New Guidelines on Non- Horizontal Mergers

Vera Sopeña
Garrigues

The European Commission recently adopted the final version of its guidelines on non-horizontal mergers (Guidelines)1 which largely retain the ideas contained in the preliminary draft published one year ago (February 2007).

The aim of the Guidelines is to complement those already existing on horizontal mergers,2 both of which were adopted to accompany the 2004 reform of the European Community (EC) Merger Regulation 139/2004.3

Whilst acknowledging that they are less likely to restrict competition than horizontal mergers (i.e. among directly competing undertakings), the Guidelines note that non- horizontal mergers are still potentially able to hinder effective competition.

The Guidelines distinguish two basic categories of potential anticompetitive effects: non-coordinated effects and coordinated effects. While non-coordinated effects may constitute a hurdle to rivals’ access to markets or supplies; coordinated effects may enhance the sustainability of existing coordination or enable new coordination to take place, especially where transparency is increased.

Potencial anticompetitive effects in non-horizontal mergers analysis

With the aim of analyzing the potential anticompetitive effects listed above, the Commission first distinguishes between two categories of non-horizontal mergers: vertical mergers -where the parties operate on different levels of the supply chain-; and, conglomerate mergers -where the parties have neither a purely horizontal or vertical relationship but are active in complementary markets-.

In relation to vertical mergers, the Commission will examine the merged entity’s ability to: (i) restrict access to the products or services that it would otherwise have supplied, thereby raising its downstream rivals costs (input foreclosure); (ii) foreclose access to a sufficient customer base to its actual or potential competitors in the upstream market, therefore reducing their ability or incentive to compete (customer foreclosure).

As regards conglomerate mergers, the Guidelines explain how a merger which involves the combination of products in related markets may give the merged entity the ability and incentive to leverage a strong market position from one market to another by means of tying, bundling or other exclusionary practices.

Safe Harbour for market shares below 30%

Last, the Guidelines offer a relative safe-harbor stressing that in circumstances, non-horizontal where the new entity’s post-merger market
normal mergers share in each of the relevant markets is below 30% and the Herfindahl-Hirschman Index (known as HHI) concentration level is under 2000, will not be extensively investigated.

However, the Commission notes that concerns may arise if any of the following four conditions are met: (i) the merger involves a company that is likely to expand significant in the near future (aggressive mavericks); (ii) there are significant cross- shareholdings or cross-directorships in the market; (iii) there is a high likelihood that one of the merging firms will disrupt coordinated conduct; (iv) there are strong indications of past or future coordination.