March 22, 2007
Will the Commission go back to blocking mergers?
The European Commission enjoys many powers, though none is quite as jaw-droppingly awesome and downright glamorous as its ability to block big, international mergers and takeovers.
Indeed, the first (and perhaps only) time that mainstream America became aware of the Commission’s existence was when the Brussels body blocked the tie-up of General Electric and Honeywell in 2001. The ruling sparked outrage on the other side of the Atlantic, and left many commentators spluttering how a little-known institution an ocean away was in a position to thwart the marriage of two US corporate icons.
Much has changed since then. There have been fewer deals, and certainly fewer deals that were driven by corporate egos and a mindless pursuit of size (which tend to create greater competition worries than smaller acquisitions). Scarred by a string of court rulings that overturned three merger prohibitions in 2002, the Commission also became much more careful about blocking deals. Both sides, in any case, became better at putting together remedies that allowed even problematic deals to go through in exchange for asset disposals or other concessions.
In fact, since the GE/Honeywell ruling the Commission has prohibited only one merger - and things were starting to look rather boring. The days of big merger dramas seemed to be over for good.
More recently, however, there have been signs that the pendulum may be swinging back again. Most importantly, we have seen a rash of recent merger announcements that look like they could create a real headache for the Brussels antitrust officials.
In the travel sector, the big four groups -Tui, Thomas Cook, First Choice and MyTravel - seem committed to merging themselves into two mega-groups. As several antitrust specialist already pointed out, a market that shrinks from four to three big companies is already seen as problematic by the Commission. Going from four to two invites serious trouble.
A similar picture can be found in the music industry. Here, too, there is the distinct prospect of only three large groups remaining, namely Universal, Sony BMG and - if they finally get their act together - Warner EMI (or EMI Warner?).
In addition, the Commission last July saw its 2004 decision to clear the merger of Sony and BMG overturned in Court. It must therefore be aware that waving through difficult deals is by no means a safe option.
Of course, I would never at this stage want to make a prediction about Commission merger decisions. In both the travel and the music deals, the traditional operators are coming under huge pressure from online providers - which means that competition could stay vibrant even with fewer players.
But I would not be altogether surprised if 2007 became the year in which the Commission finally moved to block another big cross-border deal.
