Merger control

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Merger control refers to the procedure of reviewing mergers and acquisitions under Antitrust/Competition / law. Over 60 nations worldwide have adopted a regime providing for merger control.

Merger control regimes are adopted to prevent anti-competitive consequences of concentrations (as mergers and takeovers are also known). Accordingly, most merger control regimes provide for one of the following substantive tests:

Does the concentration

Substantially lessen competition? (US, UK)

Significantly impede effective competition? (EU)

Lead to the creation or strenghthening of a dominant position? (Germany, Switzerland)

In practice most merger control regimes are based on very similar underlying principles. Simplified, the creation of a dominant position would usually result in a substantial lessening of or significant impediment to effective competition.

While it is undisputable that a concentration may lead to a reduction in output and result in higher prices and thus in a welfare loss to consumers, the antitrust authority faces the challenge of applying various economic theories and rules in a legally binding procedure.

Modern merger control regimes are of an ex-ante nature i.e., the antitrust authority has the burden of predicting the anti-competitive outcome of a concentration.

[edit] Mandatory and voluntary regimes

A merger control regime is described as "mandatory" when the parties are prevented from closing the deal until they have received merger clearance. A distinction can also be made between "local" and "global" bars on closing/implementation; some mandatory regimes provide that the transaction cannot be implemented within the particular jurisdiction (local bar on closing) and some provide that the transaction cannot be closed/implemented anywhere in the world prior to merger clearance (global bar on closing). South Africa has a merger control regime which imposes a global bar on closing.

A merger control regime is described as "voluntary" when the parties are not prevented from closing the deal and implementing the transaction in advance of having applied for and received merger clearance. In these circumstances, the merging parties are effectively taking the risk that the competition authority will not require them to undo the deal if, in due course, it is found that the transaction is likely to have an anti-competitive effect. The UK has a voluntary merger control regime, although it should be noted that the Office of Fair Trading can request the parties to a merger that has already completed to hold the two businesses separate pending an investigation (so called "initial undertakings").

Mandatory regimes are more effective in preventing anticompetitive concentrations since it is almost impossible to unravel a merger once it has been implemented (for example because key staff have been made redundant, assets have been sold and information has been exchanged).