State of play: The EC‘s ongoing phase 2 mergers

At the moment, the European Commission has to deal with a number of phase 2 cases. While the outcome still seems to be open, there are already a few interesting observations which will be important to keep in mind going forward. Here is an overview.  

Contrary to popular belief, the European Commission remained active even throughout the summer, initiating in-depth investigations for two mergers. At the moment, the Commission has to deal with five ongoing phase 2 investigations (i.e. in-depth review of the merger with an extended deadline).

Close shop?

No overview is complete these days without an ongoing case concerning US big tech. This holds true not only for behavioural investigations, but also for mergers. So, it might not have come as a surprise when the Commission sent Amazon’s intended acquisition of iRobot, a US-based manufacturer of robot vacuum cleaners, into phase 2. By that, Amazon joins the other four US heavyweights (Apple regarding the acquisition of Shazam, Google (Fitbit), Meta (Kustomer) and Microsoft (Activision)), all of which went through an in-depth investigation under the tenure of the Commission Executive Vice President Vestager.

But these cases have more than big tech in common. In all of them, vertical concerns, especially foreclosure effects, played a decisive role. In Amazon/iRobot, the Commission seems to fear that Amazon may have the ability and incentive to foreclose iRobot’s rivals by preventing them from selling similar vacuum cleaners on Amazon’s online marketplace. Further, it could become trickier for iRobot’s rivals to somehow interact with Alexa. Additionally, Amazon could potentially leverage iRobot’s data to gain an upper hand over rival marketplaces.

Overlaps never help

Somewhere in between vertical and horizontal concerns is the Booking/eTraveli merger, which is also being reviewed in phase 2. Booking, a well-established leader in the hotel online travel agency (OTA) market, seeks to acquire eTraveli, which focuses more on flight OTA services. By acquiring a flight OTA service, Booking could, according to the Commission, strengthen its already dominant position on the hotel OTA market. It could, so the theory, expand its ecosystem of travel services as a result of which the life of competitors would become more difficult and barriers to entry even higher.

Adobe’s intended acquisition of Figma also concerns the tech world, with Figma being a provider of a web-based collaborative tool for interactive product design. However, in this case the Commission seems to be mainly concerned about the horizontal overlaps. The Commission opened a phase 2 investigation because the regulator preliminarily found that Figma is the clear market leader for the supply of interactive product design tools and Adobe one of its largest competitors.

The theory of harm in Orange/MasMovil seems to be similar. The transaction would bring together the second and fourth largest operator active at the retail and wholesale level for fixed broadband and mobile services in Spain. A reduced number of network operators in Spain resulting in potentially higher prices and lower quality – sounds more like a “classic” phase 2 case than a new theory of harm.

Out of the box

The final phase 2 case stands out in various ways. Not only does it diverge from the tech sector in the broader sense, but, at first glance, it also looks like a foreign-to-foreign merger without a direct impact on the European market . Still, following its well-established route-by-route analysis, the Commission expressed its preliminary view on the acquistion of Asiana by Korean Air, which are the two largest airlines in South Korea. The regulator fears reduced competition on four routes between South Korea and the EEA where the merging parties compete “head-to-head”. On two of these routes, they are even the only two airlines offering direct service. Addressing these concerns through remedies appears feasible, and the parties involved appear committed to seeing the case through.

Anything to be learned here?

Obviously, randomly looking at five ongoing phase 2 cases at a certain point in time cannot be more than a snapshot. However, it is still striking that three out of the five cases concern the tech sector. As to theories of harm, horizontal overlaps are still the main issue, but foreclosure effects and expanding the ecosystem through M&A deals will likely become even more important in the future than they are already today.   

Photo by Karsten Füllhaas on Unsplash