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15.4.2.  Concentrations in the EU Single Market

    Concentrations are arrangements whereby one or more companies acquire control of other companies and thus change the structure of the companies involved and of the market they operate in. The most important forms of concentrations of undertakings are the holding of a company in the authorised capital of another company or of other companies, the total or partial acquisitions by a company of the assets of other companies and, lastly, the merger of two or more companies which are legally independent into a new company. Concentrations allow economies of scale to be obtained, production and distribution costs to be reduced, profitability to be improved and technical progress to be speeded up. All of that facilitates the international competitiveness of European undertakings and may provide consumers with part of the benefits of economic integration. It is, however, obvious that where the concentration in an industry exceeds certain limits it can lead to monopoly or oligopoly structures, which restrict competition and jeopardise consumers' interests.

    Cross-border mergers of limited liability companies, involving the takeover of one by the other or the founding of a new company, encounter many legislative and administrative difficulties in the European Community/Union, due to various types of limited liability company governed by the laws of different Member States. Therefore, Directive 2005/56 [last amended by Directive 2014/59] facilitates the cross-border merger of limited liability companies as defined therein, notably a company with share capital and having legal personality, possessing separate assets which alone serve to cover its debts. The laws of the Member States are to allow the cross-border merger of a national limited liability company with a limited liability company from another Member State if the national law of the relevant Member States permits mergers between such types of company. In order to facilitate cross-border merger operations, each company taking part in a cross-border merger, and each third party concerned, remains subject to the provisions and formalities of the national law which would be applicable in the case of a national merger. The directive includes provisions aimed at preserving workers' participation rights in the event of cross-border mergers [see sections 13.5.2 and 17.2.1].

    Directive 2005/56 is without prejudice to the application of the legislation on the control of concentrations between undertakings. As mentioned above, Article 86 of the EEC Treaty prohibited abuse of a dominant position, but not its existence or creation. This means that the EEC Treaty did not request authorisation by the Commission for a concentration operation, which could lead to a dominant position. The EC Treaty has not altered this situation. However, the Commission undertook to fill the legislative vacuum in the EEC Treaty on the basis of Article 3 thereof. In the Commission's view, since that Treaty had the objective of ensuring the functioning of an undistorted system of competition, the exploitation of a dominant position should be regarded as abusive if it in practice prevented the functioning of undistorted competition. A concentration of undertakings that results in the monopolisation of a market should therefore be dealt with as abuse of a dominant position within the meaning of Article 86 of the EEC Treaty. For the first time in 1971 the Commission translated that interpretation into fact by adopting a Decision applying Article 86 (EEC) in the case of the concentration of an undertaking occupying a dominant position, namely Continental Can Cy, with a competing undertaking [Decision 72/21]. The Commission considered that Continental Can Cy had abused its dominant position by taking control of one of its potential main competitors, thus strengthening the said dominant position in such a way that competition in a substantial part of the common market was virtually eliminated with regard to the products concerned. The judgment delivered by the Court of Justice on 21 February 1973 confirmed the correctness of the Commission's approach to the application of Article 86 (Article 82 TEC, Article 102 TFEU) to abuse of the dominant position by the concentration [Case 6/72]. More recently, the Court has ruled that any merger, which created or strengthened a collective dominant position enjoyed by the parties concerned, was likely to prove incompatible with the system of undistorted competition envisaged in the Treaty [Joined cases C-68/94 and C-30/94].

    Thus, with the support of the Court of Justice, the Commission could exercise an a posteriori control of concentrations of undertakings, one of which had already achieved a dominant position. However, knowing that "prevention is better than cure", the Commission wanted a preventive policy in the field of concentrations. Already in 1973, it had submitted to the Council a proposal for a regulation on the control of mergers. It took sixteen years of discussions in the Council for the Regulation on the control of concentrations between undertakings finally to be adopted in December 1989. Still, this Regulation provided a high threshold for obligatory notification of concentrations and the Commission, after some new discussions, succeeded, in June 1997, to persuade the Council to reduce it through a new Regulation [now Regulation 139/2004].

    According to this Regulation, compulsory notification covers mergers involving undertakings whose aggregate world-wide turnover exceeds 2.5 billion euro (general threshold), and the turnover in each of at least three Member States exceeds 100 million euro. The system whereby a merger is referred to the national authorities by the Commission or vice versa is simplified, with the aim of ensuring both that the authority best placed to examine the situation is given charge of the file, in accordance with the subsidiarity principle [see section 3.2], and that multiple notifications are avoided. Thus, the Commission only takes action on mergers if they have a European dimension and on restrictive practices only if they affect trade between Member States. In these cases its position, its experience and its powers of inquiry place it at the best level to assess the factors involved. Moreover, the Commission can authorise a national anti-cartel office to investigate a concentration, which may have significant effects on a local market. The Commission has to base its decision principally on criteria of competition, but may also take into consideration other factors, such as economic and technical progress.

    To ensure the effective application of the principle of compulsory notification, the Commission has adopted a Regulation covering, among other points, time limits and hearings, the form, content and other provisions relating to notifications [Regulation 802/2004. According to this Regulation, notifications relating to Regulation 139/2004 on the control of concentrations between undertakings and to Article 57 of the EEA Agreement must be submitted in the manner prescribed by "Form CO" or, under certain conditions in "Short Form", while reasoned submissions for a pre-notification referral must take the "form RS". The three forms are set out in the Annexes of the Regulation of the Commission.

    The procedures established for dealing with notifications enable the Commission to make effective use of its powers in this area. The Commission grants authorisation, within the space of a month, to the vast majority of operations which do not create or reinforce a dominant position in the common market or a substantial part of it [See e.g. Decision 95/404]. In a large number of cases the authorisation of the Commission is granted subject to compliance with conditions and obligations [See e.g. Decision 97/816]. Only when serious doubts exist as to the operations' compatibility with the common market does it decide to open a detailed investigation as provided for in the second part of the procedure.

    According to Commission guidelines on the assessment of mergers between competitors (horizontal guidelines) mergers and acquisitions are called into question only where they increase the market power of the companies concerned to an extent likely to have adverse consequences for consumers, in particular in the form of price increases, poorer-quality goods or reduced choice. The Commission has also adopted guidelines for the assessment of ''non-horizontal mergers'', i.e. mergers aimed at broadening a company's activities by either merging with a company at another level of the supply chain (vertical merger) or with a company active in a related market (conglomerate merger). Both guidelines provide advice to companies as to how the Commission analyses the impact of mergers on competition. Any merger or acquisition which would significantly impede competition should be prohibited. A merger's anti-competitive effects result from the creation or strengthening of a single firm's dominant position or from a situation of oligopoly. A merger may impede competition, either because it involves the loss of a competitor on the market, thereby eliminating an important competitive constraint, or because it makes coordination between the remaining companies on the market more likely.

    Few concentration operations have actually been prohibited by the Commission, notably: the take-over of de Havilland by Aérospatiale and Alenia, justified by very high market shares in a global market, high barriers to entry and the maturity of the market [Case IV/M.53]; the joint venture, Holland Media Groep (HMG), because it would be uniquely able to offer advertisers coordinated scheduling on the Dutch television market [Case IV/M.553]; the creation of the joint venture Nordic Satellite Distribution (NSD), because it would reinforce the anti-competitive effects foreclosing the Nordic satellite television market [Case IV/M.490]; the merger of Bertelsmann/Kirch/Premiere and Deutsche Telekom/BetaResearch, which would have created a monopoly position for Premiere in digital pay-television in Germany and a dominant position for technical services for pay-television by BetaDigital and Deutsche Telekom [Case IV/M.1027]; the acquisition by Volvo of its main Swedish competitor Scania, which would have changed the market structure of trucks, buses and coaches, to the detriment of customers [Case COMP/M.1672]; and the merger between Aegean Airlines and Olympic Air, because the proposed merger would have led to a quasi-monopoly between Athens and Thessaloniki and between Athens and eight island airports [Case COMP/M. 5830].

    In many cases of projected concentration the Commission invites the parties concerned to propose appropriate amendments to their projects rendering them compatible with the common market. Thus, the Regulation on mergers does not prevent undertakings from entering into strategic alliances; it allows them to seek complementarities, acquire an international dimension, penetrate new markets and take advantage of the single market, without jeopardising competition within it. Thus, the Commission authorised Pfizer Inc., subject to compliance with the undertakings given by the parties, to acquire Pharmacia Corporation, thereby creating the largest pharmaceutical company in the world [Case IV/M.2922].

    It is interesting to note that under the cooperation agreement concluded between the European Union and the United States on the application of their competition rules, the Commission investigates mergers of American companies in parallel with the US Department of Justice  [Decision 95/145, see section 15.2]. This cooperation led to the 29 September 1999 authorisation, subject to conditions, of the merger between the two US companies Exxon and Mobil [Case COMP/M.1822]. However, on 28 June 2000, the Commission decided to prohibit the merger between the US telecommunications firms MCI WorldCom Inc. and Sprint Corp., because the transaction would have led to the creation of a dominant position on the market for top-level universal Internet connectivity to the detriment of consumers worldwide and especially in the Member States of the European Union [Case COMP/M.1741]. On 3 July 2001, the Commission decided to prohibit General Electric's proposed acquisition of Honeywell Inc., because that merger would create or strengthen dominant positions on several markets in aero-engines, avionics and other aircraft components and systems in the Member States of the EU [Case COMP/M.2220].

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