Public interest mergers

I have recently completed a draft, emphasis on draft, paper on public interest mergers which looks at, among other things, HBOS/Lloyds and News International/BSkyB. Having just worked out this new-fangled SSRN thing, you can find it here: http://ssrn.com/abstract=2233822 Any comments are very welcome.

Environmental concerns, non-economic objectives and washing machines

Having just marked a whole bunch of essays where students discussed the role, if any, of non-competition concerns in Article 101(3) TFEU analysis, which involved a discussion of the CECED decision by the Commission, I thought the following link was of interest: http://greedgreengrains.blogspot.co.uk/2012/12/do-consumers-benefit-from-energy.html It tells the story of what happened when the US Department of Energy increased standards for washing machines in 2007. The short version is that sales of less efficient washers reduced, although their prices increased and sales of more efficient washing machines increased significantly. The big point, however, is that the prices of the more efficient washing machines fell sharply around the time of the policy change. To quote: "… the price declines of the efficient washers was larger the price increases of the less efficient washers. And while overall quality of washers increased, average prices declined. Thus, not counting public and private benefits from energy saving, it seems pretty clear that consumers gained substantially from the policy change."

This is interesting because the CECED decision is often discussed as a case where the environmental objectives, energy efficiency, overruled or were at least of equal importance to the economic benefits to consumers, which were said to be less energy consumption and therefore cheaper bills. The analysis of the US case suggests that actually, and unexpectedly, there was no necessity to discuss environmental benefits – there were concrete economic benefits for consumers. It is politically useful to show competition law marching in step with environmental policy, but that is another issue.

My thanks to the Twitterfeed of Mark Thoma: @MarkThoma

The singing Professor

Congratulations to Amelia Fletcher, who has been appointed Professor of Competition Policy at the Centre for Competition Policy, University of East Anglia. The CCP's take is here: http://researchatccp.wordpress.com/2013/01/21/coverage-of-amelia-fletcher/

Professor Fletcher's side-line can be found here: http://www.myspace.com/tendertrap
Any other competition law and policy practitioners with interesting alternative activities?

St Gallen Competition Conference

St.Gallen International Competition Law Forum ICF - April 4th and 5th 2013


The 20th St.Gallen International Competition Law Forum ICF will be held on April 4th and 5th 2013. Once more, it will feature a thrilling selection of hot topics in current competition law issues and some of the most distinguished speakers in the field, including Joaquín Almunia (Vice-President of the EU Commission and Commissioner for Competition), Andreas Mundt (President of the German Competition Authority) and William Kovacic (Former Commissioner of the U.S. Federal Trade Commission ). Taking place in one of Switzerland's most beautiful cities, the St.Gallen ICF gives you the opportunity to meet, discuss and mingle with fellow competition lawyers and leading competition law experts from all over the world. Further information including a detailed programme are available on the conference website:http://www.sg-icf.ch/.


Topics:                         Current issues and developments in competition law
Programme:                 http://www.sg-icf.ch/programme/
Date:                         April 4th and 5th 2013
Location:                         St.Gallen, Switzerland
Registration:                 Registration is now open on our website (http://www.sg-icf.ch/conference-registration/)

Regulators and competition law enforcement

One of the slightly mysterious aspects of competition law enforcement in the UK is that, although a number of the independent regulators have concurrent competition powers alongside the OFT, they only use them rarely. The BIS consultation on the reform of competition law in the UK identified only two infringement decisions and there have not been any since the consultation paper. As one of the aims of the reforms has been to increase the number of enforcement decisions, the Enterprise and Regulatory Reform Bill included a number of changes to the legislation in order to encourage the regulators to use their competition law powers (contained in Clause 54 and Schedule 14).

Before Christmas, the government introduced a new clause into the Bill (http://www.publications.parliament.uk/pa/ld201213/ldhansrd/text/121218-gc0001.htm#12121867000429 at column GC 509). This clause would allow the Secretary of State, using a statutory instrument, to amend the Competition Act and/or the Enterprise Act to remove the concurrent competition powers that the regulators currently have (with the exception of Monitor). There are certain consultation requirements and the affirmative resolution procedure would have to be followed. The Minister, Lord Marland, explained that this was a reserve power, to be used if the new concurrency arrangements do not work or if there was "abuse of the system". This is a strong signal to the regulators that they will have to do better.

It is easy to state this, but more difficult to work out what it means. Presumably the regulators will not only have to bring more cases, but these cases will have to be successful, because bringing lots of unsuccessful cases would show that you are not using the system properly. How many cases could be expected in particular sectors of the economy? Some of the regulators, Ofwat, the CAA and the Northern Ireland regulator, might well struggle to generate all but the occasional case, for perfectly understandable reasons. The focus will presumably be on the performance of Ofcom, Ofgem and the Rail Regulator. Ofcom in particular, may well be under the spotlight, given that the CMA is to be chaired by Lord Currie and the chief executive designate, Alex Chisholm, has come from the Irish communications regulator. More decisions would mean more appearances in front of the CAT, something Ofcom, in particular, will not relish.

Who knows what the target will be? Where will the Minister obtain the information to assess the regulators' performance? Government departments are not in close contact with the relevant industries, except perhaps in rail, and the specialist consumer bodies have been closed down. If the nuclear option is exercised, there will be great pressure on the CMA to bring a case or cases soon after this has been done.

This is a policy based on assumption, for which there does not seem to be any evidence, that there are a number of competition problems in these industries, which the regulators need to solve through using their competition law powers. As Lord Berkeley spotted in the debate on the clause, this is a government impinging on the independence of the regulators through a strong suggestion that there are a series of correct decisions to be made.

Remedies in merger cases

The Competition Commission have published a very helpful and clear analysis of how the remedies in three merger cases have worked out. The analysis can be found, rather obscurely, on this page: http://www.competition-commission.org.uk/governance/specialist-groups/remedies-standing-group by clicking on "Understanding past Merger Remedies" and going to page 82! Three inquiries are discussed: Clifford Kent/Deans, Macquarie UK Broadcast/National Grid Wireless and Nufarm/A H Marks, all of which were completed mergers from around 2007-08.

Clifford Kent/Deans was a merger between the two largest suppliers of eggs in the UK and the CC decided that this would result in an SLC in the supply of fresh eggs. The CC's preferred remedy was the divestiture of Stonegate, the subsidiary of Clifford Kent, from the merged entity, now called Noble. The process was, to put it mildly, not straightforward. The initial divestiture period was three months, from the acceptance of the final undertakings, with the possibility of a three months extension. In the event, the entire process took nine and half months from the acceptance of the undertakings and the appointment of a divestiture trustee. The delay was caused partly by the unexpected fact that one of the bidders was the hold separate manager, who became the preferred bidder, which led to a substantial revision of their offer, and more discussion of their suitability. Just when everything appeared to be set, the bidder's lender withdrew financing, apparently because of the credit crunch, and it took another couple of months before a new offer of finance was in place and Stonegate was eventually sold. Perhaps more importantly, the CC's evaluation suggests that Stonegate has operated as an effective competitor, albeit in a context where Noble has a very strong market position.

The other two cases are particularly interesting because they involve the successful use of complicated behavioural remedies, as opposed to the difficult implementation of a standard divestment remedy. The Macquarie case involved the acquisition by Macquarie's subsidiary, Arquiva, of National Grid Wireless Group's operations in relation to managed transmission services (MTS) and network access (NA) to sites and associated facilities to terrestrial television and radio broadcasters. In essence, this is doing the work of making sure that television and radio broadcasts are transmitted properly from the various sites across the country, around 1,000. The CC found that there would be an SLC because the merger combined the only active providers of MTS/NA to UK television broadcasters and that the two entities were the most significant providers of these services to radio broadcasters, with a market share over eighty-five per cent, that they exercised a competitive constraint on each other and that there was insufficient threat of entry. Although intuitively, these circumstances might be thought to lead to a full divestiture, the CC also identified that the merger could give rise to significant relevant customer benefits (RCBs) which would be lost if the merger was not allowed to go ahead. The other background issue was that the merger was taking place during the switchover to digital television and there was a strong concern that this should not be disrupted.

The CC therefore came up with a set of complicated behavioural remedies. The main points were that customers would get a variety of significant price reductions, contract renewals or new contracts would be based either on existing contracts or cost-oriented and FRAND terms, protection for quality of services, the creation of an independent adjudicator (http://www.adjudicator-bts.org.uk/index.htm) to deal with disputes, the preparation and audit of regulatory accounts for Arqiva and protection for confidential information, among other rules. The analysis suggests that the remedies have worked well, although the CC cautions that there has not yet been any stress test of the provisions, for example, through a contract renewal. In particular, there has been better information provision and the adjudicator has been seen as a clear success, even though there have been no formal disputes! As the CC points out, a lack of disputes can be seen as a sign of success.

The final case is Nufarm which involved the acquisition of a company producing herbicides, plus related products, as part of a complicated supply chain. The CC found that there was likely to be an SLC in relation to two herbicides, MCPA and MCPP-p, at various levels in the supply chain. This merger was also investigated in a number of other countries, notably the US and Canada. The final remedies agreed upon were a complex mixture of structural and behavioural ones, which also required careful attention to the regulatory context. To be more precise, in relation to MCPA to remedies were: the extension and improvement of a supply agreement to a potential competitor (Dow), the transfer to this potential competitor of a formulated product registration, and the creation of a new formulated product and the transfer of it to another potential competitor (Sarzyna, a Polish company). For MCPP-p the remedies required: entry into two toll manufacturing agreements, the transfer of the registration of a formulated product to a customer, access to a particular technology and a commitment to allow two customers to continue to rely on certain product registrations, so long as the merged entity maintained those registrations for its own use. There was a fallback divestiture remedy which the CC noted helped to provide a strong incentive on the parties to agree undertakings and implement the preferred remedies. Almost all of the agreements were reached within the timetable set down by the CC, with one minor exception, and some were reached earlier. The MCPA remedy appeared to be effective, even though Dow had not entered the market, because Sarzyna had entered – although Sarzyna had not given any information directly to the CC about its activities. The customers for MCPP-p said that the remedies had been effective because the agreements and the transfer of registration had worked well.

This analysis of how remedies have worked in relation to particular inquiries is very valuable but it does make one wonder why the European Commission cannot do something similar. The use of behavioural remedies is particularly interesting, as they often are seen as the poor relations of the remedies universe. The CC cautions, however, that behavioural remedies are more likely to be effective if the pace of change in the industry concerned is both relatively slow and predictable.

 

OFT refers private motor insurance to the CC

The OFT announced today that it had referred the private motor insurance market to the CC (http://www.oft.gov.uk/news-and-updates/press/2012/85-12). This means that the OFT has made four market investigation references to the CC in the last twelve months which is a new record. By contrast, from June 2007 to June 2011 only one such reference was made by the OFT (local bus services). Given government concerns about the underutilisation of market investigations, it is difficult to see this change in pattern as a coincidence. Given that a new regime will be in place from April 2014, courtesy of the Enterprise and Regulatory Reform Bill, it will be interesting to see if any further references are made between now and the start-up of the Competition and Markets Authority, although presumably there must be some provision for finishing off CC inquiries started before its abolition but finishing afterwards. With a fair wind, the private motor insurance market investigation could be finished in time for the start of the Competition and Markets Authority.