Merger control
Encyclopedia
Merger control refers to the procedure of reviewing mergers and acquisitions
under antitrust
/ competition law. Over 60 nations worldwide have adopted a regime providing for merger control.
Merger control regimes are adopted to prevent anti-competitive consequences of concentrations (as mergers/takeovers are also known). Accordingly most merger control regimens provide for one of the following substantive tests:
In practice most merger control regimes are based on very similar underlying principles. Simplified, the creation of a dominant position would usually result in a substantial lessening of or significant impediment to effective competition.
Modern merger control regimes are of an ex-ante nature, i.e. the antitrust authority has the burden of predicting the anti-competitive outcome of a concentration. While it is indisputable that a concentration may lead to a reduction in output and result in higher prices and thus in a welfare loss to consumers, the antitrust authority faces the challenge of applying various economic
theories and rules in a legally binding procedure.
term used in the area of merger control. It refers to the ability of post-merger firms to raise prices because of the removal of competitive constraints resulting from the merger, irrespective of the pricing decisions and actions of their competitors. Such anti-competitive effects can be pronounced when two significant competitors merge to create a large, but not dominant player on a market with only a few other competitors. In such a case, particularly when the two merging companies have highly substitute good
, it will be rational for the merged company to raise prices to some degree, because it will recapture some of the customers who would have switched away from the product in favour of what was previously a competing product. Such a price increase does not depend on the merged firm being the dominant player in the market. The likelihood and magnitude of such an increase will instead depend on the substitutability of the products in question – the closer the substitute,the greater the unilateral effects.
The second mechanism of transition of corporate control, which is characteristic for Russia, we can assume the accumulation of debts absorbed by the company and its conversion to its shares in the process of bankruptcy. When conducting bankruptcy procedures may be signing a settlement agreement, under which the lender receives its debt stock company.
Another five or six years ago, often used third transition mechanism for corporate control, which consists of participation in corporate governance, the target company. If control over it could not be established through participation in its equity, the composition of its leadership instilled a number of persons loyal to the company or group exercising absorption. By adopting certain management decisions, legal clarity that remains in question, the basic production assets of the company for a symbolic sum transferred to a specially created entities. Then, depending on the likelihood of the trial and the decision to return assets last (or shares of their owner) to resell or pledge. As a result, within the same production co-existed two legal entities: the old company, whose assets were listed in uncollectible receivables for removing the equipment and are often just as hopeless a large accounts payable, and a new company with significant assets of a particular corporate group .
The three transition mechanism of corporate control are non-market nature. The fourth mechanism - the acquisition of shares in the share capital - is quite a market. It is most prevalent in Western countries, and most recently - and in Russia.
has a merger control regime which imposes a global bar on closing.
A merger control regime is described as "voluntary" when the parties are not prevented from closing the deal and implementing the transaction in advance of having applied for and received merger clearance. In these circumstances the merging parties are effectively taking the risk that the competition authority will not require them to undo the deal if in due course it is found that the transaction is likely to have an anti-competitive effect. The UK has a voluntary merger control regime. However, the Office of Fair Trading
can request the parties to a merger that has already completed to hold the two businesses separate pending an investigation (so called "initial undertakings").
Mandatory regimes are more effective in preventing anticompetitive concentrations since it is almost impossible to unravel a merger once it has been implemented (for example because key staff have been made redundant, assets have been sold and information has been exchanged).
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
under antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
/ competition law. Over 60 nations worldwide have adopted a regime providing for merger control.
Merger control regimes are adopted to prevent anti-competitive consequences of concentrations (as mergers/takeovers are also known). Accordingly most merger control regimens provide for one of the following substantive tests:
- Does the concentration substantially lessen competition? (USUnited StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
, UKUnited KingdomThe United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
) - Does the concentration significantly impede effective competition? (EU)
- Does the concentration lead to the creation or strengthening of a dominant position? (GermanyGermanyGermany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, SwitzerlandSwitzerlandSwitzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
)
In practice most merger control regimes are based on very similar underlying principles. Simplified, the creation of a dominant position would usually result in a substantial lessening of or significant impediment to effective competition.
Modern merger control regimes are of an ex-ante nature, i.e. the antitrust authority has the burden of predicting the anti-competitive outcome of a concentration. While it is indisputable that a concentration may lead to a reduction in output and result in higher prices and thus in a welfare loss to consumers, the antitrust authority faces the challenge of applying various economic
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
theories and rules in a legally binding procedure.
Unilateral effect
Unilateral effect is a competition lawCompetition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
term used in the area of merger control. It refers to the ability of post-merger firms to raise prices because of the removal of competitive constraints resulting from the merger, irrespective of the pricing decisions and actions of their competitors. Such anti-competitive effects can be pronounced when two significant competitors merge to create a large, but not dominant player on a market with only a few other competitors. In such a case, particularly when the two merging companies have highly substitute good
Substitute good
In economics, one way we classify goods is by examining the relationship of the demand schedules when the price of one good changes. This relationship between demand schedules leads economists to classify goods as either substitutes or complements. Substitute goods are goods which, as a result...
, it will be rational for the merged company to raise prices to some degree, because it will recapture some of the customers who would have switched away from the product in favour of what was previously a competing product. Such a price increase does not depend on the merged firm being the dominant player in the market. The likelihood and magnitude of such an increase will instead depend on the substitutability of the products in question – the closer the substitute,the greater the unilateral effects.
Features of financing mergers and acquisitions in Russia
The peculiarity of financing mergers and acquisitions in Russia due to the transition mechanisms of corporate control. Most Russian companies were formed in the process of privatization and corporatization. Privatization of companies is going through their allocation of state structures and the transfer to private owners. This allows us to consider acquisitions in the privatization process as the first mechanism to implement the strategy of mergers and acquisitions, which continues to play an important role in modern Russian conditions.The second mechanism of transition of corporate control, which is characteristic for Russia, we can assume the accumulation of debts absorbed by the company and its conversion to its shares in the process of bankruptcy. When conducting bankruptcy procedures may be signing a settlement agreement, under which the lender receives its debt stock company.
Another five or six years ago, often used third transition mechanism for corporate control, which consists of participation in corporate governance, the target company. If control over it could not be established through participation in its equity, the composition of its leadership instilled a number of persons loyal to the company or group exercising absorption. By adopting certain management decisions, legal clarity that remains in question, the basic production assets of the company for a symbolic sum transferred to a specially created entities. Then, depending on the likelihood of the trial and the decision to return assets last (or shares of their owner) to resell or pledge. As a result, within the same production co-existed two legal entities: the old company, whose assets were listed in uncollectible receivables for removing the equipment and are often just as hopeless a large accounts payable, and a new company with significant assets of a particular corporate group .
The three transition mechanism of corporate control are non-market nature. The fourth mechanism - the acquisition of shares in the share capital - is quite a market. It is most prevalent in Western countries, and most recently - and in Russia.
Mandatory and voluntary regimes
A merger control regime is described as "mandatory" when the parties are indefinitely prevented from closing the deal until they have received merger clearance. A distinction can also be made between "local" and "global" bars on closing/implementation; some mandatory regimes provide that the transaction cannot be implemented within the particular jurisdiction (local bar on closing) and some provide that the transaction cannot be closed/implemented anywhere in the world prior to merger clearance (global bar on closing). South AfricaSouth Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
has a merger control regime which imposes a global bar on closing.
A merger control regime is described as "voluntary" when the parties are not prevented from closing the deal and implementing the transaction in advance of having applied for and received merger clearance. In these circumstances the merging parties are effectively taking the risk that the competition authority will not require them to undo the deal if in due course it is found that the transaction is likely to have an anti-competitive effect. The UK has a voluntary merger control regime. However, the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
can request the parties to a merger that has already completed to hold the two businesses separate pending an investigation (so called "initial undertakings").
Mandatory regimes are more effective in preventing anticompetitive concentrations since it is almost impossible to unravel a merger once it has been implemented (for example because key staff have been made redundant, assets have been sold and information has been exchanged).
External links
- Global Competition Forum
- International Competition Network
- OECD Competition/Antitrust Policy Division
- Institute of Mergers, Acquisitions and Alliances (MANDA) M&A An academic research institute on mergers & acquisitions, incl. anti trust issues
- The Competition Commission, controls and regulates mergers in the UK
- RusMergers M&A analytics