounds to cross-border mergers. In addition, the provision includes a non-discrimination rationale which prohibits Member States to design their merger rules, and in particular public interest exceptions contained in them, in a way to allow discriminatory treatment for cross-border mergers. The political objectives behind the provision can be conceived as an effort to harmonise public interest considerations in domestic merger control in order to safeguard against the risk of government opposition to a foreign acquisition based on protectionist motives.76
There are apparent shortcomings in this provision. The non-discrimination clause only prohibits de jure discrimination against cross-border mergers.77 De jure discrimination is deemed
to be present where the law is phrased in a way to allow different treatment to domestic and cross-border mergers. De jure discrimination shall be distinguished from de facto discrimination which is the discriminatory effect of a provision. It appears that Article 4(1)(b) of the Directive does not prohibit the latter.78 As it will become apparent from the examples provided below, Member States
do not tend to design their laws in a way that allows de jure discrimination. In a report prepared for the Commission, it has been stated that Article 4(1)(b) of the Directive was implemented in Member States without significant problems as de jure discrimination was not commonly present
76 ibid. 77 ibid. 78 ibid.
17
in national laws.79 Therefore, it can be argued that the CMBD lacks teeth in catching protectionist
interventions in domestic merger control because it does not deal with the more prevalent problem. I argue this because firstly, instead of de jure discrimination, Member States more commonly exercise de facto discrimination with cross-border mergers by applying public interest exceptions in favour of national companies as opposed to foreign ones. Secondly, it has been found that state intervention in domestic merger control dominantly happens in the form of positive as opposed to negative state intervention.80 Hungary serves as an illustrative example of this problem.
In 2013, the Act LVII of 1996 on the Prohibition of Unfair Trading Practices and Unfair Competition (“the Act”) was amended in order to provide the Hungarian government with the competence to intervene in merger procedures on public interest grounds. The non-exhaustive list of public interests that the government can rely on include the protection of jobs and security of supply. Under Article 27/A of the Act, the Hungarian government can authorize a merger via a decree declaring the concentration to be of national strategic importance without having to state reasons. Such a concentration needs not to be notified to the Hungarian Competition Authority (“HCA”). In fact, the governmental decree removes that merger from the HCA’s competence completely. This procedural rule entails an ex ante exemption from the enforcement of merger control. This is an important difference between the Hungarian and the German ex post regime.
In Germany, the ministerial authorization procedure takes place following the competition analysis carried out by the German Federal Cartel Office (“GFC”). If the decision is negative, the companies concerned can apply for authorization at the Federal Minister of Economic Affairs. The public interest grounds can be successfully relied on if ‘the restraint of competition is outweighed by advantages to the economy as a whole resulting from the concentration, or if the concentration is justified by an overriding public interest’ taking into account international competitiveness.81
Furthermore, the procedure provides that the Monopolies Commission must give its opinion on ‘whether the reasons for the exception are reasonable and likely to be achieved through the
79 Publications Office of the European Union, ‘Study on the Application of the Cross-Border Mergers Directive.’ (29
February 2016) <http://op.europa.eu/en/publication-detail/-/publication/0291c60a-df7a-11e5-8fea-01aa75ed71a1> accessed 16 June 2020.
80 Budzinski and Stöhr (n 46).
81 Act against Restraints of Competition in the version published on 26 June 2013 (Bundesgesetzblatt (Federal Law
Gazette) I, 2013, p. 1750, 3245), as last amended by Article 10 of the Act of 12 July 2018 (Federal Law Gazette I, p. 1151) § 42
18
anticompetitive merger’82. The final decision is in the hands of the Minister, who can deviate from
both the GFC’s and the Monopolies Commission’s opinion provided that such a decision would not ‘jeopardize the market economy system’83. Despite the power of the Minister to deviate from
the opinion of the GFC and the Monopolies Commission, the fact remains that at least three public bodies have to publicly state their reasoned opinion on the authorization of the merger. This amounts to a transparent procedure. In contrast, under the Hungarian rules, the government can authorize mergers before the HCA could assess the merger according to the standard competition-based test and there is no requirement for prior consultation in the law.84 Therefore, such mergers
are authorized without any public assessment of that merger.
Since 2013, the Hungarian government has exempted 29 concentrations from the HCA’s competence and authorized them by reason of their national strategic importance. This figure is striking, especially if we compare it to the German figures. Since the ministerial authorization procedure was inserted in the German competition law in 1970, there has been altogether 23 applications for ministerial approval, and only nine of those were positively granted.85 By looking
at the characteristics of the exempted Hungarian mergers, one can understand the reason behind these high figures because, I will argue, the exemptions were used as part of the broader framework of the government’s patriotic economic strategy.
Most cases where the public interest grounds for merger exemption were used by the Hungarian government were in the utilities sector, and most notably in the energy sector. 86 Out of
the 29 cases, 13 can be linked to the energy sector. These concentrations typically involved acquisitions of domestic and foreign-owned energy companies by state-owned companies. The case pattern fits well with the general economic policy of Hungary post-2010, which is characterised by a strong sense of economic patriotism. Protectionist policies combined with high
82 Deutsche Welle (www.dw.com), ‘Court Blocks E.On – Ruhrgas Deal | DW | 15.07.2002’ (DW.COM)
<https://www.dw.com/en/court-blocks-eon-ruhrgas-deal/a-592717> accessed 4 March 2020.
83 Act against Restraints of Competition § 42 (n 80).
84 ‘No Merger Control for Concentrations of National Strategic Importance’ (International Law Office, 1 December
2016)
<https://www.internationallawoffice.com/Newsletters/Competition-Antitrust/Hungary/Schoenherr-Attorneys-at-Law/No-merger-control-for-concentrations-of-national-strategic-importance> accessed 29 May 2020.
85 Budzinski and Stöhr (n 46).
86 Furthermore, there are examples from the banking sector, heavy industries, healthcare, media, textbook
19
levels of state intervention are common in most important sectors of the economy.87 This issue is
particularly salient in the energy sector: as part of the Hungarian energy policy since 2010, the government pledged to considerably increase state ownership in both previously foreign-owned and domestic energy companies.88 It should be noted that the state did not forcefully confiscate
these companies. Prior to the wave of state-sponsored mergers, the government created a regulatory environment which de facto coerced most foreign market actors to leave the Hungarian market.89By maintaining regulated retail prices for gas and electricity, private companies found it
excessively hard to maintain a profitable business in the country.90 It has been argued that this
regulatory framework was designed to systematically drive out foreign market actors from the country in order to re-nationalise the Hungarian energy market.91 These regulatory processes laid
the groundwork for the wave of mergers that followed. The 13 concentrations in the energy sector where the public interest exception was used were all individual steps towards re-nationalising the Hungarian energy market.
The international legal community has expressed their concern regarding the government’s extensive use of the public interest ground for state intervention in merger control.92 The general
risk attributed to the Hungarian government’s practice is that it reduces investment incentives by creating a general atmosphere of legal uncertainty, lack of transparency, and regulatory arbitrariness.93 Market actors might be discouraged from entering Hungarian markets as ‘they do
not know what forces are shaping future market structures’94. The OECD warned Hungary that the
ex ante structure further amplifies these risks. They argued that ‘the European standard is that governments only after a full merger review can permit the competition decreasing mergers on
87 Marton Varju and Mónika Papp, ‘The Crisis, National Economic Particularism and EU Law: What Can We Learn
from the Hungarian Case?’ (2016) 53 Common Market Law Review 1647.
88 Rico Isaacs and Adam Molnar, ‘Island in the Neoliberal Stream: Energy Security and Soft Re-Nationalisation in
Hungary’ (2017) 25 Journal of Contemporary European Studies 107.
89 Varju and Papp (n 87). 90 ibid.
91 ibid. See also Isaacs and Molnar (n 88).
92 OECD, ‘OECD Economic Surveys: Hungary 2016’
<https://www.oecd-ilibrary.org/economics/oecd-economic-surveys-hungary-2016_eco_surveys-hun-2016-en> accessed 29 May 2020.
93 European Commission, ‘COMMISSION STAFF WORKING DOCUMENT - Assessment of the 2013 National Reform
Programme and Convergence Programme for HUNGARY’ (2013).
20
clear and limited public interest grounds, preserving competition as the main shaper of market structures’ 95, and called up the Hungarian state to follow this example.
The particular risk of the wide use of public interest exceptions in the context of energy mergers is that these state interventions are liable to isolate the Hungarian energy market from the rest of the internal market one step at a time. Even though the liberalisation agenda pursued by the EU in the energy sector is not primarily concerned with state ownership, the re-nationalisation of the Hungarian energy sector made the market less integrated with the rest of the internal market. Because of the ex ante model, it is not possible to draw precise conclusions about the pro- and anticompetitive effects of these mergers. However, it is generally agreed that Type II errors in the energy sector, that is the authorization of anticompetitive mergers, pose very high risks for consumers.96 Public opinion shares the view that every time the Hungarian government opted to
exercise their prerogative to exempt a merger from the HCA’s competence, it was to avoid a negative decision by the HCA.97 This way they leave less exposure to critique for authorizing
anticompetitive mergers.98
Altogether, the EU legal framework appears to offer weak protection against these types of protectionist uses of public interest exceptions in domestic merger control. It should be noted, however, that the case of Hungary is an extreme example of how the state intervention grounds in domestic merger control can be used for protectionist or otherwise unjustified political goals. While it is true that in most countries such systematic problems are not present, individual examples from multiple states warn against the risks of selective state intervention in merger control. For instance, last year, the Dutch Minister of Economic Affairs and Climate Policy overruled99the decisionof the Netherlands Authority for Consumers and Markets (“ACM”)100 to 95 ibid. See also Aranka Nagy (n 60).
96 François Lévêque, ‘Antitrust Enforcement in the Electricity and Gas Industries: Problems and Solutions for the
EU’ (2006) 19 The Electricity Journal 27.
97 Elda Brogi, Iva Nenadic and Pier Luigi Parcu, ‘Assessing Certain Recent Developments in the Hungarian Media
Market through the Prism of the Media Pluralism Monitor’ 25.
98 ibid.
99 Ministerie van Economische Zaken en Klimaat, ‘Onder strenge voorwaarden vergunning voor overname Sandd
door PostNL - Nieuwsbericht - Rijksoverheid.nl’ (27 September 2019)
<https://www.rijksoverheid.nl/actueel/nieuws/2019/09/27/onder-strenge-voorwaarden-vergunning-voor-overname-sandd-door-postnl> accessed 13 July 2020.
100 Autoriteit Consument & Markt, ‘ACM Does Not Grant a License for the Acquisition of Postal Operator Sandd by
PostNL | ACM.Nl’ (5 September 2019) <https://www.acm.nl/en/publications/acm-does-not-grant-license-acquisition-postal-operator-sandd-postnl> accessed 13 July 2020.
21
block a merger between PostNL and Sandd, two rival postal operators. The Minister made this decision despite the ACM’s strong opposition to the merger due to expected price increases following the merger. In addition to a heated public debate criticising the Minister’s decision for ignoring the anticompetitive effects of the merger, two smaller postal operators brought an appeal before the Rotterdam Court contesting the decision. The court sided with the claimants and annulled the Minister’s decision for not providing sufficient reasons for the authorization.101
Considering that this was the first time that the Dutch Minister overruled the ACM’s negative decision to authorize a merger, it is yet to be seen how the court’s assertiveness to hold such a decision to high reasoning standards will affect the willingness of the Minister to engage with similar practices in the future.
This analysis highlighted three important issues. Firstly, where weak institutional safeguards for transparency, predictability, and accountability are coupled with political willingness to systematically use public interest exceptions in merger control, the results can be worrisome even if those mergers individually do not have great significance for the EU. Secondly, Member States do not have public interest grounds that de jure discriminate against foreign companies. Thirdly, on the domestic level, it appears that governments deploy positive intervention strategies as opposed to blocking cross-border mergers. For these reasons, it is argued that the EU legal framework, and in particular the CBMD, lacks teeth for addressing the problem of protectionist state intervention in domestic merger control.
4.1.2. The two-thirds rule
Having established the lack of effectiveness of the EU legal framework for preventing protectionist state intervention under domestic merger regimes, this section turns to the question of how EU law prevents the risk of such intervention with significant mergers which have a Union significance. Indeed, in the Hungarian example, it was the series of protectionist interventions that generated a concern for the EU. This section will show that in some cases, even a one-off intervention with a large merger can create Union-wide consequences.
22
The rationale behind the two-thirds rule in the jurisdictional threshold of the EUMR is to exclude cases from the competence of the Commission which do not have an EU relevance despite having a large turnover.102 Therefore, it is seen as a ‘corrective mechanism for the crudeness of
turnover thresholds’103 which brings a more qualitative ‘centre of gravity approach’ to the division
of competence’104. It rests on the assumption that where a substantial part of the turnover of
merging parties are generated in one and the same Member State, the cross-border effects will be marginal.105 Hence, the rule assigns competence to national competition authorities to assess large
(mostly) domestic mergers. Furthermore, it should be noted that originally the Commission would have preferred to have a much lower turnover threshold and a three-quarters rule instead of the two-thirds rule.106 This shows that the two-thirds rule represents a political compromise in the
allocation criteria and is a reflection of Member States’ relative unwillingness to give up their competence to assess important domestic transactions.107 Therefore, Member States have
repeatedly emphasized that the two-thirds rule is the manifestation of the subsidiarity principle in the EUMR which is also given expression in Recitals 8 and 11 of the Regulation.108
In most cases, the two-thirds rule effectively distinguishes between mergers with and without an EU relevance.109 At the same time, the Commission has argued that ‘there are a small
number of cases with potential cross-border effects in the [Union] which nevertheless fall under the competence of the NCAs as a result of this rule’110. The Commission also reported that in those
cases, governments had commonly relied on state intervention grounds which led to significant mergers being authorized despite their anticompetitive effects identified by national authorities.111
102 Alison Jones and John Davies, ‘Merger Control and the Public Interest: Balancing EU and National Law in the
Protectionist Debate’ (2014) 10 European Competition Journal 453.
103 Michael Harker, ‘Cross-Border Mergers in the EU: The Commission v the Member States’ (2007) 3 European
Competition Journal 503, 504.
104 Andrew Scott, ‘National Champions and the Two-Thirds Rule in EC Merger Control’ [2006] SSRN Electronic
Journal 3.
105 Harker (n 103). 106 Scott (n 104).
107 Neelie Kroes, ‘Industrial Policy and Competition Law and Policy’ (2006) 30 Fordham International Law Journal
1401.
108 Böge U, “Dovetailing Cooperation, Dividing Competence: a Member State’s View of Merger Control in Europe”,
IBA, EC Merger Control: Ten Years On (London, 2000), pp. 363-372.
109 Communication from the Commission to the Council - Report on the functioning of Regulation No 139/2004
COM/2009/0281.
110 Ibid. 111 Ibid.
23
The problematic features of the two-thirds rule are therefore two-fold: (i) sometimes it fails to allocate cases with a Community relevance to the Commission instead of national authorities; (ii) and the sub-optimal allocation does not guarantee the protection of undistorted competition in the internal market where governments have an incentive to intervene. The second problem in particular relates to the phenomenon of national champions. The E.ON/Ruhrgas112 merger is a
textbook example of when the two-thirds rule is believed to have worked in inefficiently and illustrates how Member States sometimes apply domestic rules in a way to facilitate national champions at the expense of competition.
The merger between the German incumbent electricity company E.ON and the country’s biggest natural gas provider, Ruhrgas sparked intense debate across Europe. The proposed merger arguably had implications not only for the German energy market but also for the future development of the whole internal energy market of the EU. Due to the two-thirds rule, however, the Commission did not have jurisdiction to assess the merger under the EUMR.113 This was
despite the fact that the transaction was liable to create the world’s biggest energy company at the time.114
On the domestic level, there was also a lot of controversy around the case. Following the GFC’s negative decision over the merger, the parties applied for a ministerial authorization before the German Minister of Economy. The Minister overruled the GFC’s decision and the negative opinion of the Monopolies Commission on the basis of § 42 GCA and argued that the merger was necessary to ensure low-cost energy supply and was therefore justified by the economic advantages and overwhelming public interest that outweighed competitive constraints.115 The GFC heavily
criticised the Minister’s decision and argued that the merger would create de facto monopoly in the German energy market.116 Other market actors as well as the higher regional court in
Düsseldorf were convinced that given the high community impact of the merger, the Commission should have been able to review the merger according to the EUMR.117 Despite their efforts, the 112 Ministererlaubnis vom 18.9.2002, WUW/E DE-V 642 ff. – E.ON/Ruhrgas”.
113 Welle (www.dw.com) (n 82). 114 Barquin and others (n 51).
115 Marta Ferreira Dias and Sílvia Ferreira Jorge, ‘Mergers between Natural Gas Suppliers and Electricity
Generators: Should European Consumers Be Concerned?’ (2016) 106 Energy Procedia 185.
116 The concentration resulted in 60% market share in the gas market and a one-third market share in the
electricity market.
24
Commission could not encroach on the Minister’s competence due to the application of the two-thirds rule. The Competition Commissioner repeatedly emphasized that they also believe that the two-third rule failed to provide for the optimal allocation of jurisdiction in this case.118
It has been argued that this case was a clear example of economic patriotism on the side of the German government. The aim of the government was to create a national champion in the energy sector that can compete more effectively on the international stage, although at the expense of competition inside Germany and the internal market at large. Domestic and EU antitrust officials saw the minister’s decision as an offense against the EU’s liberalisation efforts in the energy market.119 Furthermore, subsequent empirical evidence showed that the arguments that the
Minister based his decision on did not materialize: following the merger, households in Germany payed on average 1.8% more for electricity.120 Therefore, the case is a clear example of a Type II
error.
Having witnessed similar cases following E.ON/Ruhrgas, the Commission started advocating for far-reaching reforms in the EUMR. Commissioner Kroes argued that the Commission should have wider powers in order to effectively challenge the protectionist efforts of national governments to create national champions which distort competition in the internal market.121 She found that the case proved that the ‘two-thirds rule no longer reflected “an optimal
allocation of competence between the national and the Community level, and even constitutes in some instances an obstacle to a consistent treatment of cases’122. From the Commission’s proposal
it became obvious that some sectors are particularly vulnerable to this lacuna in the EUMR’s jurisdictional threshold: the utilities sector, and in particular the energy markets were given emphasis in this respect. In the energy sector, because national markets are still rather fragmented, high levels of cross-border turnovers are often still missing in merger cases.123 Therefore, when for
example two large domestic incumbents are involved in a proposed merger, the Commission will often lack jurisdiction due to the two-thirds rule. This enables governments to create national
118 Tobias Buck, ‘Kroes Calls for More Power over Mergers’ The Financial Times (16 0 2005) 1. 119 ‘UK Energy Regulator Slams E.ON/Ruhrgas Merger’ (Power Engineering, 18 February 2003)
<https://www.power-eng.com/2003/02/18/uk-energy-regulator-slams-eon-ruhrgas-merger/> accessed 17 June 2020.
120 Dias and Jorge (n 115). 121 Buck (n 118).
122 ibid.
25
champions which do not only harm consumers but hamper the EU’s efforts to complete the internal energy market as these champions are ‘able to foreclose national markets to competition from other Community member states’124. The restoration of isolated energy markets also runs against
the objective of the EU’s open and competitive market objectives.125
The conclusion of this analysis is that the two-thirds rule can indeed be ineffective for allocating cases with a Union interest to the Commission. Given the current support from Germany, France, and other Member States for the reform of the EUMR in order to allow the creation of European champions, there is little doubt that given the opportunity, these countries would also make use of the two-thirds rule to promote a national champion through state intervention.126 It is true that the two-third rule only becomes problematic in rare cases. This might
have been the reason why the Commission did not further pursue its initial proposal to revise the jurisdictional threshold of the EUMR. Nevertheless, it would be useful to consider proposals for altering the two-thirds rule in order to give more power to the Commission. However, these reforms would require wide political support, as Article 1(5) of the EUMR prescribes a qualified majority voting for revising this framework.127
4.2. The legal framework for state intervention under the EUMR
This part of the analysis moves from the domestic to the EU level. According to Article 21(3) EUMR, mergers with a Community dimension are appraised exclusively by the Commission on the basis of the EUMR.128 Article 21(4) of the EUMR stipulates the exception to the
Commission’s exclusive competence over these mergers. The provision allows Member States to intervene in merger proceedings that have been authorised by the Commission. As such, the legal framework of the EUMR currently only allows for negative state intervention. Positive state intervention, which formed the central element of the recent Franco-German Manifesto129
following the Alstom-Siemens130 merger is not discussed in this framework.
124 ibid 8.
125 Barquin and others (n 51).
126 ‘A Franco-German Manifesto for a European Industrial Policy Fit for the 21st Century’ (Gouvernement.fr) (n 2). 127127 Council Regulation (EC) No 139/2004 (n 39) Art 1(5).
128 Council Regulation (EC) No 139/2004 (n 39) Art 21(3).
129 ‘A Franco-German Manifesto for a European Industrial Policy Fit for the 21st Century’ (Gouvernement.fr) (n 2). 130 SIEMENS/ALSTOM (Case M.8677) Commission Decision 139/2004 EC [2019].
26
Article 21(4) EUMR prescribes a limited number of grounds for Member States to rely on in order to protect a ‘legitimate interest’ such as ‘public security, plurality of the media and prudential rules’131. Member States are therefore allowed, without the need to seek authorisation
from the Commission, to adopt state measures that affect mergers with Community dimension or even prohibit or prejudice those if those measures are based on the expressly provided public interest grounds.132 Alternatively, the provision allows Member States to rely on ‘other’ interests.
In these cases, the proposed state measure ‘must be communicated to the Commission by the Member State concerned and shall be recognised by the Commission after an assessment of its compatibility with the general principles and other provisions of Community law before the measures referred to above may be taken’133. This stand-still obligation is designated to allow the
Commission to evaluate the compatibility of those state measures in light of the general principles and other provisions of EU law in order to safeguard mergers from protectionist or otherwise unjustified state intervention.134 It is evident from the limited number of legitimate interests and
the stand-still obligation that the EU legislator wanted to limit state intervention with European mergers to exceptional cases. The provision represents a balance between the privilege of democratically elected governments to protect legitimate public interests on the one hand, and the objectives of the EUMR on the other. Therefore, the public interest exception for state intervention in the EUMR has an enabling and limiting function at the same time. Member States are allowed to rely on them, provided that those interests are justified, but only to the extent that that is in line with the principles of the EU. These are fairness, non-discrimination and proportionality, and the other market freedoms in the Treaty and in particular the freedom of establishment.135 The purpose
of the following sections is to evaluate the effectiveness of Article 21(4) EUMR for preventing protectionist state intervention in merger cases with Community dimension.
131 Council Regulation (EC) No 139/2004 (n 39) Art 21(4).
132 Stefano Verde, ‘Everybody Merges with Somebody—The Wave of M&As in the Energy Industry and the EU
Merger Policy’ (2008) 36 Energy Policy 1125.
133 Council Regulation (EC) No 139/2004 (n 39) Art 21(4). 134 Galloway and UEA (n 48).
135 Damien Gerard, ‘Protectionist Threats against Cross–Border Mergers: Unexplored Avenues to Strengthen the
27 4.2.1. The Commission’s enforcement record under Article 21(4) EUMR
Article 21(3) EUMR is activated when the procedural or substantive requirements of the state intervention framework under Article 21(4) EUMR are not fulfilled by Member States when they want to rely on that provision in order to implement a state measure that will prohibit or prejudice a merger. Where Article 21(4) EUMR is violated, the state measure will be declared unjustified and illegal. Experience shows that unjustified state intervention normally takes place where Member States introduce measures to prevent mergers on public interest grounds other than those specified in Article 21(4) EUMR but fail to respect the stand-still obligation and/or the notification procedure.
The first time the Commission relied on Article 21(4) EUMR was in the
BSCH/Champalimaud136merger case. The Portuguese Minister of Finance decided to oppose the
concentration involving the acquisition of joint control of a number of Portuguese banks by a Spanish bank. The state measure took the shape of a ministerial decision opposing the transaction on the ground that ‘the operation interferes strictly with the national interest and with strategic sectors which are essential to the Portuguese economy and financial system’137. The government
did not hide the primary motive behind the measure which was to keep strategic domestic banks in Portuguese hands.138 The Commission found that the Portuguese state violated Article 21(3) EUMR when they did not notify the veto decision to the Commission. The Commission considered that the interests that the government wanted to protect, that is ‘the protection of national interests and strategic sectors for the national economy’139 did not fall under the legitimate interests. For
their failure to comply with the Commission’s decision ordering the withdrawal of the ministerial decision blocking the transaction, Portugal was subjected to an infringement procedure before the ECJ140 which upheld the Commission’s previous decision.
Another landmark case where the notification obligation was not complied with is
Secil/Holderbank/ Cimpor141. The Portuguese Minister of Finance made a decision that prevented
the Portuguese Secil and the Swiss Holderbank to buy the Portuguese cement company Cimpor in
136 BSCH/A. Champalimaud (Case IV/M.1616) Commission Decision 4064/89 EC [1999]. 137 Ibid. para 18.
138 Ibid. 139 Ibid.
140 Case 367/98, Commission v. Portugal, [2002] ECR I-4731.
28
which the state had special rights concerning the authorization of change of control in the company. The Minister’s decision, which was not notified to the Commission, was based on economic policy and the strategic reinforcement of national production apparatus.142 In its decision, the Commission declared that the Portuguese government violated Article 21(3) EUMR by not notifying the state measure which was no based on either of the legitimate interests under Article 21(4) EUMR.143
The final outcome of these cases was the withdrawal of the unjustified state measures as ordered by the Commission. Nevertheless, there is an important difference between the two Portuguese cases. While the BSCH/Champalimaud merger could in the end materialize despite the government’s efforts to sabotage the deal, the Secil/Holderbank/ Cimpor merger was abandoned by the parties due to legal uncertainties. This was also the case in Autostrade/Abertis.144 The Italian
government tried to interfere with the Spanish Abertis’s acquisition of the Italian Autostrade. This case involved a sectoral regulator imposing the government’s will on an undesired foreign acquisition. The motorway regulator authority decided not to grant authorization for the merger between the companies on the grounds that the foreign company would not adequately invest in the Italian motorways.145 Following the Commission’s first preliminary position regarding the
incompatibility of the domestic regulator’s negative decision with Article 21 EUMR, the regulator revoked that decision.146 However, following some extensive alterations in the national regulatory
framework for motorways, the regulator remained inactive and delayed issuing a positive authorization decision for the merger.147 Although the Commission condemned the Italian state’s
inaction for posing an obstacle to the cleared merger, the merger was abandoned by the parties due to the high levels of uncertainty in the regulatory environment.148
The selected examples demonstrate the elements of Article 21(4) EUMR that are vulnerable to protectionist state intervention. Firstly, the behavioural pattern of national governments shows that they are not deterred from introducing state measures incompatible with
142 Ibid. 143 Ibid.
144 Abertis/Autostrade (Case COMP/M.4249) Commission Decision 139/2004 EC [2006] OJ L 2985. 145 Ibid.
146 Commission press release MEMO/06/414 of 7 Nov, 2006. 147 Decree-Law N°262/2006 of 29 Sept. 2006.
