Another look at Brussels by Antoine Giscard d'Estaing, CFO of Schneider Electric (1)
On 10 October 2001, The
European Commission announced its decision to veto the merger of Schneider Electric
and Legrand, thus dashing hopes that a new industrial group would rise up to
make Europe more competitive against global players in this sector. Schneider
Electric ran headlong into a procedure, analysis criteria and a basis of investigation
that no longer correspond to reality or current business conditions. In proposing
a "green paper" to lay the base for a revision of the procedure, the
Commission implicitly acknowledges that the current procedure is unsuited and
harmful. In its current form, the procedure does not help the European economy
compete on the world stage, which is the only way we can hope to create wealth
for consumers, employees and shareholders.
Schneider Electric pointed out several flaws in the system, particularly in the following areas, which were mentioned by AFEP (Association Françaises des Entreprises Privées) in its response to the Green Paper and are given below.
1/ Defining the relevant market
Competition authorities are quite willing to seek out the assistance of notifying companies in obtaining general market information. They should pay attention to what the companies' marketing departments' have to say on relevant markets in terms of substitutability of demand or supply. If the authorities do not accept these explanations they should explain why. In so doing, they should keep in mind that segmentation into sub-markets for marketing purposes is not at all the same thing as delimiting relevant markets.
Generally speaking, the Commission should be more
attentive to the reality of geographical markets, and more flexible in appraising
them. While some markets are local in nature because of the products and services
on offer, others are clearly European or global in scale or are potentially
In this latter category, link-ups tend to extend the size of the markets themselves, thus calling into question the very notion of national markets. Moreover, European oversight of consolidation is truly justified when it covers competition in European-scale markets.
2/ Concepts of collective dominance and portfolio effect
Generally speaking, in these areas, care must be taken to avoid using abstract concepts instead of clear demonstrations. Competition authorities must precisely analyse the facts, not the meanings of words.
3/ Allowing for the full impact of a deal
Economic assessments must have a primary role in analysing
the impact of a link-up, including the expected impact.
The interest of consumers is an important factor, but not the only one. The Commission often presents consumer interest as the be-all and end-all of its competition strategy. The reality is that consumers can only benefit when greater efficiency and innovation allow companies to become more competitive.
We might add that authorities in different countries tend to weigh the efficiency and innovation criterion differently. In the US, for example, it is given considerable weight. This gap between the US and EU in how much importance is assigned to the benefits of a merger ultimately has greater consequences than the differences between their respective theories. This should encourage the Commission to be more vigilant in how various countries' political structures affect international competitiveness and should make it adopt realistic policies that give European industry a real chance, while respecting principles of equality.
Pre-notification dialogue is meant to move the case
along and not to raise restrictions or hurdles. It should be constructive, not
During pre-notification, as well as the rest of the procedure, it should constantly be kept in mind that notification of a planned merger is a two-way street involving give and take, but not bargaining. The guiding principle should always be not just to safeguard competition, as in an ordinary antitrust matter, but also measures to promote conditions that are favourable to companies.
At the end of this preliminary stage, a clear distinction should be drawn between those principles have been accepted and on which no further discussion will take place, those that await a single validation and those that are being accepted tentatively. A form of closing with management of the notifying company would be useful.
5/ The tone of investigators
The 29 September proposal to simply grant the Commission
police-like powers in investigating planned mergers, similar to those that it
enjoys in investigating price fixing, cartels and abuses of dominant position,
is questionable and shocking. It suggests that, from the point of view of
the merger authorities, the notifying company has done something dishonourable.
For several years now, a gap appears to have opened up between the soothing words of the DG Competition authorities on notifications and the hard reality experienced by notifying companies with the Merger Task Force.
(1) Further to our article on European anti-trust rules.