The European Commission’s 2001 decision to stop GE’s acquisition of Honeywell might be the most famous of its several decisions to interfere in mergers of US companies, and has prompted some observers to accuse it of seeking to protect European firms from competition. So what do the data say on the subject?
The European Commission’s merger-review power has been a subject of controversy among lawmakers and commentators for more than two decades.
One reason is that the Commission has sometimes used its extensive competition authority to prohibit high-profile mergers involving non-EU firms—even where those same acquisitions are approved by other competition authorities. The Commission’s 2001 decision to block the $42 billion acquisition of Honeywell by General Electric—a merger approved by the US Department of Justice—is perhaps the best known of these cases, an anecdote that looms large in competition-law lore. But GE/Honeywell does not stand alone. In the name of competition law, the Commission has repeatedly blocked or forced significant restructuring of mergers involving a wide range of well-known American firms, including Boeing, MCI WorldCom, Time Warner, and UPS.
These high-profile interventions have raised concerns that the Commission is using its merger-review power to advance protectionist industrial policy rather than competition. In the wake of GE/Honeywell itself, for example, US Treasury Secretary Paul O’Neill called the Commission’s decision “off the wall,” describing the Commission as “autocratic,” and the Department of Justice’s chief antitrust enforcement official noted the Commission’s “divergence” from the principle that “the antitrust laws protect competition, not competitors.” Members of the US Congress expressly accused the Commission of “using its merger-review process as a tool to protect and promote European industry at the expense of U.S. competitors.” Today, the primary concern is the European Commission’s mounting antitrust investigations of US high-tech companies, including Google, Qualcomm, and Apple, which critics say reflect the EU’s attempt to offset the US’s technological edge and tilt the market in favor of their weaker European rivals.
Taking Accusations of Protectionism Seriously
The notion that the Commission’s merger-review authority is used to protect European firms from foreign competition should not be taken lightly. For one thing, the economic stakes are high: in Europe alone, the value of mergers and acquisitions in 2014 was about $900 billion. For another, the increasingly international focus of merger activity makes clear that only rarely—if ever—will a significant merger escape the Commission’s antitrust mandate. Yet the idea that a critical gatekeeper for global merger activity is using its authority to protect favored firms rests largely on a few famous anecdotes. The Commission’s decision-making has not been subjected to the kind of systematic empirical analysis that could rigorously test those intuitions.
In our paper “Is EU Merger Control Used for Protectionism? An Empirical Analysis,” we introduce a unique dataset that permits us to provide the first careful examination of the determinants of the Commission’s merger review policy. While previous analysis of the Commission’s decisions has relied on small, hand-drawn samples ranging from 96 to 245 cases, our novel data, which include the Commission’s decision on every case that comes before it, offer the unique opportunity to examine the Commission’s enforcement record across more than 25 years and over 5,000 cases. We supplemented this data by hand-coding information on each deal and merging in a half-dozen other datasets, a process that took years but resulted in the most complete set of European merger reviews in existence.
We focus on the nationalities of acquiring companies and target companies, examining whether the Commission differentially treats acquisitions of domestic (EU) targets; acquisitions by foreign (non-EU) buyers; and, of course, acquisitions of EU targets by non-EU buyers. Our broad dataset allows us to compare similar transactions by controlling for a broad range of variables.
Figure 1 contains a graphical representation of a comparison between deals with both a non-EU buyer and an EU target (that is, the deals that are most commonly believed to be targets of Commission bias) and other deals. Each point represents the probability of regulatory challenge for deals with similar transaction values. The red dots, which represent deals with non-EU buyers and EU targets, do not have a higher probability of regulatory challenge—in fact, their probability of challenge is generally a bit lower for deals of any size.
We searched for bias by running dozens of regressions with different specifications, variable definitions, designs, and control variables. We found that the mergers the are most commonly believed to be targets of the Commission have a slightly lower or identical rate of regulatory challenge.
Contrary to policymakers’ and practitioners’ intuitions, in no test did we find evidence that the Commission has intervened more frequently, or more extensively, in transactions involving a non-EU- or American-based firm’s acquisition of a European target. If anything, our results suggests that the Commission is less likely to challenge transactions involving non-EU acquirers. While we cannot claim to have conclusively proven that protectionism is absent from Commission merger control, we argue that our analysis has, at the minimum, turned the tables and shifted the burden of proof to those entertaining these claims.
What These Results Can (and Can’t) Tell Us
Our results have significant implications, both theoretical and practical. Beyond their direct contribution to the debate on the drivers of European merger policy, our findings provide an important corrective to the broader public debate regarding the behavior of one of the most powerful regulatory institutions in the world. Our analysis also makes a contribution to the more general academic debates on international spillovers of domestic regulatory policies, regulatory constraints on global M&A deals, as well as modern manifestations of economic protectionism.
Of course, it may well be that protectionism plays an occasional role in European merger-review cases. We show, however, that the evidence does not support the claim that any such bias systematically affects merger-enforcement outcomes in the European Commission. Our finding challenges the conventional wisdom that portrays the European Commission as a protectionist institution that deploys its vast merger control powers as a tool for industrial policy.
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Contrary to policymakers’ and practitioners’ intuitions, in no test did we find evidence that the Commission has intervened more frequently, or more extensively, in transactions involving a non-EU- or American-based firm’s acquisition of a European target. If anything, our results suggests that the Commission is less likely to challenge transactions involving non-EU acquirers. |
Finally, a question arises whether one can extrapolate anything from our analysis of EU merger control to other areas of EU competition policy, including investigations in the behavior of dominant companies or the Commission state aid decisions. Those areas are considerably harder to test empirically as the entire universe of (potential) unilateral conduct cases or instances of state aid is not known.
However, if the Commission were a protectionist antitrust enforcer, we would expect those tendencies to feature particularly prominently in the merger control area, which involves large companies and high stakes and where concerns about the job losses are distinctly salient. It is, after all, the very same institution—the Directorate General for Competition—that engages in investigations across mergers, antitrust, and state aid cases alike. There would hence need to be some reason why the protectionist Commission would rein in its protectionist tendencies in the merger area while engaging in biased enforcement elsewhere. That said, we are hesitant to draw conclusions that are too broad from our empirical findings, which are based on EU merger control alone.
Anu Bradford is Henry L. Moses Professor of Law and International Organization at Columbia Law School. She is also a Director for the European Legal Studies Center.
Robert Jackson is a Commissioner of the U.S. Securities and Exchange Commission and is a Professor of Law at the NYU School of Law (on leave since December 2017).
Jonathon Zytnick is a PhD candidate in Economics at Columbia University and a Postdoctoral Fellow at the The Institute for Corporate Governance and Finance at the NYU School of Law.
[Editors’ note: This article is based in part on a post from the Oxford Business Law Blog. Those sections are reprinted here with permission from OBLB.]
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