Merger Remedies

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					     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
        Outline
 Purpose and Types of Remedies


   Remedies Selection Criteria


Timing and Implementation Issues


 Variation of Remedies Decisions


       Irish and EU Case List
                   Introduction

• 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



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 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




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        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

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        Behavioural Remedies
•   Examples:
     • grant access to key infrastructure or technology in a non-
        discriminatory way (COMP/M.4504 SFR-Tèlè2, access to TV
        channels)
     • 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
        commitments
     • Higher risk of market distortion
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   Structural vs Behavioural
           Remedies

• 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



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                      Effectiveness
DG COMP Merger Remedies Study, 2005

•   Findings on divested business
     • 94% of divested businesses still operating 3-5 years after
        divestiture
     • 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
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                   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
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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
       transaction
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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
  implementation
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    Variation of Remedies
           Decision
• 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?




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

•   Merger Guidelines introduced – includes discussion of
    remedies

•   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


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                    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
    station

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

     http://www.tca.ie/MergersAcquisitions/MergerNotifications.aspx

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

• 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

       http://ec.europa.eu/competition/mergers/cases/
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