Europe’s push to reform merger rules to create more heavyweight corporate champions is a wrong-headed approach to tackle U.S. and Chinese rivals and is likely to backfire, the EU’s top competition officials warn.
Pressure has built in the past year to overhaul merger policy, with Germany and France calling for rules to allow bigger airlines and telecoms companies. Reports from former Italian PMs Enrico Letta and Mario Draghi have also stressed the need for telecoms consolidation and scaled-up firms to make the European economy more efficient and resilient.
European Commission President Ursula von der Leyen has told her new competition commissioner candidate, Teresa Ribera, to work on a competition policy that is “more supportive of companies scaling up in global markets.”
But Germany’s top antitrust enforcer, Andreas Mundt, has said that merger rule critics risk looking for solutions without clearly identifying the problem.
“To be frank, when we talk about merger policy, how many cases are you aware of that might have stood in the way of scaling up companies?” Mundt asked POLITICO.
Benoît Cœuré, head of the French competition authority, said that EU-wide telecoms consolidation may be needed, but that the core problem is the patchwork of national regulation.
“It’s not at all clear that the priority should be to relax competition rules. We should first work on addressing regulatory fragmentation, and then the merger side will be solved by itself,” he told POLITICO.
European champions
The competition law world still feels the ripples of the European Commission’s 2019 veto of a French-German deal to create a rail champion to take on a potential Chinese rival. Politicians in Paris and Berlin bitterly complained about Competition Commissioner Margrethe Vestager’s move to block the deal, calling for changes to allow the creation of future European champions.
The overarching argument from EU competition officials is that corporate behemoths can damage the European economy, as they enjoy overweening market power and become bloatedly uncompetitive, charging higher prices to consumers and to the SMEs that supply them thanks to lack of market choice.
Vestager has defended her record, pointing to her subsequent approval of Alstom’s tie-up with another rail rival, Bombardier, and to Siemens’ continued success. “They made it independently, they are competing and they are doing well,” she said at an event hosted by the College of Europe’s Global Competition Law Centre.
Unlike some in his home country, Mundt doesn’t see the veto as a disaster for European industry. “Both companies are alive, competing, and the number of Chinese companies coming into Europe is very limited,” he said.
Vestager also talks of the many big European deals she has cleared, such as Belgium-based brewer AB InBev’s €100 billion acquisition of rival SABMiller in 2016, and the 2020 merger of car rivals Fiat Chrysler and Peugeot to form the fourth-largest global carmaker by volume and the third-largest by revenue.
“The discussion is not about size, it’s about challenge,” Vestager said at the event earlier this month. She talks about companies needing to face strong competition at home to become fit for the global stage.
“Those who won gold medals at the Olympics were trained by the best. They were challenged [at home], and then they could compete against the rest of the world and have medals,” she said.
Growing big firms in key sectors
Opening the door to deals where the law is applied differently to create “a European champion” is “surreal,” Austrian competition authority chief Natalie Harsdorf-Borsch told POLITICO. “When I hear that we need to create a champion, my natural tendency as an enforcer is to ask, wait a minute, who decides, [based] on which parameters?”
The Draghi report on EU competitiveness highlights sectors, such as technology, where the European economy needs to develop, as well as banking, defense and telecoms, where he believes bigger firms are badly needed.
The Commission’s top merger official, Guillaume Loriot, said the EU hasn’t been blocking deals between EU tech companies. Speaking at a regulators’ event in Budapest, Loriot said: “I don’t remember any tech merger between EU companies.”
“It’s a political problem, rather than technical,” Letta told a conference of competition economists in Rome, where he discussed consolidation in the defense and banking industries on the back of his single market report.
Banking deals have recently hit the headlines with Italian lender Unicredit’s moves on Germany’s Commerzbank. There, however, the roadblocks seem to come from German officials and trade unions, who have spoken out against a deal.
French defense company Safran faced an initial “no” from Italy when it tried to acquire Italian assets owned by U.S. firm Collins Aerospace last year. Rome was later persuaded to let the deal go ahead after Safran offered commitments.
Vestager said that problems with defense were “not competition” enforcement but national ownership concerns: “I don’t think there has ever been a problematic defense merger.”
Telecoms companies stand out as the most critical voice on EU merger policy, as their attempts at consolidating within national borders are regularly blocked by Brussels, or only win approval after making heavy sacrifices.
Loriot insists that the EU hasn’t prevented expansion into new territory: “One telecom company entering a market where it’s not present … has never faced an issue.”
He also contends that the Commission will hold its line on rivals buying each other because “in-market consolidation in one national market will not drive competition.”
Indeed, it will ultimately hurt European business and “fragment the single market even further, because it will just raise additional barriers to entry and expansion.”
Ribera, who could soon be Loriot’s new boss, faces the political realities by saying she’s open to “continuous adaptation” of merger rules. But she’s also cautious not to herald any revolution, saying: “The basic objective of impeding excessive accumulation of market power must remain in place.”
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