The new EU merger

1

• The new EU merger
• remedies policy
• Carles Esteva Mosso
• Head of Merger Control Policy Unit
• DG Competition

2
Reasons and objectives of the review

• Reflect conclusions from the Commission s Merger
  Remedies Study (2005)
• http//ec.europa.eu/comm/competition/mergers/studi
  es_reports/remedies_study.pdf
• Incorporate recent jurisprudence
• Important guidance in EDP/GDP, GE, Tetra,
  Cementbouw and Easyjet judgements
• Reflect experience gained in recent Commission
  practice
• Relevant recent remedies cases such as
  Inco/Falconbridge or GDF/Suez
• Update with regard to changes introduced in 2004
  Merger Review
• Mainly concerns options to extend deadlines to
  discuss and assess remedies

3
Conclusions of the Remedy Study on divestitures
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General Principles

• Allocation of responsibilities (EDP/GDP/ENI)
• Commission informs the parties of the competition
  concerns identified
• It is for the parties to propose remedies,
• Commission has to assess the effects of the
  operation, as modified by the remedies.
• Assessment standard (GE/Honeywell)
• Certainty as to the implementation
• Probability as to the assessment of the operation
  (more likely than not that the operation
  modified significantly impedes effective
  competition)
• Proportionality (Cementbow)
• Parties do not need to submit remedies than go
  further than what is necessary to remove
  competition concerns. If they do so, however,
  Commission cannot reject them and impose
  different ones.
• Appropriateness of different types of remedies
• Divestitures, generally preferred, including for
  non-horizontal concerns
• Other structural commitments, such as access
  remedies, acceptable if same effect than a
  divestiture
• Where market structure is affected only by future
  behavior of the merging parties, also other
  remedies may have to be assessed (Tetra).
  Commitments on future behavior, however, only
  exceptionally accepted. Certainty of
  implementation and effective monitoring
  particularly required.

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Divestitures. Scope

• Insufficient scope of the divested business is
  the major source of remedy failure (remedies
  study).

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Divestitures. Scope

• All assets and personnel necessary to ensure a
  viable and competitive business to be transferred
• Independent access to supply (Inco/Falconbridge
  GDF/Suez Evraz/Highveld), IP rights,
• Shared assets (duplication, if necessary) and
  personnel to be transferred
• Modalities
• Preference for stand-alone business
• Carve-outs acceptable
• Risks for viability and competitiveness to be
  limited by requiring transfer of a stand-alone
  business (carve out started in interim period)
• Reverse carve out as an option
• Alternative divestitures (Crown jewels)
• In case there are uncertainties in relation to
  the business to be divested, parties could
  propose an alternative divestiture, to be
  implemented if the first one does not take place
  in a short deadline.

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Divestitures. Additional information requirement

• There is a clear asymmetry of information on the
  right scope of viable business Commission has
  the burden of motivation to reject commitments
• New information obligation of the parties to be
  included in the Implementing Regulation Form RM
• Nature and scope of commitments offered
• Conditions for their implementation and
• Suitability to remove any impediment to effective
  competition
• Deviations from Commissions Model Texts
• For divestitures, in particular, detailed factual
  description required on how the business is
  currently operated to be compared with scope of
  Divested Business as offered in the commitments

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Divestiture. Purchasers

• Suitable purchaser to be agreed within fixed
  time-limit
• Normal procedure.
• Multitude of purchasers available (also including
  special purchaser requirements)
• No specific issues interfere with divestiture
• Up-front buyer
• Uncertainty of implementation
• Obstacles for divestiture, e.g. third party
  rights
• Uncertainty that Business will attract suitable
  purchaser
• Difficult interim preservation
• If high risk of degradation
• Fix-it-first remedy
• Preferable where identity of purchaser is crucial
  for effectiveness of remedy
• E.g. if viability is ensured by specific assets
  of the purchaser (Inco/Falconbridge) or where
  purchaser needs to have specific characteristics
  (tele.ring)

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Divestiture process

• Short divestiture two-step process (normally 63
  months)
• Interim preservation and hold separate
  obligations
• Monitoring Trustee
• Timely appointment as up-front trustee
• Trustee explicitly responsible for third party
  complaints
• Publication of identity and tasks
• Hold-separate manager
• Clear definition of role in commitments
• Immediate, up-front appointment
• Supervision/removal by Trustee

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Non divestiture remedies

• Removal of links with competitors
• Divestiture of minority shareholding or,
  exceptionally, waiving rights related to minority
  stakes
• Termination of distribution or other contractual
  arrangements
• Access commitments
• Granting of non-discriminatory access to
  infrastructure, networks, technology/IP rights or
  essential inputs.
• Acceptable, to lower barriers to entry or
  eliminate foreclosure concerns, if same effect
  than a divestiture (e.g. Lowering entry barriers
  only if there will be actual entry of new
  competitors)
• Monitoring of such commitments
• Via market participants self-enforcement of
  commitments (arbitration clauses)
• By national regulators
• Other non-divestitures
• To be assessed on a case-by-case basis (Tetra),
• Difficulty of monitoring and risks of
  effectiveness they may only amount mere
  declarations of intentions

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Procedure Phase I remedies

• Remedies have to rule out serious doubts.
• Only acceptable when competition problem is
  readily identifiable and can easily be remedied
  (recital 30 ECMR).
• To be submitted within 20 WD (extension 10 WD)
• Only limited modifications acceptable after
  deadline (Philips)
• Commission will offer opportunity to withdraw
  remedies if concerns finally not arise in one or
  more markets

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Procedure Phase II remedies

• Remedies must remove competition concerns
• They should be submitted before day 65
• If submitted before day 55, no extension
• If submitted after day 55 or before day 55 but
  modified version submitted after, extension of 15
  WD.
• Art 10.3 extension possible
• Late modified remedies in phase-II
• Commission not obliged, but allowed to accept
  late remedies (i.e. modified remedies submitted
  after day 65). (Edp/GDP/Eni)
• Conditions described in Remedies Notice
• Modified remedies fully and unambiguously remove
  competition concerns without need for further
  investigation or market test
• Commission must be able to properly consult with
  Member States, (i.e. to keep 10 WD deadline)
• No Art 10.3 extension will normally be granted
  after day 65

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Next steps

• Public consultation on draft open until 29 June
  2007.
• Commissions adoption of definitive version
  expected by end of 2007