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Mergers and EC Merger Policy

Mergers and EC Merger Policy. By Kevin Hinde. Aims. Aims To explore the rationale for and impact of mergers in Europe. To demonstrate the role of regulators in controlling merger developments. Learning Outcomes. By the end of this session you will be able to

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Mergers and EC Merger Policy

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  1. Mergers and EC Merger Policy By Kevin Hinde

  2. Aims Aims • To explore the rationale for and impact of mergers in Europe. • To demonstrate the role of regulators in controlling merger developments

  3. Learning Outcomes By the end of this session you will be able to • describe and analyse trends in merger activity in the EC in recent times. • analyse the rationale for merger activity and assess their welfare implications using Williamson’s trade off model. • critically assess the institutional framework controlling European mergers.

  4. Data

  5. TABLE 3 3

  6. Motives for Merger • Market Power. • Efficiency. • Financial Motives • Risk Reduction • Empire Building, Failing Firms and Ageing Owners • EC policy developments and Globalisation

  7. Welfare Effects • Horizontal Mergers • Vertical Mergers • Conglomerate Mergers

  8. Welfare Effects • Mergers can • offer cost savings • improve long term viability of investment • enhance economic integration • But they can also • raise prices • deter actual competition • prevent potential competition

  9. EC Merger Policy • 1990 EC introduced a new Merger Regulation. An EC taskforce must discover whether a merger/joint venture • creates a concentration • has a community dimension • World wide annual turnover of > 2.5bn ECU • EU Annual Sales of >100 Million ECU

  10. Action 1990 to 1999 • 1027 cleared at phase 1(45 with undertakings) • 51 withdrawn • 51 fall outside the scope • 9 full referral back to national authorities • 58 required a phase 2 examination Of the latter • 36 were compatible with conditions and obligations • 11 compatible without obligation • 11 were prohibited

  11. Evaluation • A distinct procedure has emerged for assessing notified mergers once Community jurisdiction has been established. • determine the relevant product market • determine the relevant geographical market • assess whether a merger creates or strengthens a dominant position

  12. Evaluation • Four elements are examined: • the market position of the merged firm (market share and other competitive advantages) • strength of the remaining competitors • customers’ buying power • potential competition

  13. Prohibitions to 1999 • Aerospace/De Havilland (1991) • MSG Media Service (1994) • Nordic Satellite Distribution (1995) • RTL/Veronica/Endemol (1995) • Gencor/Lonrho (1996) • Kesko/Tuko (1996) • Saint Gobain/Wacker Chemie/NOM (1996) • Blokker/ Toys ‘R’ Us (1997) • Bertelsmann/Kirch/Premiere (1998) • Deutsche Telekom/Betaresearch (1998) • Air Tours/ First Choice (1999)

  14. Issues • Only large mergers being caught. • Threshold levels still considered high • Dominance may persist in smaller industries. • Most mergers occurring in technologically dynamic industries. To what extent will this bring benefits? • Concerns about the relationship between member states and EC.

  15. Test • List three trends in EC merger development over the past decade or so. • List the reasons why mergers occur. • What are the costs and benefits of mergers? • What are the main problems for regulators?

  16. Any Questions?

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