Merger Remedies

Document Sample
Merger Remedies Powered By Docstoc
					     Merger Remedies

Symposium – Turkish Competition Authority
        Wednesday, 17 June 2009
             Dr. Stanley Wong
    Member and Director, Mergers Division

              Mr. Michele Pacillo
  Case Officer – Economist, Mergers Division
 Purpose and Types of Remedies

   Remedies Selection Criteria

Timing and Implementation Issues

 Variation of Remedies Decisions

       Irish and EU Case List

• Objective

“A remedy should address the identified competitive harm
   arising from the proposed transaction”

    (ICN Recommended Practices for Merger Notification
    Procedures XI.A)

•   Merger remedies are not in a vacuum
     • Procedural and substantive matters depend on the institutional
       framework of the jurisdiction
          Types of Remedies
• Structural Remedies – Divestiture/Sale of
   • A stand-alone viable business or part of it
   • Assets such as contracts, brands, intellectual property rights

• Behavioural Remedies
   • Commitments aimed at changing the future behaviour or
     relationship of the merged entity vis-à-vis its competitors,
     customers or third parties

• A Combination of Both

 Remedies Selection Criteria

Assessing effectiveness. Remedies must…

 • Be proportionate

 • Be workable

 • Be timely

 • Not lead to an unintended anticompetitive impact

 • Be capable of being monitored

        Structural Remedies
• Examples: divestiture of
   • a viable and stand-alone business (M/07/040 -
      Communicorp/ SRH – sale of a radio station, COMP/M.4919
      Statoil/ConocoPhilips – sale of petrol stations),
   • a minority shareholding (M/05/024 - UGC (Chorus)/NTL)
   • brands and „carve-outs‟ (M/06/098 - Premier Foods/RHM)

• Issues affecting the design of structural remedies
   • Scope of divestiture package
   • Availability of a suitable purchaser
   • Preservation of viability of divested assets prior to sale

        Behavioural Remedies
•   Examples:
     • grant access to key infrastructure or technology in a non-
        discriminatory way (COMP/M.4504 SFR-Tèlè2, access to TV
     • reduce switching costs or barriers to entry/exit (COMP/M.5046
        Friesland-Campina, to create an alternative supplier of raw milk)
     • terminate/enter into agreements (COMP/M.4180 Gaz de France-
        Suez, agreement to invest in new project to increase infrastructure
        capacities to facilitate entry)

•   Issues affecting design and implementation:
     • Resource issues: (i) full understanding of the business needed to
        design remedy; (ii) time and costs of on-going monitoring of the
     • Higher risk of market distortion
   Structural vs Behavioural

• Strong presumption in favour of structural remedies
  from an agency perspective

• Behavioural remedies useful when
    • Structural remedy is disproportionate
    • Transaction is multi-jurisdictional

• Distinction is not always clear-cut
    • Example: granting a licence

DG COMP Merger Remedies Study, 2005

•   Findings on divested business
     • 94% of divested businesses still operating 3-5 years after
     • 18% of divested businesses increased market share 3-5 years after
        divestiture, 44% decreased, 34% remained the same

•   Finding on effectiveness
     • 57% of (85) remedies were “effective”, 24% “partially effective”,
        12% “unclear”, 7% “ineffective”
     • 77% of remedies to exit a JV were “effective”, compared to 56% of
        divestiture remedies, 40% of remedies to grant access
     • more Phase I remedies have been effective as opposed to Phase II
        remedies. Possible reasons: tight deadlines in Phase I require
        remedies to be more clear-cut and straightforward; Phase II cases
        are more complex
                   Timing Issues
•   Remedies can be proposed
     • at or before notification
     • during the course of its review
     • as a condition of clearance decision of the competition authority

•   Early remedies discussion is desirable but should not
    influence the merger investigative process
     • EU and Ireland: extension of preliminary investigation period
        (Phase I) to consider remedies

•   Strategic behavior of the merging parties:
     • The costs of going to a full investigation (Phase II)
     • The informational advantage of the merging parties
     • The resourcing of the competition authority
Remedies Implementation
       Plan (1)
Appropriate means should be provided to ensure
  implementation, monitoring of compliance and
  enforcement of the remedy (ICN Recommended Practices
  for Merger Notification Procedures XI.D)

•   Approval of competition authority
     • The plan should be clear and envisage periodic reporting and
     • provide, if necessary, alternative commitments (COMP/M. 4980
       ABF/GBI Business) and review clause

•   Timing
     • Impact on the market of the remedy
     • EC example: 6 months for finding a suitable purchaser and 3 months
       to divest the business and a further 3 months to close the
Remedies Implementation
       Plan (2)
• Supervision and monitoring of
   • approval of the “suitable” purchaser (independent and not
     connected with parties, able to run the business viably and
     compete actively, not create other competition problems)
   • deadlines for divestiture, carve out process, “hold separate”
     clause, obligations of the parties during interim period

• By whom
   • Merging parties and/or
   • Trustees: independent from merging parties

• On-going monitoring after implementation: ideally
  the same person or institution responsible for
    Variation of Remedies
• Remedies decision made by an agency or a court
  may be appealed by merging parties
   • Will the remedy be still effective after the trial or appeal?
   • Will a court vary the original remedy decision?

           Mergers In Ireland
•   New merger regime in Ireland since 01 January 2003

•   Merger Guidelines introduced – includes discussion of

•   Statistics (Jan 2003- May 2009):
     • 424 mergers reviewed by the Authority
     • 12 mergers cleared with „remedies‟:
                          •   8 cases in „Phase 1‟
                          •   4 cases in „Phase 2‟ (full investigation)

     • 3 merger prohibited in Phase 2
     • 1 merger prohibited was allowed by High Court, now awaits final
       decision by Supreme Court

                    Irish Cases
•   M/05/024 - UGC (Chorus) / NTL – behavioural remedy to
    terminate cross-shareholding

•   M/06/039 - Kingspan/Extratherm – prohibition => no
    remedies possible

•   M/06/057 - Coillte/Weyheuser – behavioural remedy
    offered => not required

•   M/06/089 - Premier Foods/RHM – sale of entire portfolio
    of brands

•   M/07/040 - Communicorp/ SRH – divestiture of a radio

•   M/08/009 - Kerry/Breeo – prohibition => no remedies

                     EU Cases
• COMP/M.4919 Statoil/ConocoPhilips – sale of petrol

• COMP/M. 4980 ABF/GBI Business - sale of yeast
  production facilities

• COMP/M.4504 SFR-Tèlè2 - access to TV channels

• COMP/M.5046 Friesland-Campina – set up of an
  alternative supplier of raw milk

• COMP/M.4180 Gaz de France-Suez – divestiture
  plus agreements to invest in new capacity