Abstract
In recent years, regulators and politicians have raised questions about whether merger control is “fit for purpose” in the modern economy, and in particular about whether the consumer welfare standard remains the appropriate lens through which to assess transactions, or whether merger control should consider the potential impact of a transaction on broader public interest (PI) objectives, such as employment, the environment, data privacy, national security, or industrial or trade policy. Many merger control regimes globally already include a public interest component, and in thinking about whether it would be reasonable or appropriate to add or strengthen the PI component of a merger control regime, it may be helpful to look at regimes that already include a PI component to consider the ways in which this may be structured and whether these standards are likely to be successful in achieving PI aims. This piece surveys the existing merger control regimes with a PI component to identify lessons that may be useful for jurisdictions considering whether and how to expand a merger control regime to include PI.
Keywords
I. Introduction
In recent decades, merger control regulators globally have coalesced around the consumer welfare standard. Assessment of wider public interest (PI) concerns has been marginalized: eliminated completely from merger review in many jurisdictions or limited to specific sectors or narrow circumstances in others. Nevertheless, in recent years, a number of questions have been raised about whether merger control is “fit for purpose” in the modern economy. Politicians, academics, and competition regulators have raised fundamental questions about whether the consumer welfare standard remains the appropriate lens through which to assess transactions, or whether merger control should consider the potential impact of a transaction on broader PI objectives, such as employment, the environment, data privacy, national security, or industrial or trade policy.
The European Commission’s February 6, 2018, prohibition of the merger between the German and French train manufacturers Siemens and Alstom pushed this question to the forefront in Europe. The EC’s decision in Siemens/Alstom initiated significant debate over the role of PI in merger reviews at the EU level too. A “Manifesto for a European industrial policy fit for the 21st Century” was published on February 19, 2018, in which the German and French governments (later joined by Poland) jointly called for significant EU policy changes following the Siemens/Alstom prohibition, including introducing the possibility for the European Council to override the European Commission’s merger decisions in “well-defined cases” and “subject to strict conditions.” In subsequent months, these politicians have walked back their position, with Germany proposing a much less aggressive revision to its national merger control process 1 and France taking a much more subdued approach to the proposed acquisition by Italian shipyard operator Fincantieri of the French yard Chantiers d l’Atlantique, which the Italian government has positioned as essential to protecting jobs, the European economy, and national security. 2 Nevertheless, politicians and regulators in the EU continue to debate whether the Commission should adjust the way in which it considers factors such as global competition, potential future competition, and the extent to which state ownership and support for competitors in some countries can distort competition globally. 3
In the United States, similar concerns have been raised by the New Brandeis School, sometimes referred to as the New Progressive Antitrust Movement or “Hipster Antitrust.” Advocates—including several prominent democratic presidential candidates—have called for expanded enforcement to combat a perceived rise in market concentration and the widespread use of unfair commercial practices by companies with a high market share. Solutions proposed range from full out abandonment of the consumer welfare standard to the expansion of the standard to allow consideration of a transaction’s effects on PI factors. 4
Many merger control regimes globally already include some degree of PI review. In thinking about whether it would be reasonable or appropriate to add or strengthen the PI component of a merger control regime, it may be helpful to look at regimes that already include a PI component to consider the ways in which this may be structured and—more importantly—whether these standards are successful in achieving PI aims. This piece surveys the existing merger control regimes that include a PI component and cases in those jurisdictions in which PI considerations have played a fundamental role and identifies lessons that may be useful for jurisdictions considering whether and how to expand a merger control regime to include PI.
This review shows that a risk of transaction uncertainty and divergence in outcome for global transactions arises from the fact that there is no universal definition of what constitutes PI. PI depends on the social, cultural, and political context of the jurisdiction in question and can change over time. This ambiguity is compounded by the fact that many regimes do not specify what PI the regime is intended to protect but instead merely allows intervention where it is in the general public interest.
This potential for divergence and uncertainty suggests that PI intervention should be limited only to exceptional transactions where there is a significant and overriding PI concern. PI regimes should not be used as a matter of course to extract concessions from parties to a global transaction for limited, local economic benefit, such as commitments to retain employment or to continue purchasing from local suppliers for a short period of time following closing.
PI regimes should also avail themselves of sector-specific expertise and public policy experience of sector regulators, as competition authorities are neither best placed nor well equipped to assess whether a transaction is in the PI. To the extent possible, these regimes should also be transparent, with clear rules as to what PI considerations are relevant and a right of appeal. These safeguards increase certainty for parties by establishing clear expectations as to when and how PI considerations may be relevant and limit abuse.
Methodology
The authors have identified thirty-nine merger control regimes that incorporate a PI component. Each of these jurisdictions takes one of four broad approaches to assess PI: jurisdictions where the impact of the transaction on PI is examined as part of the regular merger control process (Australia, COMESA, Kenya, Mozambique, South Africa, and Zambia); jurisdictions that allow intervention in or override of a prohibition on PI grounds (Algeria, Austria, Cyprus, Germany, France, India, Israel, Italy, Netherlands, Portugal, Saudi Arabia, Singapore, Spain, Sweden, Ukraine, and United Arab Emirates); jurisdictions where a separate PI review exists in limited sectors (e.g., media) (Brazil, Canada, Egypt, Hong Kong, Hungary, Iceland, Malaysia, Slovenia, Switzerland, the United Kingdom, and the United States); and other jurisdictions where PI or public policy considerations have driven merger control decisions in some cases despite the lack of a clear PI component in the regimes (Belgium, Greece, Ireland, New Zealand, Poland, and Russia).
Within these four categories, we review how the PI standard has been applied in practice in a sample set of jurisdictions. These jurisdictions were selected primarily with a view to whether the relevant authority has an established track record in availing itself of the PI component of its merger control regime. 5
II. Jurisdictions with PI Review Incorporated Within the Merger Control Process
In six jurisdictions surveyed, Australia, Common Market for Eastern and Southern Africa (“COMESA”), Kenya, Mozambique, South Africa, and Zambia, the merger control rules require the merger control authority to consider the impact of a transaction on the PI alongside the assessment of the transaction on consumer welfare. In some of these jurisdictions, the regulator is permitted to consider PI only if it has already determined that there is a meaningful risk that the transaction will have an adverse effect on competition. These include Australia and COMESA, where PI factors are relevant only in an in-depth or “Phase II” investigation. 6 Other jurisdictions, including Kenya 7 and South Africa, 8 allow the competition authorities to prohibit a transaction or require remedies on PI grounds regardless of whether they also conclude that the transaction will result in a reduction of competition. We analyze Australia and COMESA as examples of the former type, and Kenya as an example of the latter.
(a) Australia
In Australia, whether PI considerations are relevant depends on whether the merger is reviewed under Australian Competition & Consumer Commission's (ACCC) formal or informal procedure. 9 In the formal merger authorization process, the ACCC can approve a merger either because the transaction will be anticompetitive or because it is likely to result in a public benefit that outweighs any public detriment that will result from the transaction. 10 “Public benefit” is not defined in the controlling legislation, but ACCC’s Merger Authorisation Guidelines state that public benefit is broader than pure economic efficiencies, encompassing, for example, a significant increase in the real value of exports, improvement of international competitiveness of any Australian industry, improvement of health and safety standards, or environmental protection. 11 Similarly, a public detriment could include a noneconomic harm, such as an increase in pollution or a reduction in public health and safety. 12 Nevertheless, the guidelines make clear that the competition assessment is central, and any assessment of PI is ancillary and relevant only at the margins. This is consistent with the way in which the ACCC has applied the law in practice.
For cases notified under the informal procedure, the ACCC cannot consider PI. However, prohibition decisions under the informal procedure are contestable in court, and where a merger is prohibited under the informal procedure and that decision is appealed, the court can undertake an assessment of the potential public benefits of the transaction. 13
Cases notified under the formal procedure or prohibited under the informal procedure make up only a small fraction of the approximately 300 cases that the ACCC assesses each year, 14 so the number of cases in which PI considerations are relevant is trivial. The authors are aware of only two cases notified under which parties have sought to have a merger authorized on public benefit grounds following the amendments to the Competition and Consumer Act in 2017. 15
PI considerations were assessed under the formal procedure in Sea Swift Pty Limited/Toll Marine Logistics Assets (2016), which a 2-to-1 combination of Sea Swift’s takeover of assets from the main competitor in the supply of scheduled marine freight services to remote communities in Australia. Sea Swift argued that the acquisition would result in several public benefits, including ensuring continued service on routes to remote communities, which are often economically disadvantaged. 16 The Tribunal authorized the merger on the basis that these public benefits outweighed the competitive harm that would result from the transaction. 17
PI considerations were assessed on an appeal from an informal competition assessment in AGL Energy Limited/Macquarie Generation (2014). The transaction involved an acquisition by AGL, an Australian energy company, of Macquarie Generation, an entity consisting of assets of the New South Wales electricity generation business that were made available as part of a privatization project undertaken by the New South Wales government. The ACCC prohibited the merger, and the parties appealed this decision to the Tribunal on the basis that the public benefits would outweigh the competitive harm. 18 On appeal, the Tribunal reversed the prohibition decision on PI grounds, finding that the transaction would benefit consumers by (i) allowing New South Wales to dispose of state-owned assets, providing the State 1 billion AUD to spend on infrastructure and relieving the State from the burden of operating the assets; (ii) creating increased capacity and efficiency, which would generate cheaper electricity for the wholesale market; and (iii) allowing AGL Energy Limited to upgrade the Macquarie assets and operate them more efficiently. 19 The Tribunal did impose conditions requiring AGL to offer at least 500 MW of electricity hedge contracts to smaller retailers in New South Wales for a seven-year period.
While the competition law in Australia does permit consideration of PI factors, such assessments are rare, both as a matter of law and in practice, to exceptional circumstances, and in practice have been limited to cases involving local Australian businesses. The number of cases in which PI considerations are relevant at all is limited to formal clearance procedures and appeals, effectively limiting PI considerations to less than 1% of merger reviews. The legal framework in Australia is unique insofar as it creates a potential avenue for parties in cases that raise significant public interest issues to elect to use the formal procedure, where PI considerations are relevant.
(b) COMESA 20
The substantive test applied by the COMESA Competition Commission (CCC) in merger reviews incorporates both competition and PI considerations. Under the COMESA Competition Regulations, the CCC first determines whether a merger is likely to “substantially prevent or lessen competition.” 21 Where the CCC concludes that a transaction will substantially prevent or lessen competition, the CCC can also consider whether the transaction may nevertheless be justified on PI grounds. 22 In practice, PI concerns are analyzed in detail in about 5% of notified transactions.
In transactions where PI considerations are relevant, the CCC can take into account “all matters that it considers relevant in the circumstances.” 23 The Competition Regulations set out a nonexhaustive list of those factors, most of which relate to economic efficiencies that would, in any event, be relevant under the consumer welfare standard: “(a) maintaining and promoting effective competition between persons producing or distributing commodities and services in the region; (b) promoting the interests of consumers, purchasers, and other users in the region, in regard to the prices, quality and variety of such commodities and services; (c) promoting through competition, the reduction of costs and the development of new commodities, and facilitating the entry of new competitors in existing markets.” 24 The CCC interprets these regulations broadly, and frequently takes into account PI considerations like maintaining employment levels and protecting local suppliers and distributors. 25
Since becoming operational in 2013, the CCC has reviewed 126 mergers and has referred to PI considerations in 13 of these decisions. 26 In about half of these, the CCC merely stated that there were no particular PI considerations to be taken into account. 27 In the other half, the CCC imposed remedies to address PI concerns. 28
Although the law states that PI considerations are relevant only where the merger is likely to substantially prevent or lessen competition, in practice, the CCC has imposed remedies to address PI concerns even in relation to mergers which were not found to be problematic from the competition perspective. 29 In AB Inbev/NatBrew (2018), which concerned AB Inbev’s acquisition of a local beer manufacturer Zambia, the CCC found that, while the transaction was unlikely to harm competition, it would lead to a reduction in local employment and termination of local supply contracts. The CCC imposed a remedy requiring the parties to (i) continue producing beer within Zambia for five years following CCC’s decision, (ii) maintain jobs for two years following the transaction, and (iii) continue honoring the existing agreements with local suppliers and local distributors for the duration of these agreements (with certain exceptions). 30
In other cases, the CCC has considered public interest issues and competition issues in parallel. For example, in Rosewild/Chlor-Alkali (2016), the CCC required a remedy based on both competition concerns and concerns that the transaction could jeopardize access to clean water within COMESA. 31 Similarly, in Total Outre Mer/GAPCO (2016), the CCC required separate remedies to address competition concerns and PI concerns that the transaction would result in a loss of employment in Kenya. 32
Indeed, where COMESA has required PI-related remedies, these concerns have most frequently centered on employment. The CCC has been willing to resolve these concerns by way of a commitment from the parties to defer any reduction in employment following the transaction for a period of one to two years. For example, in Total Outre Mer/GAPCO case, the buyer agreed that it would not terminate any employment contracts or decline to renew any short-term employment contracts for one year following the merger. 33 This type of remedy merely defers the PI harm from a transaction, simply requiring the parties to wait for a limited period before taking adverse employment decisions. In addition, this kind of remedy delays rationalization of duplicative employees, which often is a significant component of synergies. This is particularly significant given that the CCC only has a legal mandate to assess the impact of a transaction on PI where it has already concluded that the transaction will have anticompetitive effects, such that the PI remedy may actually exacerbate those effects by delaying achievement of synergies and increasing the combined company’s costs in the short term.
(c) Kenya 34
The Competition Authority of Kenya (CAK) has a mandate to consider the impact of a transaction both on competition and on PI, including the extent to which the merger will affect a particular industrial sector or region, employment, competitiveness of small and medium enterprises (SMEs), or competitiveness of national industries on international markets. 35 The CAK reviews PI considerations in each merger and in parallel to its assessment of competitive effects. 36
In National Bank of Kenya Limited/KCB Group (2019), the CAK approved an acquisition by KCB Group of National Bank of Kenya Limited, a provider of banking and financial services. 37 CAK did not find that the transaction would result in a reduction of competition in any relevant market, but determined that the merger would negatively impact employment because the transaction would have given the parties an incentive to eliminate duplicative departments, which likely would have led to a loss of jobs. 38 The CAK granted an approval under the condition that the merged entity would retain 90% of its employees for eighteen months following closing. 39 CAK reached a similar conclusion and required a similar remedy in Abyssinia Iron & Steel/Top Steel Kenya (2019), where it concluded that the transaction would not result in a reduction of competition but raised concerns that the merged entity likely would eliminate a number of employees and may also impact the competitiveness of SMEs and the ability of national industry to compete internationally.
In its decisions, CAK typically provides only a very brief summary of its PI assessment. As with COMESA, in assessing the PI impact of a transaction, the CAK has focused primarily on whether the transaction will result in the elimination of local jobs and is willing to resolve those concerns through a commitment from the parties to defer the reduction in employment. As discussed previously, this type of remedy merely defers the PI harm by eighteen months, and in the meantime may exacerbate any anticompetitive impact of a transaction.
(d) Conclusions Regarding Jurisdictions that Review Competition and PI Jointly
Even among those jurisdictions that incorporate a PI component into the merger control process, there is variety in terms of the extent to which the competition authority has the ability to consider PI issues and the extent to which it does so in practice. In Australia, where the ability to assess PI is quite limited, the cases in which PI is relevant typically involve serious PI concerns where the free market has failed or is likely to fail to provide a critical public good or service (electricity or freight services to remote communities). On the other hand, in jurisdictions such as COMESA or Kenya that consider PI more regularly, the focus has been on whether a transaction will lead to a reduction in employment in otherwise competitive industries. The remedies imposed in these cases typically take the form of a commitment to retain employment for a short period, which may be popular in the short term, but is both ineffective in addressing any PI concern in the long run and may exacerbate any anticompetitive effects of the transaction.
III. Jurisdictions Where a Prohibition Decision Can Be Overturned on PI Grounds
In a number of jurisdictions, there is a mechanism to allow the merger control authority or another government entity to overrule the merger control process on PI grounds, including several EU member states (Austria, Cyprus, Germany, France, Italy, the Netherlands, Portugal, Spain, and Sweden), as well as Algeria, Israel, Singapore, Saudi Arabia, Ukraine, India, and the United Arab Emirates. Some of these jurisdictions allow a merger control authority to clear a transaction that would otherwise be prohibited on the basis of overriding PI concerns (e.g., India), while others permit a political body (usually an economic ministry) to intervene in exceptional circumstances (e.g., Germany and France). We examine Germany and France as transactions that fall within this category.
(a) Germany
The German Bundeskartellamt (FCO) does not have the mandate to assess PI considerations. However, where the FCO prohibits a transaction, the merging parties can apply to the German Federal Minister of Economic Affairs and Energy for a ministerial authorization of the transaction (“Ministererlaubnis”) on the grounds of PI. This process is only available at the request of the parties; the Minister can neither interfere ex officio in an ongoing merger procedure before the FCO nor can he or she initiate the procedure for the ministerial authorization. Where the merging parties request a review, an independent body, the Monopolies Commission, examines both the competition and PI issues.
The German Act against Restraints of Competition 40 does not set out an exhaustive list of relevant PI considerations, but states that the grounds may include benefits to the national economy as a whole or “overriding public interest.” 41 Past decisions under the procedure have considered whether a transaction is essential to secure technological know-how, 42 achieve environmental policy objectives, 43 secure energy supply, 44 safeguard jobs and protect workers’ rights, 45 maintain a high level of health care, and/or ensure continued research and access to higher education. 46
Since the possibility of applying for the Ministererlaubnis was introduced, 47 only twenty-three applications have been made out of approximately 45,000 mergers reviewed by the FCO in the past thirty years, seven of which have been made in the past twenty years. 48
The Ministererlaubnis was applied recently in 2019 in Miba/Zollern, where Austrian company Miba AG and German company Zollern GmbH & Co KG applied following the FCO’s prohibition decision of their plans to create a joint venture (JV) active in the production of hydrodynamic bearings. 49 The FCO prohibited the transaction on the basis that both parties had a very strong market position in the supply of bearings for large bore engines and that the merger would cause customers in Germany to lose an important alternative supplier. 50 The parties argued in their Ministererlaubnis application that various PI concerns justified overriding the prohibition including (i) an interest in developing know-how and innovation potential for key technologies, particularly bearing technologies that could in the future be used for wind energy generation; (ii) maintaining international competitiveness of medium-sized companies from Germany and Europe against fierce competition from China, Korea, Japan, and the United States; (iii) preserving jobs in a structurally weak region of Germany; and (iv) retaining production of bearings with a military application in Europe. 51 The Minister issued a Ministererlaubnis, agreeing that the know-how in question had a “particularly high value for the society” as it was necessary for achieving Germany’s eco-political goals, but citing also environmental policy reasons. 52 To ensure that the technologies in question would indeed be developed, a Ministererlaubnis was accompanied by the parties’ commitment to invest EUR 50 million in R&D over eight years and refrain from any changes in the JV’s ownership structure for five years. 53 The remedy did not address any of the competition issues identified by the FCO.
In Edeka/Kaiser´s Tengelmann (2015), the FCO prohibited grocery store operator Edeka’s takeover of 451 grocery stores of its competitor Kaiser’s Tengelmann, concluding that it would result in a considerable deterioration of the competitive structure in a number of highly concentrated regional and municipal markets. 54 In their Ministererlaubnis application, the parties argued that the merger would positively impact the economic development in the region, decrease households’ costs, preserve jobs, and ensure secure supplies of groceries. 55 The Minister of Economy allowed the merger to proceed subject to certain conditions, concluding that preservation of jobs and employee rights overrode any competition concerns. 56 This decision was subject to significant public criticism, 57 and the several competitors appealed the Ministererlaubnis in court. The Higher Regional Court of Düsseldorf issued a preliminary suspension pending the final determination of the case. Ultimately, Edeka agreed to divest certain assets to Rewe to resolve the competition concerns about the transaction, and the appeal was withdrawn. 58
The review of German cases shows that the Ministererlaubnis procedure is used rarely and subject to significant safeguards to ensure that PI considerations are considered against any competition concern by an independent body. 59 The Minister’s decision is also subject to judicial review, which further decreases the risk of arbitrary political decisions in individual cases (as seen by the appeal of the Minister’s decision Edeka/Tegelmann, which had been highly criticized as arbitrary). The most commonly invoked PI considerations in Germany are those related to know-how and preservation of European technological superiority in the face of increasing competition, most often from Asia (the concerns raised in Miba/Zollern are comparable to those raised by Germany in Siemens/Alstom case—i.e. the threat of competition from China), but also protection of university R&D in small communities of Germany. Employment preservation, especially in economically weaker regions of Germany, has also often been raised, but there have not been any decisions where a Ministererlaubnis was issued purely on the basis of employment concerns.
(b) France
The French Competition Authority (Autorité de la concurrence or FCA) does not have a legal mandate to assess a transaction on grounds of PI, 60 but the French Economic Minister can overturn an FCA decision if it determines that a transaction should proceed or be prohibited on PI grounds (“pouvoir d’évocation”). The Minister has twenty-five working days following FCA’s decision to make such a determination. The Minister can overturn FCA’s decision or can also impose remedies, including additional remedies above and beyond those imposed by the FCA. 61 The Minister’s decision is subject to appeal before the French Supreme Administrative Court. A nonexhaustive list of the PI considerations that the Minister can consider is set out in the French Code of Commerce, including the protection of industrial development, the competitiveness of an industry in view of international competition, and the creation and stability of employment. 62
Pouvoir d’evocation was introduced in 2008 (effective since 2009). 63 Since then, it has only been used once, to assess on PI grounds the Cofigeo/Agripole transaction. The FCA concluded that the new entity would have a share above 70% in France for the production and commercialization of Italian and exotic ready-made meals, but allowed the transaction to proceed subject to divestiture of Cofigeo’s Italian ready-made meal brand Zapetti and certain production assets. 64 On the same day, the Minister of Economy announced that it would carry out a PI review of the transaction because of concerns that the divestment of Zapetti would hamper industrial development and lead to a significant loss of jobs. 65 The Minister decided a month later (in July 2018) that the transaction was part of a wider ambitious industrial strategy essential to revitalize the sector and that the divestment would call this into question (without providing further details). The Minister ultimately authorized the merger on the sole condition of maintaining employment by the merged entity for two years, while the divestment imposed by the FCA in its clearance decision was invalidated. 66 The Minister’s decision is, by contrast to the decisions under the German Ministererlaubnis procedure, brief. 67
While the pouvoir d’évocation has only been used once, the Cofigeo/Agripole case and France’s recent strong advocacy on the revision of merger control rules at the EU level following Siemens/Alstom suggests that political bodies in France may take the opportunity to intervene in merger control more often going forward. Where it does intervene, if it imposes broad employment-related remedies, as was the case in Cofigeo/Agripole, these carry the risk of contravening the competition assessment and reducing the synergies from the transaction to the detriment of consumers.
(c) Conclusions Regarding Jurisdictions Where a Prohibition Decision Can Be Overturned on PI Grounds
The second category of jurisdictions allows for intervention in a merger control process only in exceptional circumstances, which generally decreases potential arbitrary outcomes of merger control—in comparison to at least some countries in the first category of jurisdictions where PI considerations could be assessed in nearly every (complex) case.
Even so, this approach is not without the potential for misapplication. In particular, the mechanism for PI intervention in these jurisdictions is often designed in a way that entirely removes the participation of competition authorities in the further process (i.e., once the political body has intervened), so the remedies imposed by political bodies can undermine or fail to remedy any adverse impact on competition. The remedies have also often been designed in a way that safeguards near-term benefits but do not allay long-term concerns (e.g., employment preservation in the years immediately following the transaction, as in Edeka/Tegellman, or relatively low R&D investment commitments for a few years following the merger, as in Miba/Zollern), asking the question whether the PI in question has in fact been protected by the intervention. The process followed in France is especially problematic in this regard as it seems to be conducted entirely behind closed doors, which further increases the risk of arbitrary political decisions potentially benefiting private actors rather than PI.
IV. Jurisdictions with PI Review in Specific Sectors
A number of jurisdictions have laws or regulations in place allowing PI review of transactions in certain sectors, either by competition regulators as part of the merger review process or in a separate process by other public authorities. This category includes Brazil (banking), Canada (financial institutions and transportation), Egypt (telecommunications and banking), Hong Kong (telecommunications), Hungary (media), Iceland (media), Malaysia (aviation, communications, and multimedia), Slovenia (media), Switzerland (banking), the United Kingdom (media), and the United States (telecommunications, aviation, rail transport, energy, banking). 68 This section examines the United Kingdom and the United States in more detail.
(a) United States
The Federal Trade Commission and the Department of Justice Antitrust Division (the “U.S. Antitrust Agencies”) do not have a mandate to review the impact of a transaction on PI.
69
However, transactions in certain sectors are subject to parallel review by sector-specific federal regulators, which often have the mandate to consider both the competitive and PI impact of a transaction.
70
Typically, in cases subject to review by another federal regulator, the U.S. Antitrust Agencies cooperate closely with the other regulator to ensure a consistent outcome.
71
We present below examples of mergers reviewed by the U.S. Department of Transportation (DOT) (aviation) and the Federal Communications Commission (FCC) (telecommunications). Aviation: The DOT is responsible for assessing the potential impact of transactions not only in the aviation sector on competition but also on international route transfers, economic fitness, code-sharing, and unfair or deceptive practices.
72
If the DOT determines that a transaction would not be consistent with the PI or with international aviation policy, the DOT can prohibit the transaction in whole or in part or require remedies.
73
For example, when AMR Corp and US Airways Group filed for a merger approval in 2013, the DOT concluded that the merger would lead to a significant increase in the concentration of slots at the Reagan Washington National Airport, which would hamper the ability of low-cost carriers to compete with legacy carriers on a system-wide basis.
74
The DOT was also concerned that the merged entity might not maintain service to small communities in the United States. To resolve these concerns, the carriers committed to divest 12% of their slots to low-cost carriers
75
and to use all of the merged entities’ commuter slots at Reagan Washington National Airport to serve nonstop service from the airport to designated small, medium, and non-hub airports for five years.
76
Telecommunications: The FCC reviews transactions involving licenses and authorizations under the Communications Act and determines whether they would serve “the public interest, convenience, and necessity.”
77
The PI standard of review encompasses broad aims of the Communications Act, which include, among other things, preserving and enhancing competition in relevant markets, accelerating private-sector deployment of advanced services, ensuring a diversity of information sources and services to the public, assessing whether the transaction will affect the quality of communications services, and generally managing spectrum in the PI.
78
There are three potential outcomes of the FCC’s review: if the transaction violates a statute or rule, the FCC will deny approval; otherwise, the FCC can approve the transaction, with or without conditions. If the FCC is unable to find that the transaction would serve the PI (but it does not violate the law), the FCC must designate the transaction for a hearing before an administrative court.
In 2017, the FCC reviewed the Nexstar Broadcasting Group’s acquisition of Media General. 79 Nexstar Broadcasting Group argued before the FCC that the acquisition would produce significant economies of scale, which would be invested in producing local news programs and establishing state news bureaus. The FCC recognized that the establishment of the news bureaus would result in PI benefits (increasing viewers’ awareness on issues that may affect them) that would not occur absent the transaction in light of the significant costs for the technical infrastructure and staff required. The FCC concluded that the transaction was in the public interest. 80 In parallel, the Department of Justice cleared the transaction unconditionally.
(b) The United Kingdom
In the United Kingdom, the Competition and Markets Authority (CMA) (and, prior to Brexit, the European Commission) is responsible for administering the merger control regime, but the appropriate Secretary of State (SoS) can issue a PI intervention notice ex officio if it considers that a transaction may impact PI relating specifically to national security, media plurality, or the stability of the UK financial system. 81 In the recent past, the Secretary of States for Business and Culture have reviewed mergers that raise media plurality concerns. Where the SoS issues a PI intervention notice, the CMA will invite third parties to comment on both competition and the impact of the transaction on the PI. The CMA will then report to the SoS regarding its conclusions on the likely competitive effects of the transaction, as well as a summary of any third-party views received. The SoS has an obligation to follow the CMA’s findings related to the competitive effects of the transaction, 82 but reaches its own conclusion on whether the merger will have a negative impact with respect to national security, media plurality, or UK financial stability. The SoS makes the final decision on the PI considerations and can impose commitments necessary in order to address the PI and competition issues. 83 Because the SoS exercises this power in a quasi-judicial capacity, the SoS must act impartially.
The SoS, with the approval of the Parliament, has the power to extend these PI considerations beyond the three sectors currently covered by the law, and the SoS’s ability to evaluate the impact of a transaction on the stability of the UK financial sector was added to the law following the global financial crisis in 2008. 84 In addition, the SoS can investigate “special PI” 85 transactions that do not meet the merger control thresholds, but nevertheless raise wider PI concerns that merit investigation. In these special PI cases, scrutiny of the transaction is limited to PI considerations carried out by the SoS, without a competition assessment by the CMA. Two types of mergers can be considered under the special PI provisions: (i) mergers involving certain government contractors holding confidential information relating to defense 86 and (ii) mergers in the newspaper and broadcasting sector (in the latter, Ofcom must provide a report in relation to PI considerations 87 ).
We have identified eighteen instances 88 in which the SoS issued a PI intervention notice: six concerning media PI issues, 89 one relating to the stability of the UK financial system, 90 and eleven relating to national security. 91 Two out of eighteen were special PI cases. 92
In the financial sector, the SoS issued a PI intervention notice in LloydsTSB/HBOS (2008). The CMA determined that the transaction would reduce competition in the markets for personal current accounts, mortgages, and banking services for SMEs. 93 The merger was cleared by the SoS on the basis that the anticompetitive effects were likely to be outweighed by the PI of preserving the stability of the UK financial system. 94 HBOS held a central position in the provision of UK residential mortgages and was in a vulnerable position following the financial crisis. The SoS intervened on the basis that the transaction would prevent HBOS from exiting the market, which was important to the wider stability of the UK financial system at the time. 95
In 21st Century Fox/Sky (2017), 96 which was reviewed by the European Commission, the SoS issued a PI intervention, stating that the merger could harm media plurality in the United Kingdom and required the CMA to conduct a more detailed assessment. The CMA provisionally found that the merger would result in “too much control” over news providers across all media platforms, and therefore too much influence over public opinion and the political agenda. 97 Fox argued that, despite concentration of multiple media outlets in the hands of parties espousing one political viewpoint, Fox lacked material influence over consumers because of the overall decrease in newspaper sales. 98 The SoS followed the CMA’s report that the merger would be against the public interest on the grounds of media plurality and accepted CMA’s proposal that the most proportionate and effective way to address the PI concerns would be to divest Sky News. 99
The PI application in the United Kingdom seems to be exceptional, as a matter of law and practice, with only a handful of cases in recent years. In October 2018, a legislative proposal called for expansion of the SOS’ intervention powers to the area of national security, which, if passed, could increase the use of the PI intervention notice in the future.
(c) Conclusions Regarding Jurisdictions with PI Review in Specific Sectors
The United States and the United Kingdom present two contrasting models for how sector-specific PI review can be carried out. In the United States, PI review and competition review are carried out in parallel for all reportable transactions in the relevant sector, with the U.S. Antitrust Agencies assessing the competitive effects of the transaction in coordination with a sector regulator that considers the impact of the transaction on both competition and PI. One benefit of this model is that it leaves the PI review to sector experts such as the FCC and FERC, who arguably are much better placed than the U.S. Antitrust Agencies to assess the way in which a transaction will impact public policy goals in the sector in question. At least theoretically, the U.S. approach does provide an opportunity for divergent outcomes if, for example, the reviewing U.S. Antitrust Agency determines that a transaction should be prohibited on competition grounds, while the sector regulator determines that it should be cleared on PI grounds. In practice, this tension has been resolved by a history of strong cooperation between the U.S. Antitrust Authorities and the other agencies in question, with both regulators working to ensure a consistent outcome for the merging parties.
In the United Kingdom, all sector-specific merger review sits with the appropriate SoS, which relies on the CMA to inform its assessment of a transaction. The UK regime introduces some uncertainty insofar as SoS is a political appointment, opening the door to abuse of this right in certain cases. This is contrary to the approach in the United States where, while the head of regulatory agencies may be appointed by the executive branch, the employees responsible for the review of a transaction typically are non-partisan bureaucrats with significant expertise in the sector. However, in practice, any potential for abuse in the United Kingdom is limited by the fact that PI intervention is limited to just three sectors, it historically has been used only in very rare cases. In fact, the PI intervention notice in the United Kingdom has never been used to justify an otherwise problematic merger on PI grounds, but only to raise specific PI concerns in relation to a transaction. In addition, the process in the United Kingdom is highly transparent, with clearly defined roles for the CMA and the SoS and with the involvement of politically independent and expert regulatory agencies where relevant, with a requirement for publication of reasoned decisions by all authorities involved.
V. Other Jurisdictions
In a final set of jurisdictions, there are no formal rules relating to PI concerns, but there is evidence that PI considerations have driven merger control decisions in certain cases. These include Belgium, 100 Greece, 101 Ireland, 102 New Zealand, 103 Poland, 104 and Russia. Public information on these cases is limited, as the PI considerations are not necessarily reflected in the relevant merger control decision.
For example, in its assessment of mergers, the Russian Federal Antimonopoly Service (FAS) examines whether there is a “restriction of competition as a result of emergence or strengthening of a dominant position.” 105 The FAS does not have a statutory or regulatory basis to include PI considerations in a merger review. However, in a number of cases, the FAS has used the merger control process to secure or attempt to secure remedies that would be beneficial for the Russian economy, for example, by requiring remedies that would allow a transfer of technology or inputs to Russian companies that may otherwise be difficult in light of sanctions. For example, in its 2018 decision in Bayer/Monsanto, FAS imposed a remedy aimed at “creating conditions for the development of potential competition from Russian companies” in the agro-chemical sector. 106 In particular, the parties committed to providing Russian companies with nondiscriminatory access to their digital agriculture platforms, relevant data, hardware, and software, 107 as well as to create a biotechnology research center in Russia in order to train Russian specialists. 108 The remedy required in Russia was based on the same competition concerns identified in the European Union and the United States about the transaction, and should, in theory, have been resolved already by the global remedy agreed in the European Union and the United States, which required, among other things, divestiture of Bayer’s global digital agriculture assets and products, as well as several overlapping lines of research for the development of nonselective herbicides. 109 Requiring a further remedy in Russia targeted at transferring data and technology to Russian companies appears to have been motivated, then, by PI considerations rather than competition concerns.
VI. Lessons for Jurisdictions Contemplating a New or Expanded PI Regime
Although nearly half of the merger control regimes reviewed incorporate some type of PI review, these considerations have played a central role in a relatively limited number of cases. As politicians and regulators continue to debate the appropriate scope of PI considerations in merger control, there clearly is scope for regulators in many of these jurisdictions to expand the scope of PI review, potentially without any change in the law.
There are significant differences among the jurisdictions reviewed in terms of both procedure and substance relating to PI considerations. Nevertheless, there are certain points that arise in considering how these regimes operate in practice that may be of use for jurisdictions considering whether and how to expand a merger control regime to include PI.
First, there is no universal definition of what constitutes PI, and its definition depends on the social, cultural, and political context of the jurisdiction in question, and may change over time (e.g., the stability of the financial system as a PI was introduced in the United Kingdom only following the 2008 financial crisis). As a result, it may also be the case a PI benefit in one jurisdiction may be harmful to another. For example, in the Siemens/Alstom transaction, the French and German governments viewed the transaction as essential to ensure that European firms remain competitive against the increasing threat of competition from China and elsewhere in Asia, a goal that clearly would not be viewed as in the public interest in China. There seems less likelihood that PI review would coalesce around a global standard or framework as has been the case in merger control, creating the serious potential for inconsistent and counterproductive outcomes in the approximately 70% of transactions today have a cross-border element. 110
This ambiguity is compounded by the fact that many regimes do not specify what PI the regime is intended to protect, but instead merely allows intervention in the general public interest. Some jurisdictions rely on a precise list or limit PI review to narrow sectors, while others give the authority broad leeway to consider the public interest more generally. In jurisdictions without a precise definition of PI, this lack of clarity will contribute to uncertainty for parties, increase the risk of divergent outcomes in merger reviews of global transactions, and create a potential for abuse. If these regimes were to become more prolific or to be utilized more often, parties to a transaction may need to plan “add on” PI-related remedies on top of any remedies needed to resolve competition concerns. This was the case, for example, with respect to the Russian remedy in Bayer/Monsanto, which went over and above the global remedy required to resolve ostensibly the same concerns in the European Union and the United States. If such measures were required in too many jurisdictions, it could outweigh the potential benefits of at least some global transactions.
Second, given the ambiguity around what constitutes PI and the potential for global divergence and inconsistent outcomes, PI intervention should be limited to exceptional circumstances. Today, most regimes that include a PI component, particularly in the developed world, make merger control decisions on the basis of PI considerations only rarely, either because the law is itself designed to restrict PI review only to extraordinary circumstances or specific sectors, and in others, it is because the authority in question has, as a practical matter, focused on competitive effects over PI considerations. Competitive effects of a transaction—and the consumer welfare standard—should continue to be the primary focus of merger control globally, with PI considerations playing a role only in cases where the free market has failed to protect an important public policy interest or provide a critical good or service. This control creates predictability for parties and consistency of outcome for global transactions.
Third, the competition authority should not have sole responsibility to weigh public interest considerations in reviewing mergers. Sector regulators or other government departments with a public policy mandate and sector expertise are significantly better placed to weigh the potential impact of a transaction on the PI. This model increases predictability, but can raise enforcement challenges where it requires multiple government departments to align their procedures and outcome, as is the case in the United States. It is therefore critical that such a regime has clear rules as to how the competition and PI review will proceed in parallel in order to avoid delays and duplication and ensure a consistent outcome.
Fourth, any ability of a regulator to prohibit a transaction or require remedies on PI grounds should be transparent, with clear rules as to what PI considerations are relevant, and a requirement for reasoned decision and a right of appeal. These safeguards limit abuse and help create predictability and certainty for parties by establishing clear expectations as to when and how PI considerations may be relevant.
Fifth, where remedies are required to address PI concerns, they should be effective in addressing the PI issue without undermining the competition assessment. A number of regulators, particularly in Africa, have on PI grounds concluded that a transaction may have an adverse impact on local employment and have required parties to remedy this harm by committing to retain employees for one to two years following the transaction. This type of remedy is not effective in the long term in resolving public interest concerns and could exacerbate the anticompetitive impacts of a transaction by delaying the implementation of synergies, resulting in an outcome that is less than optimal from either a PI or competition law perspective.
Finally, provided that a regime follows the best practices outlined above, there does not appear to be any structure that is ideal or even preferable for incorporating a PI component into a merger regime. For each of the three models described in this article, there are jurisdictions where the format has been used in a limited and arguably effective way and examples of jurisdictions or cases where it has resulted in sub-par outcomes. More critical is that the regime leads to consistent outcomes, which will be the case provided it has clear, transparent rules, is limited to or used only in exceptional circumstances, and is subject to judicial oversight.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.