Almost exactly five years ago, following the prohibition of Siemens/Alstom by the European Commission, the French and German economy ministers published a joint paper in which they complained that European merger control rules would prevent the emergence of European champions. However, in their opinion such champions were necessary to compete against American and Chinese companies in a globalized world. Now, the German and French governments have brought that topic back on the agenda, inter alia raising the questions of whether merger control needs to become more flexible – or even political.
In recent years, there have been several legislative initiatives at both national and European level aiming to protect European markets against undue foreign investment and influence. A constant tightening of national investment control rules is an example of this, as is the introduction of the Foreign Subsidies Regulation, which keeps a close watch on companies that have benefited from foreign subsidies.
In contrast, the rules of German and European merger control have remained largely untouched at the legislative level. In this respect, from time to time the question is raised whether purely European mergers, aimed at enhancing global competitiveness, should be evaluated less critically. The recent joint initiative by the German and French governments has brought the issue back into focus, though it is not entirely new.
The Manifesto
A quick look back: In February 2019, the European Commission prohibited the Siemens/Alstom transaction sought to combine the parties’ transport equipment and service activities in a new company fully controlled by Siemens (the press release can be found here). The Commission argued that the merger would have created the “undisputed market leader in some signalling markets and a dominant player in very high-speed trains”.
At the time, the parties claimed that the merger was necessary to compete with suppliers from the rest of the world, especially China. The Commission investigated the competitive landscape in the rest of the world but found that Chinese suppliers are not present in the EEA and will take a very long time before they can be credible competitors. For other products, it was even considered “highly unlikely” that a new entry from China would represent a competitive constraint on the merging parties in the foreseeable future.
Shortly after this decision, the German and French Economy Ministers released a “French-German Manifesto” calling for more political oversight in merger control and inter alia stressed that it all boils down to one choice: “unite our forces or allow our industrial base capacity to gradually disappear”. French officials even went a step further and called certain changes to merger control a necessity for “economic survival”.
Reform required for resilience reasons?
Despite these demands of two of the most powerful EU members, little has changed since then. Given the ongoing challenges such as the pandemic, armed conflicts, inflation, and the upcoming EU election, France and Germany have revived the topic. In a joint letter by Emmanual Macron and Olaf Scholz, they laid out some broad key principles which, in their view, are required for a secure common future in the EU. According to the letter (which appears to be based on this background paper by the two countries), also a strategic approach in relevant sectors and a modernisation of “our competition rules in view of global competitiveness” was required. The background paper even explicitly advocates for “establishing consortia and consolidation in key sectors”.
The Commission, on the other hand, seems to strongly believe that EU merger control in its current form does not stand in the way of creating European champions. To that end, Executive Vice President Margrethe Vestager recently re-emphasized that the Commission green-lighted a number of deals that produced “truly global champions based in Europe”. She added that most competition concerns can be solved by remedies which in turn can even strengthen competition from other European players.
What’s next
If certain experts are to be believed, the competitiveness of European providers in certain sectors can indeed only be maintained through further consolidation steps. At the same time, not every large merger of European providers is likely to promote competition without restricting consumers.
The debate continues, with the Commission engaging economic experts to assess the state of competition in Europe. The results will be disclosed by the end of June. Vestager has already hinted that relaxing merger control rules could decrease competition. The outcome of the upcoming EU election will play a significant role in shaping political and legislative decisions – one more reason to mark 9 June on your calendar.
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