Responding to criticism that Europe has been too quick to block mergers and acquisitions, European Union antitrust chief Mario Monti proposed sweeping reforms, which could have significant implications for companies hoping to merge here in the U.S. "The commission has now made clear that it's going to go into flexible, detailed analysis, and it's going to rely heavily on economics and actual facts," said Jim Rill, co-chair of the law firm Howrey Simon. "It's not going to be a slave to market shares." The reforms are important for U.S. companies because the European Commission, which is the regulatory arm of the 15-nation EU, has the power to overturn mergers or demand changes to transactions between companies with combined global sales of $4.5 billion -- even though the firms may be based outside of Europe. Generally, a U.S. merger that would result in a company with more than $225 million in annual revenue from Europe would fall under Monti's jurisdiction. The European Commission said it will appoint a "chief competition economist" to improve its economic analysis, and said it will allow companies to argue that the efficiencies generated by a merger could benefit consumers. The commission has been accused of rejecting deals in the past, including the General Electric ( GE) tie-up with Honeywell ( HON), based on vague notions of anticompetitiveness. In evaluating merger transactions, the commission determines whether firms will have a high share of the market once they merge, which could crimp competition and drive up prices. The commission also can block a merger if the companies have a low share of the market but are considered likely to act in an anticompetitive manner with the remaining firms in the industry. Critics say the body often has failed to prove that the deals it opposed would have hurt consumers.
Indeed, the European high court has overturned three decisions by Monti to block mergers, claiming that the EU antitrust department failed to gather sufficient evidence. The Commission said it intends to analyze more fully the effect of a merger on competition, and said it will provide clarity on how it applies the notion of dominance in oligopolistic markets. In addition, companies whose proposed merger is being investigated now will be allowed to review the regulator's evidence early on, and will have a chance to review evidence from competitors opposing the transaction. "This is a strong step towards convergence with the analytical framework used in the U.S.," said Howrey Simon's Rill. While Rill said the new approach is potentially a good sign for U.S companies hoping to get approval for a merger in Europe, Stanley Gorinson, a partner at law firm Kilpatrick Stockton, said the new guidelines may not go far enough. "It seems to reduce the amount of friction, but the devil is in the details," he said. Gorinson said he isn't sure whether the new rules really address the concerns raised by the Court of First Instance, which has overturned three prior rulings from Monti. "I don't know whether the new procedures take account of the court concerns," he said. He also noted that while the move may harmonize procedures, "there's still nothing to stop Europe (or the U.S.) from reaching a decision that's at odds with the other regime."