julie_clarke_thesis.pdf

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The international regulation oftransnational mergers

Supervisor: Prof Stephen CoronesLaw & Justice Research Centre

Julie Clarke (student 02693585)

LLB (Deak), BA (Deak)


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The international regulation of transnational mergers

Juli e Nicol e Clarke

LLB (Deak), BA (Deak)

Submitted in total fulfilment of the requirements

of the degree of Doctor of Philosophy

2010

Supervisor: Professor Stephen Corones

Faculty o f Law

Law & Justice Research Centre

Queensland University of Technology


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Julie Clarke The International Regulation of Transnational Mergers Page i

[MERGERS NOWFREQUENTLY INVITE

MULTIPLE REGLATORY

REPSONSES BECAUSE OF

THEIR POTENTIAL TO

IMPACT ON MORE THAN

ONE ECONOMY ]

Abs t r ac t

ransnational mergers are mergers

involving firms operating in more than one

jurisdiction, or which occur in one

jurisdiction but have an impact on competition in

another. Being of this nature, they have the

potential to raise competition law concerns in

more than one jurisdiction. When they do, the

transaction costs of the merger to the firms

involved, and the competition law authorities,are likely to increase significantly and, even

where the merger is allowed to proceed, delays

are likely to occur in reaping the benefits of the

merger. Ultimately, these costs are borne by

consumers.

This thesis will identify the nature and source of regulatory costs associated

with transnational merger review and identify and evaluate possible

mechanisms by which these costs might be reduced. It will conclude that

there is no single panacea for transnational merger regulation, but that a

multi-faceted approach, including the adoption of common filing forms,

agreement on filing and review deadlines and continuing efforts toward

increasing international cooperation in merger enforcement, is needed to

reduce regulatory costs and more successfully improve the welfare

outcomes to which merger regulation is directed.

Keywords

Merger, transnational merger, international competition network, OECD, comity

T


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Julie Clarke The International Regulation of Transnational Mergers Page ii

DECLARATION

The work contained in this thesis has not been previously submitted to meetrequirements for an award at this or any other higher education institution. To thebest of my knowledge and belief, the thesis contains no material previouslypublished or written by another person except where due reference is made.

Some portions of the thesis have been previously published by me as follows:

Julie Clarke, ‘Multi-jurisdictional Merger Review Procedures: a Better Way’ (2006)14 Trade Practices Law Journal 90-109

Julie Clarke, ‘The Dawson Report and Merger Regulation’ (2003) 8 Deakin LawReview 245

Julie Brebner, ‘The Relevance of Import Competition to Merger Assessment in Australia’ (2002) 10 Competition and Consumer Law Journa l 119-143 (publishedunder my maiden name)

Signature

Date


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Julie Clarke The International Regulation of Transnational Mergers Page iii

Table of Contents

Abstract ................................................................................................................................ i

Keywords .............................................................................................................................. i

Declaration .......................................................................................................................... ii

Table of Contents ............................................................................................................... iii

Table of diagrams and charts .............................................................................................. ix

Glossary ............................................................................................................................... xi

PART I: INTRODUCTION ...................................................................................................... 1

Chapter 1 Introduction ....................................................................................................... 3

1.1 Research objectives .................................................................................................. 3

1.1.1 Objectives of merger regulation .................................................................. 7

1.1.2 The optimal substantive, procedural and jurisdictional approaches to transnational merger regulation .................................................................. 7

1.1.3 The efficiencies of existing regulation ......................................................... 9

1.1.4 Potential for greater efficiency in regulation ............................................ 10

1.2 Scope of the study .................................................................................................. 12

1.3 Terminology

...........................................................................................................

16

1.3.1 Globalization .............................................................................................. 16

1.3.2 Competition law ......................................................................................... 17

1.3.3 Mergers and transnational mergers .......................................................... 18

1.3.4 Regulation .................................................................................................. 19

1.3.5 Extraterritoriality ....................................................................................... 20

1.3.6 Comity and positive comity ....................................................................... 20

1.4 Structure ................................................................................................................. 21

Chapter 2 Framework ..................................................................................................... 23

2.1 Introduction ............................................................................................................ 23

2.2 The economics of mergers ...................................................................................... 25

2.2.1 Competition is better for the economy than monopoly ........................... 25

2.2.2 Increased market dominance facilitated by merger (unilateral effects) ... 30

2.2.3 Coordinated effects ................................................................................... 32

2.2.4 Efficiency .................................................................................................... 33

2.2.5 Socio‐economic impact of mergers ........................................................... 41


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2.3 Policy objectives in the regulation of mergers ........................................................ 42

2.3.1 Economic efficiency (traditional consumer welfare) ................................. 47

2.3.2 Beyond ‘mere efficiencies’ (modern consumer welfare) ........................... 50

2.3.3 Global consumer welfare ........................................................................... 59

2.4 Policy objectives for the procedural regulation of mergers ................................... 62

2.4.1 Introduction ............................................................................................... 62

2.4.2 Purpose of merger regulation .................................................................... 63

2.4.3 Criteria for assessing the regulation of mergers prior to consummation.. 65

2.4.4 Assessing domestic regulation ................................................................... 70

2.4.5 International regulation ............................................................................. 72

PART II: NATIONAL APPROACHES TO MERGER REGULATION .......................................... 75

Chapter 3 The substantive approach to merger regulation in OECD countries ............... 76

3.1 Introduction............................................................................................................. 76

3.2 Market definition .................................................................................................... 80

3.3 Substantial lessening of competition ...................................................................... 85

3.3.1

Australia .....................................................................................................

87

3.3.2 United States of America ......................................................................... 103

3.3.3 European Union ....................................................................................... 114

3.4 Dominance ............................................................................................................ 122

3.4.1 Finland ...................................................................................................... 123

3.4.2 Switzerland ............................................................................................... 124

3.5 Public Benefits ....................................................................................................... 125

3.6 Analysis and conclusions ....................................................................................... 126

3.6.1 Overview .................................................................................................. 126

3.6.2 Market ...................................................................................................... 128

3.6.3 Substantive tests ...................................................................................... 129

3.6.4 Merger analysis and the role of efficiencies ............................................ 135

3.6.5 Summary of conclusions .......................................................................... 139

Chapter 4 The procedural approach to merger regulation in OECD countries .............. 140

4.1 Introduction........................................................................................................... 140

4.2 Mandatory pre ‐merger notification regimes ....................................................... 144


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4.2.1 United States ........................................................................................... 145

4.2.2 European Union ....................................................................................... 160

4.3 Voluntary notification regimes ............................................................................. 173

4.3.1 Australia ................................................................................................... 174

4.3.2 United Kingdom ....................................................................................... 186


4.4.1 Introduction ............................................................................................. 189

4.4.2 Options for merger regulation ................................................................. 192

4.4.3 No merger notification ............................................................................ 193

4.4.4 Mandatory pre ‐merger notification ........................................................ 196

4.4.5 Voluntary pre ‐merger notification........................................................... 208 4.4.6 Hybrid PMN .............................................................................................. 218

4.4.7 Is there an optimal national approach suitable for all OECD countries? . 221

4.4.8 Is a different approach needed for transnational mergers? ................... 223

4.4.9 Conclusion ................................................................................................ 225

Chapter 5 The Extraterritorial application of domestic laws ......................................... 231

5.1 Introduction .......................................................................................................... 231

5.2 National Sovereignty ............................................................................................. 233

5.3 Territoriality .......................................................................................................... 235

5.3 Extraterritoriality ................................................................................................... 238

5.3.1 Traditional application of domestic laws extraterritorially ..................... 239

5.3.2 The effects doctrine ................................................................................. 243

5.4 Limits on extraterritorial application .................................................................... 256

5.4.1 Natural limits on power ........................................................................... 256

5.4.2 Blocking and clawback legislation ............................................................ 258

5.5 Extraterritoriality in relation to mergers............................................................... 261

5.6 Multiple extraterritorial claims and the potential for conflict .............................. 262

5.7 Analysis: Is the extraterritorial application of merger laws appropriate? ............ 271

5.8 Conclusions ........................................................................................................... 280


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Part III: COMITY AND COOPERATION .............................................................................. 283

Chapter 6 The role of comity in merger review ............................................................. 283

6.1 Introduction........................................................................................................... 283 6.2 The nature of comity ............................................................................................. 284

6.3 Negative comity .................................................................................................... 287

6.4 Positive comity ...................................................................................................... 290


Chapter 7 Beyond Comity: International cooperation ................................................... 300

7.1 Introduction........................................................................................................... 300

7.2 Bilateral

and

Trilateral

competition

law

agreements

...........................................

304

7.2.1 Antitrust Cooperation Agreements .......................................................... 306

7.2.2 Antitrust Mutual Assistance Agreements ................................................ 315

7.2.3 UK/France/Germany Common Form (1997 ‐current) .............................. 317

7.2.4 Current effectiveness of bilateral agreements ........................................ 317

7.3 Plurilateral and Multilateral endeavours .............................................................. 320

7.4 OECD ...................................................................................................................... 322

7.4.1 Competition Recommendations .............................................................. 323

7.4.2 Merger recommendations ....................................................................... 324

7.4.3 Analysis of OECD ...................................................................................... 331

7.5 International Competition Network ...................................................................... 332

7.5.1 Guiding principles and recommendations ............................................... 333

7.5.2 Recommended Practices for Merger Notification Procedures ................ 335

7.5.3 Recommended Practices for Merger Analysis ......................................... 364

7.5.4 Other ........................................................................................................ 371

7.5.5 Analysis of ICN .......................................................................................... 371


PART IV: THE COST OF COMPLIANCE .............................................................................. 375

Chapter 8 The cost of transnational merger regulation ................................................. 376

8.1 Introduction........................................................................................................... 376

8.2 The current cost of merger regulation .................................................................. 378

8.2.1 Introduction and cost allocation .............................................................. 378


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8.2.2 The cost to business ................................................................................. 384

8.2.3 The cost to third parties ........................................................................... 411

8.2.4 The cost to authorities ............................................................................. 411

8.2.5 The cost to the public .............................................................................. 413

8.3 Analysis and Conclusion ........................................................................................ 415

PART V: OPTIONS FOR REFORM, PROPOSAL & CONCLUSIONS ...................................... 417

Chapter 9 Options for Reform ........................................................................................ 419

9.1 Introduction .......................................................................................................... 419

9.2 Comprehensive International Code ...................................................................... 422

9.2.1 Overview ........................................................................................................ 422 9.2.2 Previous attempts at producing an international code ................................. 423

9.2.3 The case for an international merger code .................................................... 433

9.2.4 The case against an international code ......................................................... 435

9.2.5 Analysis and conclusions ................................................................................ 451

9.3 Limited international code .................................................................................... 452

9.4 International procedural clearing house .............................................................. 454

9.4.1 Overview

........................................................................................................

454

9.4.2 The deferred jurisdiction approach ............................................................... 456

9.4.3 Mutual recognition ........................................................................................ 461

9.4.4 Single filing ..................................................................................................... 462

9.4.5 The facilitative lead jurisdiction approach ..................................................... 465

9.4.6 Analysis and Conclusion ................................................................................. 469

9.5 Common Filing Form ............................................................................................. 470

9.5.1 Overview ........................................................................................................ 470

9.5.2 Benefits of a common filing form .................................................................. 471

9.5.3 The feasibility of a common filing form ......................................................... 472

9.5.4 Analysis and conclusions ................................................................................ 481

9.6 Non ‐binding international principles .................................................................... 483

9.6.1 Overview ........................................................................................................ 483

9.6.2 Location of non ‐binding principles ................................................................ 484

9.6.3 Content of non ‐binding international principles ........................................... 489

9.6.4 Analysis and conclusion ................................................................................. 497


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9.7 Continued bilateral cooperation and natural convergence .................................. 498

9.8 Analysis and Conclusions ....................................................................................... 499

Chapter 10 Conclusion and Proposals ............................................................................. 501

10.1 Conclusions ......................................................................................................... 501

10.1.1 The goals of transnational merger review ................................................... 501

10.1.2 National approaches to transnational merger review ................................. 503

10.1.3 Existing levels of cooperation ...................................................................... 506

10.1.4 The costs of transnational merger review ................................................... 507

10.1.5 Possible future directions for transnational merger review ........................ 508

10.2 Proposal for the future direction of transnational merger regulation ............... 509

10.3 Draft OECD Recommendation for Merger Notification and Review ................... 515

Appendix 1 ‐ OECD Country Database .............................................................................. A1

Appendix 2 ‐ ICN Recommendations ................................................................................ A2

Bibliography ...................................................................................................................... B1


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Julie Clarke The International Regulation of Transnational Mergers Page ix

Table of di agrams and ch arts

Chapter 2 Framework

Figure 2.1 Supply and demand...................................................................... 27

Figure 2.2 Monopoly production .................................................................. 28

Chapter 4 The Procedural Approach to Merger Regulation in OECD Countries

Table 4.1 Pre ‐Merger Notification Requirements for Mergers 2010 ........141

Figure 4.2 United States Administrative and Judicial Structure for Merger Review .........................................147

Figure 4.3 European Union Administrative and Judicial Structure for Merger Review .........................................163

Figure 4.4 Australian Administrative and Judicial Structure for Merger Review .....................................................176

Figure 4.5 United Kingdom Administrative and Judicial Structure for Merger Review .........................................187

Figure 4.6 A Hybrid Approach to Pre ‐Merger Notification .........................220

Chapter 8 The Procedural Approach to Merger Regulation in OECD Countries

Figure 8.1 Cost Allocation Where There are no Notification Fees .............378

Figure 8.2 Cost Allocation Where Agency Party Funded by Notification Fees .............................................378

Figure 8.3 Cost Allocation Where Agency Fully Funded by Notification Fees ..............................................378

Figure 8.4 Pro ‐competitive Merger Where Agency Partly Funded by Parties ................................................380

Figure 8.5 Anti‐competitive Merger Where Agency Partly Funded by Parties ................................................380

Figure 8.6 Cost Synergies of Transnational Merger Review for Agencies .....................................................381

Figure 8.7 Average Cost to Agencies of Cooperative Multiple Review ......382

Figure 8.8 Cumulative Cost to Parties of Multiple Review ........................383

Figure 8.9 Filing Fees in OECD Jurisdictions and the EU ..................... 395 ‐396

Figure 8.10 Relative Filing Fees in OECD Jurisdictions .................................396


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Figure 8.11 Time Triggers for Filing .............................................................. 403

Figure 8.12 Delay Resulting from Multiple Merger Reviews ....................... 405

Figure 8.13 Merger Review Periods in OECD Countries ............................... 406

Chapter 9 Options for Reform

Figure 9.1 Merger Generating Global Welfare Benefit but National Welfare Detriment ...................................................... 439

Figure 9.2(a) Merger generates global welfare benefit but merger blocked due to national welfare detriment in Country B ......... 440

Figure 9.2(b) Merger Generates Global Welfare Benefit but Targeted Merger Remedies are Imposed by Country B due to National Welfare Detriment ...................................................... 440

Figure 9.2(c) Merger Generates Global Welfare Benefit but Merger Remedies Imposed by Country B produce negative externalities in Country A .......................................................... 441


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Glossary

AAA Administrative Arrangement on Attendance (US/EC)

ABA American Bar Association

ACA Antitrust Cooperation Agreement

ACCC Australian Competition and Consumer Commission

ACPA Antitrust Civil Process Act (USA)

ACT Australian Competition Tribunal

Agencies Collectively, the DOJ(AD) and FTC

AMAA Antitrust Mutual Assistance Agreement

ANZCERTA Australia/New Zealand Closer Economics Relations Trade

Agreement

APEC Asia Pacific Economic Cooperation

BIAC Business and Industry Advisory Committee

CFI Court of First Instance (EU) 1

CID Civil Investigative Demand (USA)

CLPC Committee on Competition Law and Policy (OECD) 2

1 The Treaty of Lisbon amending the Treaty on European Union and the Treaty establishingthe European Community of 13 December 2007 European [2007] OJ C 306 (entered intoforce 1 December 2009) (‘ Treaty of Lisbon ’) renamed the Court of First Instance the General

Court. For cases decided prior to 1 December 2009 the court will continue to be referred toas the Court of First Instance.


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Julie Clarke The International Regulation of Transnational Mergers Page xii

Common Market Common Market of the European Union (see Internal Market)

COMP Competition Committee (OECD)

Compact Protocol for Coordination in Merger Investigations Between the

Federal Enforcement Agencies and the State Attorneys General

(US Compact)

COMPWP2 Working Party No 2 on Competition and Regulation (OECD)

COMPWP3 Working Party No 3 on Cooperation and Enforcement (OECD)

Convergence Refers to the process of different national merger laws, overtime, becoming more closely aligned 3

DG-COMP Directorate General of Competition (EU)

DIAC Draft International Antitrust Code

DOJ Department of Justice (US)

DOJ(AD) Department of Justice (Antitrust Division) (US)

EC European Commission 4

ECA European Competition Authorities

2 This committee was renamed the Competition Committee in 2001 (1017 th Session of theOECD Council, C/M (2001)23, item 402, document C(2001)261), but documents producedprior to this date retain the CLPC acronym.

3 Harmonization and convergence are defined in the same way throughout this thesis. Thisreflects the general usage of these terms in relation to international competition law; in thisrespect Campbell and Rowley claim that the word ‘convergence … entered competitionpolicy rhetoric as a euphemism to replace the politically incorrect concept of “harmonization”…’: A Neil Campbell and J William Rowley, 'The Internationalization of Unilateral ConductLaws - Conflict, Comity, Cooperation and/or Convergence?' (2008-2009) 75 Antitrust LawJournal 267, 315.

4 The Treaty of Lisbon [2007] OJ C 306 (entered into force 1 December 2009) changed the

official title of the Commission from the ‘Commission of the European Communities’ to the‘European Commission’.


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ECJ European Court of Justice 5

ECMR European Commission Merger Regulation 6

ECN European Competition Network

EU European Union / European Community 7

EUMR European Commission Merger Regulation 8

FCO Federal Cartel Office (Germany)

FTAIA Foreign Trade Antitrust Investment Act (US)

FTC Federal Trade Commission (US)

FTCA Federal Trade Commission Act (USA)

GATT General Agreement on Tariffs and Trade

GCF Global Competition Forum (IBA)

GFC Global Forum on Competition (OECD)

Hard law Binding agreements, such as treaties

Harmonisation Refers to the process of different national merger laws, over

time, becoming more closely aligned

5 The Treaty of Lisbon [2007] OJ C 306 (entered into force 1 December 2009) resulted in therenaming of the ‘European Court of Justice’ to the ‘Court of Justice’.

6 Council Regulation (EC) 139/2004 of 20 January 2004 on the Control of ConcentrationsBetween Undertakings [2004] OJ L 24 (replacing Council Regulation (EC) No 4064/89 of 21December 1989 on the Control of Concentrations Between Undertakings [1989] OJ L 395)(previously referred to as the ‘European Community Merger Regulation’ (ECMR), as a resultof the entry into force of the Treaty of Lisbon [2007] OJ C 306 (entered into force 1December 2009) it is now referred to as the ‘European Union Merger Regulation’ (EUMR)).

7 The Treaty of Lisbon [2007] OJ C 306 (entered into force 1 December 2009) replaced allreferences to ‘European Community’ with ‘European Union’.

8

Council Regulation (EC) 139/2004 of 20 January 2004 on the Control of ConcentrationsBetween Undertakings [2004] OJ L. See also ‘ECMR’.


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HHI Herfindahl-Hirschman Index

HSR Hart-Scott-Rodino

IAA International Antitrust Agency (proposed as part of the DIAC)

IAP International Antitrust Panel (proposed as part of the DIAC)

IBA International Bar Association

ICC International Chamber of Commerce

Internal Market The internal market of the European Union 9

ITO International Trade Organisation

MLAT Mutual Legal Assistance Treaty

Multi-jurisdictional Refers to the review of mergers by more than one jurisdiction

review

NZCC New Zealand Commerce Commission

OECD Organisation for Economic Cooperation and Development

OFT Office of Fair Trading (UK)

PMN Pre-merger Notification

SIEC Significantly Impede Effective Competition

SLC Substantial Lessening of Competition

9 The Treaty of Lisbon [2007] OJ C 306 (entered into force 1 December 2009) replaced allreferences to ‘common market’ with ‘internal market’. As some quotes and other references

retain references to the ‘common market’, particularly where referring to cases prior to theentry into force of the Treaty of Lisbon , the terms will be used synonymously throughout.


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Julie Clarke The International Regulation of Transnational Mergers Page xv

Soft law Non-binding agreements, best practices, recommendations and

other documents. Compare hard law.

TFEU Treaty on the Functioning of the European Union10

TPA Trade Practices Act 1974 (Australia)

Transnational Refers to a merger which is required to be notified in more than

one jurisdiction.

Type I error Refers to the situation where a competitively benign merger is

blocked

Type II error Refers to the situation where an anti-competitive merger is

allowed to proceed

UK United Kingdom

UN United Nations

US United States of America

WGTCP Working Group on the Interaction of Trade and Competition

(WTO)

WTO World Trade Organization

10 More commonly known as the ‘Treaty of Rome’. Prior to the entry into force of the Treaty of

Lisbon [2007] OJ C 306 (entered into force 1 December 2009), the official name for theTreaty of Rome was the European Community Treaty.


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Julie Clarke The International Regulation of Transnational Mergers Chapter 1 | Page 1

PART I: INTRODUCTION

orporate mergers are a worldwide phenomenon involving trillions of

dollars 1 and have the potential to significantly impact upon national

economies. For these reasons more countries now seek to control them

through competition law regimes 2 with the result that an increasing number of

mergers now invite multiple regulatory responses because they have an impact in

more than one country. 3

The increased regulation of mergers has resulted in increased costs to business

and regulators 4 which have the potential to be passed on to consumers and the

1 The value of worldwide announced deals was estimated at US$3.46 trillion in 2000, US$1.7trillion in 2001 and US$1.2 trillion in 2002 (being the lowest since 1994): Casey Cogut andSean Rodgers, ‘Global Overview’ in Casey Cogut (ed), Getting the Deal Through, Mergers &

Acquisitions in 48 Jurisdictions Worldwide 2003 (2003) 3. In 2008 the worldwide volume ofannounced deals was US$2.9 trillion, down 30% from 2007: Casey Cogut and SeanRodgers, ‘Introduction’ in Casey Cogut (ed), Getting the Deal Through, Mergers &

Acquisitions in 58 Jurisdictions Worldwide 2009 (2009) 3. In the US alone, the dollar valueof notified transactions was almost $2 trillion in 2007, dropping to just over $1.3 trillion infiscal year 2008: Federal Trade Commission and Department of Justice, Hart-Scott-Rodino

Annual Report Fiscal Year 2008: Section 7A of the Clayton Act, Hart-Scott-Rodino AntitrustImprovements Act of 1976 (Thirty-first Annual Report) (2008) 5.

2 An estimated 115 jurisdictions adopting merger laws as part of their competition policy: John Arden, Record Number of Jurisdictions Regulate Mergers, New Aspen Publication Finds (8

January 2009) Trade Regulation Talk at 21 January 2010. See generally Cogut andRodgers, Global Overview , above n 1, 3; ICN, 'Merger Notification Filing Fees' (MergersWorking Group, April 2005) 2; Chris Noonan, The Emerging Principles of InternationalCompetition Law (2008) 62.

3 See generally Lise Davey and John K Barker, 'Merger Review Benchmarking Report'(Competition Bureau (Canada), 2001) 7 and ICPAC, 'International Competition Policy

Advisory Committee to the Attorney General and Assistant Attorney General for Antitrust -Final Report' (Department of Justice, United States, 2000) 2 (‘ICPAC Final Report’).

4 Various terms are used to describe competition authorities, sometimes reflecting thedifferent functions they perform. The terms include ‘authorities’, ‘regulators’ and ‘agencies’and throughout this thesis these words will be used synonymously to refer to those national

(or supranational in the case of the EC) bodies responsible for enforcing merger laws andregulations, including pre-merger notification regimes.

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general public through higher product costs, delays in the realisation of merger-

generated benefits and increased taxes to support the regulation. It is important,

therefore, to monitor the level and manner of regulation imposed on business to

ensure that the benefits of the regulation are not outweighed by the associated

detriments. In particular, it is prudent to regularly assess the potential for a

reduction in the regulatory burden where this can be achieved without sacrificing

the regulatory objectives. It is to this end that this research is directed.

In this part, the specific research objectives and parameters are identified and a

theoretical framework for analyzing existing and possible alternate approaches to

merger regulation is established.


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Chapter 1 Introdu ct io n

1.1 Research objectives

lobalisation and the associated expansion of markets, 5 ‘has generated an

increase in international mergers as firms seek to strengthen their

position for strategic advantage.’ 6 The widening of markets has also

increased the potential for the effects of transnational mergers to extend beyond

the physical location of the firms involved, thereby arousing the interests of

multiple regulators. This, combined with the explosion of national merger

regimes over the past few decades, 7 means that more mergers are now being

subjected to multiple filing requirements. 8 Associated with this is the need to

navigate, at considerable time and expense, differing substantive, analytical and

procedural requirements as well as incurring the expenses associated with filing

notifications in multiple jurisdictions 9 and the risk that there may be a conflict of

outcomes. 10 Although it is difficult to quantify precisely the cost attributable to the

review of transnational mergers, that there is a significant cost to business

associated with multi-jurisdictional merger review is now widely acknowledged

and has been the subject of a recent detailed study. 11 The increased costs

5 See generally Noonan, above n 2, 8.6 Michael A Utton, International Competition Policy: Maintaining Open Markets in the Global

Economy (2006) 73. See also Oliver Budzinski, The Governance of Global Competition:Competence Allocation in International Competition Policy (2008) 29 and Noonan, above n

2, 9.7 The number of jurisdictions adopting competition laws has increased from 20 in the early

1990’s to well over 100 today: see Brendan Sweeney, 'Global Competition: Searching for aRational Basis for Global Competition Rules' (2008) 30 Sydney Law Review 209, 210 fn 2and Michal S Gal, Competition Policy for Small Market Economies (2003) 8. See also

Arden, above n 2.8 See, eg, Noonan, above n 3, 10 and 182.9 These often include translation requirements: Cogut and Rodgers, Global Overview , above

n 1, 3.10 Utton, above n 6, 73.11 See PriceWaterhouseCoopers, 'A Tax on Mergers? Surveying the Time and Costs to

Business of Multi-jurisdictional Merger Reviews' (June 2003) and ICN, 'Report on the Costs

and Burdens of Multijurisdictional Merger Review' (Mergers Working Group, Notification andProcedures Subgroup, November 2004). See also ICPAC Final Report, above n 3, 91.

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associated with compliance are not, however restricted to the firms involved, but

extend to regulators whose workloads and associated costs have burgeoned in

recent years. 12 These regulators are typically financed either by the parties

making application, the taxpaying public at large or a combination of the two.

The consumer public may also suffer loss if potentially pro-competitive mergers

are delayed or thwarted 13 by regulation 14 and indirectly as firms seek to pass on

their costs through increased prices.

The existence of these costs does not, in itself, demonstrate any need for reform;

these ‘costs’ might be considerably less than the cost society would incur – social

and economic – should anti-competitive mergers be allowed to flourish. 15

However, it is clear that the potential for merger regulation to significantly impact

on business, 16 regulators 17 and, ultimately, the consumer and taxpaying public,

renders the study of alternative approaches aimed at ensuring the regulation is

both appropriate and efficient in its application, one of considerable importance.

This has been recognized in recent years, with merger processes now occupying

the forefront of international competition law debate. Over the past decade,

recommendations of the OECD and the International Competition Network (ICN),

as well as an increased level of bilateral cooperation, have significantly improvedconsistency and cooperation in this field, but high compliance costs, duplication

12 See, eg, Competition Bureau (Canada), Merger Review Performance Report (2007) 6-7.13 See generally Elhauge and Geradin, above n 19, 911-912.14 See John E Lopatka and William H Page, ''Obvious' Consumer Harm in Antitrust Policy: the

Chicago School, the Post-Chicago School and the Courts' in (ed) Post-ChicagoDevelopments in Antitrust Law (2002), 132: ‘Unduly broad antitrust prohibitions canthemselves harm consumers by deterring actively beneficial conduct.’

15 The US Federal Trade Commission estimates that merger enforcement has savedconsumers US$2.5 billion in the five year period from 2004-2008: Federal TradeCommission, Performance and Accountability Report: Fiscal Year 2008 (2008) 38.Compare Philip Nelson, 'A Review of the Antitrust Agencies Estimates: Consumer Savingsfrom Merger Enforcement' (2001) 15 Antitrust ABA 83 and Philip Nelson and Su Sun,'Consumer Savings from Merger Enforcement: A Review of the Antitrust Agencies'Estimates' (2001) 69 Antitrust Law Journal 921.

16 See PriceWaterhouseCoopers, above n 11 and ICPAC Final Report, above n 3, 3.17 See, eg, Davey and Barker, above n 3, 6, observing that the Canadian Competition Bureau

needed additional resources in the mid-1990’s ‘to deal with the burgeoning wave of newmergers resulting in large part from globalisation and free trade’.


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and uncertainty remain a feature of the transnational merger review process.

The inefficiencies associated with the current regulation of transnational

mergers 18 has generated widespread acknowledgment that continued efforts

toward a more harmonized 19 or coordinated system – at least procedurally –

would be desirable. 20

Although the desirability for greater procedural harmonization, where appropriate,

has achieved wide support, at least at a theoretical level, the same cannot be

said of substantive convergence; 21 the form any such convergence should take –

and the desirability of such a result – remains an issue of considerable debate,

with many fearing harmonization could only be achieved by reducing existing

standards to a ‘lowest common denominator’. 22 The approach to the substantive

regulation of mergers at a domestic level is, in many countries, one which

arouses passionate differences of opinion between businesses, economists,

lawyers and sociologists. At an international level these differences are

magnified, with the result that transnational mergers ‘cause some of the most

complex problems’ 23 for competition policy.

The challenges posed by the regulation of transnational mergers are unique and

merit targeted study. Unlike other forms of potentially anti-competitive conduct,

18 See generally Robert Paul, ‘The Increasing Maze of International Pre-AcquisitionNotification’ (2000) 11 International Company and Commercial Law Review 123. Despitethe rhetoric of increased harmonization and cooperation, some claim that there remains a

significant gulf between ‘words and action’: J William Rowley and M Opashinov, ‘TheInternationalisation of Merger Review: Towards Global Solutions’, in John Davies (ed),Merger Control 2003 , Getting the Deal Through (2003), 5.

19 For a detailed discussion of the concept of harmonization in this context, see Noonan, aboven 2, 14-17.

20 See generally Rowley and Opashinov, above n 18, 5. See also Christine A Varney,‘Coordinated Remedies: Convergence, Cooperation, and the Role of Transparency’ (Speechdelivered to the Institute of Competition Law, New Frontiers of Antitrust Conference, Paris,15 February 2010) 2.

21 See, eg, Sweeney, above n 7, 242.22 See, eg, A Douglas Melamed, 'International Antitrust in an Age of International Deregulation'

(1998) 6 George Mason Law Review 437. Compare Joseph Wilson, Globalization and the

Limits of National Merger Control Laws (2003) 238.23 Utton , above n 6, 73.


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mergers are time-sensitive and frequently subjected to mandatory ex ante review,

which imposes significant costs for firms involved in pro-competitive and anti-

competitive mergers alike. This has implications for the development of policy,

both domestically and at a supranational level. In relation to most forms of anti-

competitive conduct, and particularly in relation to cartel conduct, the regulatory

goals of deterrence, detection and punishment are likely to be enhanced as the

number of jurisdictions implementing and actively enforcing those laws

increases. 24 In relation to merger laws, however, the increasing number of

countries employing an ex ante review process significantly increases

compliance costs for firms and for regulators and has implications for a high

proportion of mergers that would normally be considered socially desirable.Consequently, although there has been a significant push for development of

‘international competition law principles’, a more targeted approach may be

required for merger review to appropriately address concerns about over-

regulation.

This research is directed toward evaluating the potential for a more harmonized

and coordinated system of merger regulation and its economic and social

desirability. In particular, it is directed toward the following key objectives:

Identifying the appropriate policy objective(s) for transnational merger

regulation;

Identifying the optimal national substantive, procedural and jurisdictional

approaches to transnational mergers;

Identifying the nature of the costs and benefits associated with the

current approach to transnational merger regulation; and

24 Although it is acknowledged that the business cost of compliance may increase as thenumber of regimes adopting competition law increases, the focus remains on complying with

substantive legal obligations only, rather than the additional ex ante procedural layerassociated with transnational merger review.


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Examining the potential for developing and implementing a more

efficient regulatory regime for transnational mergers and making

recommendations in that respect.

1.1.1 Object iv es of merger regulat i on

An assessment of the current regulation of transnational mergers must be made

against a defined objective. Determining that objective is no simple task. Not

only do existing national merger regulations reflect different policy objectives, but

debate rages at a domestic level about both the actual goals of merger regulation

reflected in legislative instruments and about the aspirational policy goals. The

result is more than 100 25 merger regimes around the globe which reflect a

multitude of objectives and substantive, analytical and procedural approaches.

Against a background of divergent domestic objectives is added a new policy

layer where mergers have transnational effects. Determination of appropriate

objectives is the subject of chaper two, which concludes that the most

appropriate goal for transnational merger regulation is ‘global modern consumer

welfare’. In relation to merger review procedures, chapter two notes that they

should be directed toward ensuring identification and prevention of anti-competitive mergers prior to consummation and that the cost of doing so should

not exceed the benefits sought to be achieved. In particular, the incidental cost

imposed on parties to mergers which do not raise competition concerns should

be minimized.

1 .1 .2 The op t imal subs t an t ive , p rocedura l and ju r i sd ic t iona l

approaches t o t r ansna t ional m erger r egu lat ion

The second key research objective is the identification of the optimal substantive,

procedural and jurisdictional approaches to transnational merger regulation

needed to achieve the identified global welfare standard. This involves

25 See Arden, above n 2.


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consideration of different national substantive tests and procedural approaches to

merger regulation with a comparative assessment made of their respective

benefits and limitations in achieving this objective.

The substantive assessment of merger laws – that is, those laws determining

which mergers should be allowed to proceed – involves both an assessment of

the laws or regulations themselves and the application of those laws in practice.

Chapter three concludes that a competition test, which focuses on the

preservation of competitive markets, is to be preferred over a test directed only

toward preventing market dominance or a test incorporating non-competition

public interest considerations.

Procedural requirements are then examined. In the context of competition laws

and most areas of law enforcement, mergers have the unusual feature of

(normally) being assessed prior to consummation, facilitated by the requirement,

in most jurisdictions, for parties to provide advance notification of proposed

mergers. This requirement is attributable to the unique opportunity mergers

provide for advance assessment (in that they are necessarily public rather than

clandestine) combined with the fear that the structural change brought about by a

merger may be difficult to remedy should the merger subsequently prove to be

anti-competitive. 26 The ex ante review of mergers does, however, inevitably

capture a large number of mergers having no anti-competitive potential; the lower

the threshold requirements, the greater is the potential to capture competitively

neutral or pro-competitive mergers. Chapter four concludes that while mandatory

pre-merger notification is appropriate, at least for large economies, efforts must

be made to ensure that the cost of that process, particularly for those mergers

raising no serious competition concerns, is minimised.

Chapter five will assess the jurisdictional issues arising from the regulation of

transnational mergers. In particular, it will examine the key tests invoked when

26 See, eg, Elhauge and Geradin, above n 13, 800.


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countries assert jurisdiction over foreign mergers. This involves a consideration

both of current practice and of the underlying justification for such practice. It is

now widely accepted that countries may claim jurisdiction based on anticipated

economic effects, provided those effects would be significant. It is also common

practice to recognise the right of a country to impose ex ante notification

requirements based on objective financial thresholds, even where many mergers

captured by that requirement are unlikely to produce significant economic effects.

Despite current broad acceptance of these jurisdictional claims, their validity in

international law and as a matter of public policy must nevertheless be

considered to inform and justify future policy development in this area. If, for

example, the tenuous jurisdictional basis upon which ex ante notificationobligations are based was to be considered unjustifiable in principle, the long

term sustainability of such an approach would be called into question. Chapter

five concludes, however, that economic ‘effects’ based approach to jurisdiction,

including the adoption of financial ‘proxies’ for triggering notification requirements,

is appropriate for transnational merger review.

1.1.3 The eff ic iencies of exis t in g regulat i on

The third key objective of this research involves identifying the costs and benefits

associated with the current regulation of transnational mergers. The costs

associated with procedural and substantive compliance are not capable of

calculation in mathematical terms. First, the costs are not purely economic, with

the result that the cost/benefit dichotomy of mergers will provide a distorted view

of the merits or otherwise of merger regulation. The second reason is that, even

in relation to those costs and benefits that are capable of economic assessment,

the empirical data necessary in order to make a comprehensive assessment is

currently lacking. Nevertheless, an assessment of the sources of cost, combined

with the empirical data that does exist, suggests that those costs are significant. 27

27 See, eg, ICPAC Final Report, above n 3, 91.


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These costs are both direct, such as through payment of filing fees and the

preparation of documentation, and indirect, such as those costs resulting from

delays and shareholder uncertainty and the allocation of executive time to the

compliance process. These costs are magnified for transnational mergers, where

the concurrent operation of national law frequently necessitates multiple

notifications. The full nature and level of these costs will be considered in detail

in chapter eight and will provide a platform for the assessment of possible

alternate approaches to regulation.

1.1.4 Potent ia l for greater eff ic i ency in regulat io n

The final and key research objective is to determine whether or not there is

potential for a more efficient system of regulating transnational mergers.

Regulation which restricts free activity amongst business requires clear

justification in public policy and, even where theoretically justified, implementation

of that policy should be designed to achieve that objective at the least possible

cost – both financially and with respect to the restriction it imposes on the free

market. The cost and efficiency of the current system of transnational merger

regulation will, therefore, be assessed against possible alternatives or modifiedapproaches, with a view to determining the most optimal approach to

transnational merger review that is both capable of achieving the identified

objectives while remaining politically viable.

Chapter nine examines possible alternative approaches to multi-jurisdictional

merger regulation. It concludes that the development of a supranational code

and/or the establishment of a supranational regulator or review body would be

neither globally optimal nor politically feasible. Chapter nine further concludesthat deferral of jurisdiction to a ‘lead regulator’ would not be appropriate or viable

as an alternative to concurrent national review. In this respect, it differs from

some earlier research in the field which has focussed at length on the risk of


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conflicting outcomes, with the result that recommendations have been directed

toward removing or limiting that conflict through the establishment of

supranational regulators 28 or the identification of lead jurisdictions having decision

making power. 29

After acknowledging that the majority of the excess cost associated with multi-

jurisdictional merger review can be attributed to procedural duplication and

conflicting notification requirements rather than to substantive divergence and the

risk of conflicting outcomes, chapter 9 concludes that the future regulation of

multi-jurisdictional merger review requires a multilayered approach, building on

existing cooperative efforts. The first layer involves national efforts toward

implementation of optimal merger review processes, including through

implementation of existing international best practice recommendations. The

second layer involves continued efforts within the OECD and ICN toward

developing and promoting best practice, combined with the continued

implementation of bilateral and plurilateral merger agreements. These efforts can

assist in promoting convergence, cooperation and comity principles where

appropriate. The third layer involves a more substantial international

commitment, but falls short of developing an international code or regulatorybody. A new OECD Council recommendation should be developed to provide

renewed incentives for government to appropriately revise their substantive and

procedural laws to reflect existing best practice and to provide for the

establishment of an ‘opt in’ voluntary common notification form for transnational

mergers. Adoption of such a form could reduce existing duplication and

28 See, eg, Martyn Taylor, International Competition Law - A New Dimension for the WTO? (2006) 416 and Joseph Wilson, Globalization and the Limits of National Merger ControlLaws: Gaps in Global Governance and the Need for an International Merger Control Regime(Doctor of Civil Law Thesis, McGill University, 2002) and Daniel J Gifford, 'The DraftInternational Antitrust Code Proposed at Munich: Good Intentions Gone Awry' (1997) 6Minnesota Journal of Global Trade 1.

29

See, eg, Michele Giannino, International Cooperation and the Regulation of TransnationalMergers (D Phil Thesis, Queen Mary College of University of London, 2006) 276.


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divergence in PMN requirements which are not necessary to further the policy

objectives of merger regulation.

1.2 Scope of the s tu dy

The scope of the study is potentially very broad and, as a result, the parameters

of the analysis have been limited in the following ways:

Study focuses on OECD 30 countries and the EU

There are an estimated 110 countries worldwide adopting mergerregimes as part of their competition policies. 31 In a study of this size it is

not possible to usefully examine each of these regimes in detail for

purposes of making recommendations for future reform. Consequently,

the scope of the study has been limited to OECD countries and the EU.

OECD countries have been selected because of their shared

commitment to global economic development and because they already

play a key role in responding to emerging economic issues and

associated policies. 32 Any future cooperation is significantly ‘more likely

30 Assessment of OECD countries does not include detailed analysis of the Chilean regime.Chile was admitted to the OECD, becoming its 31 st Member, on 11 January 2010. Thisstudy does not include discussion of Chile’s merger law and procedures. However, it is not

anticipated that the inclusion of Chile into the OECD does not effect the conclusions reachedin this study.

31 See Arden, above n 2. See also American Antitrust Institute, Centralizing Merger Controls(2009), Summary of Session at 10 th Annual Conference, 25 June 2009. These countriesinclude Albania, Argentina , Armenia , Australia , Austria, Barbados, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Estonia, European Union, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jersey, Jordan, Kenya, Korea, Latvia, Lithuania, Macedonia, Malta, Mexico, Netherlands, New Zealand, Norway, Pakistan, Panama, PapuaNew Guinea, Poland, Portugal, Romania, Russia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, Ukraine, United Kingdom, United States, Uzbekistan, Venezuela, Zambia.

32

Compare Maher M Dabbah, The Internationalisation of Antitrust Policy (2003) 265-266 whorejects the OECD as an appropriate forum for future international agreement. However,


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among countries that have similar trade patterns’, 33 with additional and

often complex issues arising when the spectrum is expanded to include

a broader range of countries, including those in the developing world. 34

More importantly, OECD countries have been selected because they

possess some of the most developed merger regimes and are likely to

play a pivotal role in directing any global reform in this area. This is, at

least in part, due to the fact that the OECD countries currently produce

the vast majority of transnational mergers. 35

In addition to the OECD, the EU’s approach to merger regulation will be

considered. Several OECD member nations are also EU members with

the result that any transnational mergers having an EU dimension will

fall for consideration under European, rather than national law. The EU

has also recently acquired legal personality enabling it to directly join

international organisations and sign international treaties, 36 which might

enable it to wield greater influence in international competition law

discourse in the future. Inclusion of the EU in this study is also

inherently valuable for the example it provides of a successful

supranational approach to transnational merger regulation.

Dabbah was discussing the possibility of agreement on competition principles generally,

rather than merger regulation specifically, and this may justify a different approach.33 See Andrew Guzman, 'Is International Antitrust Possible?' (1998) 73 New York University

Law Review 1501, 1505.34 See, for example, Gary Hufbauer and Jisun Kim, 'International Competition Policy and the

WTO' (2009) 54 Antitrust Bulletin 327, 331. See also Kathryn McMahon, 'DevelopingCountries and International Competition Law and Policy' (Research Paper No 2009/11,Warwick School of Law, 2009). See also ICPAC Final Report, above n 3, 50: ‘Immaturemarket systems are often so lacking in resources that the agencies cannot conductsophisticated economic analysis, much less gather the basic background facts necessary forthem to do so.’

35 Utton, above n 6, 79.36 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the

European Community of 13 December 2007 European [2007] OJ C 306 (entered into force1 December 2009).


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Limitation of the study in this way necessarily excludes some significant

jurisdictions, including China. 37 The significance of China’s new merger

law was recently highlighted by China’s interest in the recent takeover

bid by BHP Billiton for Rio Tinto 38 and its likely interest in the current joint

venture agreement between those two companies. 39 However, the

recent introduction of the Chinese merger laws suggests that it is likely

to prove difficult in the short term to agree to significant modifications.

The same is true of other new and emerging regimes.

In restricting this study to OECD nations and the EU, this study differs

from most other recent studies in this field40

which have grappled withthe complexities of achieving agreement among a large number of

countries with varying experience and resources and which are at vastly

different stages of economic and industrial development. As a

consequence, the need for economic and financial support and

concessions in other areas of trade regulation are often considered an

37 See, eg, Sophia Su, Han Donker and Saif Zahir, ‘Merger Control Regulations in EmergingEconomies: The Case of China’ (2009) 4 International Journal of Chinese Culture andManagement 370 and Susan Beth Farmer, ‘The Evolution of Chinese Merger NotificationGuidelines: A Work in Progress Integrating Global Consensus and Domestic Imperatives’(Pennsylvania State University, Dickinson School of Law, 29 May 2009).

38 China did not formally investigate the merger following the lapse of the takeover bid inNovember 2008 the wake of the Global Financial Crisis: see BHP Billiton, ‘BHP Billiton Offer

for Rio Tinto Lapses’ (Press Release 41/08, 27 November 2008).39 See, eg, ‘Rio Tinto, BHP-Billiton Finally Sign off on Pilbara Deal’, The Australian , 7

December 2009 and Zhan Hao, Will Rio Tinto and BHP Billiton Make It This Time? A FewComments from the Perspective of Antitrust Law (8 February 2010) China Law Vision at1 March 2010.

40 The two major merger-specific studies in the last decade have been conducted by Wilsonand Giannino: Wilson, above n 28 and Giannino, above n 29. There have also been anumber of more focussed national-based studies, such as ICPAC Final Report, above n 3and Davey and Barker, above n 3. Most of the major studies in this area were conductedprior to the emergence of the International Competition Network which has had a profound

impact on the level of convergence in both substantial and procedural merger law andregulation: see further chapter 7, below.


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important element of any broad multilateral agreement. 41 This has led

some to recommend WTO involvement, 42 based in part on the ability to

negotiate trade-offs in other policy areas. 43 A focus on developed

regimes will provide greater scope for a substantive merger-focussed

agreement in the short term.

This does not mean, however, that any OECD-specific

recommendations cannot have an influence beyond its membership.

OECD recommendations can and frequently do influence the

development of wider agreement on competition issues and may also

provide a benchmark to which newer regimes might aspire.

The focus is transnational mergers

In most cases jurisdictions make no distinction between domestic and

transnational mergers when applying substantive law or procedural

obligations. There are, however, issues of comity, cooperation and

convergence of law and practice that arise only when mergers are

transnational in effect. Consequently, while consideration of

transnational mergers will necessarily involve consideration of the

regulation of domestic mergers, the focus of this study is the regulatory

burden associated with transnational mergers which have the potential

to invite multiple regulatory responses and increase both cost and

business uncertainty.

The focus is on competition policy

This study is limited to merger laws which form part of the competition

policy of each of the jurisdictions considered. Except where directlyrelevant to competition policy, it does not consider other legal and

41 See, eg, Taylor, above n 28, 416.42 See, eg, ibid. See also Wilson, above n 28.43

See, eg, Giannino, above n 29, 276. Giannino suggests that this would be desirable butconcedes it is impractical at this time.


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regulatory restrictions that merging parties may confront, such as

corporations laws, foreign policy regulations or industrial laws, which

raise different policy issues.

The focus is on substantive merger tests and procedural requirements

There is a considerable amount of economic research relating to the

methodology for merger analysis pursuant to substantive laws and,

increasingly, on the appropriate form of merger remedies. 44 An in depth

study of the economic principles driving merger analysis and remedial

construction is beyond the scope of this study. These issues will,

however, be discussed to the extent that they directly impact on the

costs of transnational merger regulation. For example, the extent of

convergence or divergence in the approach to merger analysis among

OECD states will have an impact on the viability of future substantive

agreement on merger laws and will also affect the nature of information

that may be appropriately demanded as part of pre-merger notification

obligations.

1.3 Terminology

There are a number of key terms used throughout this study which require clear

definition.

1.3.1 Global i zat ion

‘Globalization’ is a term which has no clear meaning. It means different things to

different people and in different contexts. In this respect it has been described as

44 See, eg, Stephen Davies and Bruce Lyons, Mergers and Merger Remedies in the EU: Assessing the Consequences for Competition (2007) and William Blumenthal, 'Reconciling

the Debate over Merger Remedies: A Discussant's Proposed Decision Rule' (2001) 69George Washington Law Review 978.


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an ‘elusive and contested concept’. 45 For purposes of this study, it is defined as

the expansion of markets beyond purely national boundaries. 46 This process of

expansion, facilitated by the growing reduction of public trading barriers, aided by

the WTO, has important implications for competition policy. Mergers are now

more likely to have economic and social consequences that extend beyond

national borders. Conversely, mergers are less likely to have a significant impact

on competition domestically, because of the increased potential (in many

industries) for import competition. This has implications not only for the way in

which individual mergers should be assessed, but also for national merger policy.

The globalization of markets will, therefore, be an important consideration in

determining an appropriate policy framework for transnational merger review.

1 .3.2 Compet i t io n law

The scope and nature of competition laws vary to a degree – in name and

substance – between jurisdictions. Competition law is the term adopted to

describe those laws directed at regulating activity which restricts free trade

between firms, either directly by agreement (such as in the case of cartels), or

indirectly by the acquisition of market power. This encompasses laws referred toin some jurisdictions as ‘antitrust’, ‘restrictive trade practices’, ‘combinations’,

‘laws of monopolies’ or ‘restraint of trade’ laws.

45 Hans Löfgren and Prakash Sarangi, ‘Introduction: Dynamics and Dilemmas of Globalisation’in Hans Löfgren and Prakash Sarangi (eds), The Politics and Culture of Globalisation: Indiaand Australia (2009) 1.

46

This expansion is demonstrated by the increasing volume of mergers having transnationalimplications reported to competition agencies: see, eg, ICPAC Final Report, above n 3, 45.


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1.3.3 Mergers and t ransnat io nal mergers

Horizontal Mergers

A merger, referred to in some jurisdictions as a ‘concentration’, 47 is defined as the

voluntary or involuntary integration of two or more entities through share 48 and/or

asset 49 acquisition. 50 It will not include joint venture activity that does not also

involve this share or asset acquisition. Competition law focuses attention

predominantly on horizontal mergers because they have the greatest potential to

adversely affect competition by directly eliminating one or more competitors;

however, in appropriate circumstances, competition policy also regulates vertical

and conglomerate mergers. 51 The focus of this study, particularly that relating tosubstantive analysis, will be on horizontal mergers, which continue to form the

bulk of transnational merger activity, but many of the conclusions reached,

particularly those relating to procedure, can be equally applied to vertical and

conglomerate mergers.

Transnational mergers

‘Transnational mergers’ refer to mergers which are subject to review in multiple jurisdictions. 52 This might be because parties have one or more places of

47 For example, the European Union: Council Regulation (EC) No 139/2004 of 20 January2004 on the Control of Concentrations Between Undertakings [2004] OJ L 24, Article 3.

48 See further ICN, 'Defining Merger Transactions for Purposes of Merger Review' (Merger

Working Group, 2007) 2-4.49 See further ibid, 4-5.50 See further ibid, 1.51 See, eg, Department of Justice, Non-Horizontal Merger Guidelines (14 June 1984), para 4,

ACCC, Merger Guidelines (November 2008) para 5.21, ICN, ‘Merger Guideline Workbook’(Merger Working Group, April 2006) para 3.2, Dimitri Giotakos, 'GE/Honeywell: A TheoreticBundle Assessing Conglomerate Mergers Across the Atlantic' (2002) 23 University ofPennsylvania Journal of International Economic Law 469, OECD, ‘Portfolio Effects inConglomerate Mergers’ (Best Practice Roundtable on Competition Policy,DAFFE/COMP(2002)5, 24 January 2004) and Lisa M Renzi, 'The GE/Honeywell Merger:Catalyst in the Transnational Conglomerate Merger Debate' (2002) 37 New England LawReview 109.

52

This is consistent with the definition in the OECD Council, Recommendation of the CouncilConcerning Merger Review , 23 March 2005, C(2005)34/final, which defines a transnational


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business in different nations or where the merger has the potential to impact on

competition in multiple jurisdictions. Mergers having this effect are also

sometimes referred to as ‘multi-jurisdictional mergers’ or, perhaps inaccurately,

as ‘global mergers’. 53 The term ‘multi-jurisdictional review’ will be adopted to

refer to the situation in which more than one country conducts a competition

review of a single merger.

1.3.4 Regulation

Traditionally the term ‘regulation’ has been used in reference to industry-specific

laws and rules and has involved direct interference in price, product characteristic

and related matters. At its broadest it has been defined as ‘limits imposed on the

behaviour of economic actors, contained in rules and standards.’ 54

Competition law, including merger law, focuses on the maintenance of a broadly

competitive environment rather than specific market characteristics. 55 For

purposes of this study, regulation is defined to include the administrative and

merger as ‘a merger that is subject to review under the merger laws of more than one jurisdiction.’ This definition is more expansive than the one adopted by the InternationalCompetition Policy Advisory Committee, which required more than pure effect transcendingnational borders before classifying a transaction as international: ICPAC Final Report, above

n 3, 46. See also Giannino, above n 29, 240, who suggests that a proposed internationalframework for trasnantional mergers should not apply where the merger affects only twonations and those nations have concluded a bilateral competition agreement thatguarantees the same standard levels (or higher) of an international framework.

53 It is inaccurate in some cases because it implies an impact which extends to all parts of theglobe. In most cases even mega-mergers, while having an impact in many countries, willnot be truly global in scope.

54 Philipp Pattberg (2006) 'The Transformation of Global Business Regulation' (GlobalGovernance Working Paper Series No 18, Amsterdam, The Global Governance Project,2006) 1. See also Braithwaite and Drahos, who define regulation broadly ‘as theglobalization of the norms, standards, principles and rules that govern commerce and theglobalization of the enforcement’: John Braithwaite and Peter Drahos, Global Business

Regulation (2000) 10.55 See, eg, Michael D Whinston, Lectures on Antitrust Economics (2006).


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judicial mechanisms adopted to detect, deter and prevent mergers which

contravene – or potentially contravene 56 – the substantive merger laws.

1.3.5 Extraterr i tor ia l i ty

The extraterritorial application of competition laws generally, and merger laws

specifically, plays a key part in regulating transnational mergers by providing a

mechanism by which countries can apply their merger regulations to activity

occurring outside their national borders. It therefore requires careful definition.

For purposes of this study, extraterritoriality is defined as any legal power claimed

by a country over persons located, or activity occurring, outside national territorial

borders, whether or not the basis for such jurisdiction is recognized in

international law.

1 .3 .6 Comi ty and pos i t ive comi ty

Comity is defined broadly as the consideration given by the regulators and

judiciary to the laws and interests of other nations when applying their domestic

regulations. This will be relevant whenever a merging firm is domiciled in a

foreign jurisdiction or where a domestic merger has social or economic

consequences outside the regulating jurisdiction.

‘Positive comity’ is a more recently developed concept in the context of

international competition law enforcement and is narrower in scope. It

encompasses any case in which one country requests that another investigate

conduct within its jurisdiction which is harming the interests of another; this may

occur in conjunction with the requesting country’s own investigation or

independently. For example, Australia might ask that the US authorities

investigate a merger between two US companies which Australia believes is anti-

competitive and may harm its economic interests.

56

This includes mergers which do not contravene substantive laws but are nonethelesssubject to PMN requirements.


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Both concepts have gained momentum in the context of competition law in the

last decade and, although the special nature of merger review means that

‘positive comity’ has played a limited role to date, comity is likely to continue to

play an important role in future international developments in this field and will be

examined in detail in chapter six.

1.4 Structure

In chapter two an examination of the framework against which the efficiency, or

otherwise, of the current regulation of transnational mergers will be examined.

An assessment of the possible policy objectives of merger regulation will be

made and a conclusion reached as to the most desirable policy objective to be

achieved through merger regulation, both for domestic and transnational

mergers. This will provide a reference by which substantive merger laws and their

procedural regulation may be assessed.

Part II examines current domestic merger policies and processes of OECD

countries and the EU. Chapter three begins with an examination of existing

approaches to substantive merger law and draws conclusions about the most

appropriate substantive law for transnational mergers. Chapter four examines

the current procedural regulation applied to transnational mergers, with a focus

on pre-merger notification processes. In chapter five an examination is made of

the nature and validity of extraterritorial jurisdictional claims in relation to merger

laws and procedures.

Following this assessment of existing national approaches, Part III examines the

role of transnational comity and cooperation in influencing the domesticregulation of transnational mergers.

Based on the conclusions drawn from parts II and III, Part IV analyses the current

cost of transnational merger regulation.

Part V then analysis the possibilities for increased efficiency in the regulation of

transnational mergers, including previous and current attempts and cooperation


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and international agreement, before making a recommendation for the future

direction of transnational merger review.


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Chapter 2 Framework

2.1 In t rodu ct io n

In this chapter I develop a framework for the regulation of transnational mergers

as part of a broader competition law policy. This requires an assessment of the

appropriate policy direction for competition law generally and merger law in

particular, as well as a formulation of an appropriate regulatory approach to give

effect to such policy. A framework will then be constructed for the development

of substantive law, determining which mergers should and should not be

permitted, as well as for the form of procedural regul

julie_clarke_thesis.pdf

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