The Commission has announced the opening of an in-depth investigation into the proposed merger of car manufacturers PSA and Fiat Chrysler (FCA). "We will carefully assess whether the proposed transaction will have a negative impact on competition", said European Commissioner for Competition Margrethe Vestager. Does this decision threaten the merger? Elements of response with Corinne Khayat, partner at UGGC Avocats and specialist in competition law.
On what elements does the European Commission take its decisions?
The European Commission, which has continued to operate despite the context of the pandemic, ensures that there is no creation or strengthening of a dominant position linked to the implementation of a merger. In this context, it examines the position of the parties on the markets concerned by the transaction.
The definition of the markets concerned by the operation makes it possible to identify and define the perimeter within which competition between companies is exercised. In general, the market for the products concerned by the operation includes all the products that the consumer considers to be interchangeable because of their characteristics, their prices and the use for which they are intended. The geographic market includes the territories in which the conditions of competition are sufficiently homogeneous.
The Commission identifies all the markets in which the parties are involved as well as those likely to be affected by the transaction. These markets can be extremely numerous and include different sub-segments. Subsequently, the Commission conducts a competitive analysis of the impact of the transaction on the markets concerned to assess, in particular, whether the transaction does not promote market power. The Commission verifies that the transaction, if authorized, maintains effective competition on the market concerned to avoid that the new entity can act on the market independently from its competitors and customers, by proceeding for example, higher prices or reduced innovation.
The Commission may or may not authorize a concentration based in particular on these various criteria. With regard to the merger between PSA and Fiat Chrysler, the Commission had 25 days to decide whether to authorize the transaction after its preliminary phase I investigation, or, as in in this case, the opening of a detailed phase II investigation taking into account competition concerns. The Commission will now have to take a decision before the end of this phase II, namely in principle on October 22.
What could make the merger between PSA and Fiat Chrysler fail?
The Commission has already expressed a number of competition concerns regarding the merger in its press release published on June 17, 2020. In particular, it considers that the concentration would be likely to reduce competition in the light commercial vehicle market by less than 3 , 5 tonnes. Fifteen states from the European Economic Area, including Belgium, France, Italy and the United Kingdom, would thus be affected.
In particular, the Commission has identified barriers to market entry and expansion in the light commercial vehicle segment, including the need for a sufficiently large service network that cannot be built quickly and easily. The entry of a new player that could compete with the new entity on a significant scale would then be difficult in practice.
The Commission also noted that, after the transaction, the combined market share by Fiat and PSA would be high and that there would be fewer competitors in the pick-up segment, in which the parties to the operation are already in close competition. Competitors would therefore see their size significantly reduced compared to the merged entity.
What corrective measures can be proposed by PSA and Fiat Chrysler before the Commission's final opinion?
PSA and Fiat have decided not to present corrective measures when notifying the operation to the Commission. However, the parties can still propose commitments, even at the stage of phase II of the analysis. If commitments are proposed after the first 55 days of phase II, the deadline for the adoption of the final decision by the Commission will be increased to 105 working days.
Commitments are remedies of a structural or behavioral nature which make it possible to alleviate the competition concerns linked to a merger. The Commission favors structural remedies, such as divestments of activity to an purchaser independent of the future entity, in order to favor the emergence of a new competitor on the market or to strengthen an operator already present and thus maintain competitive pressure on the relevant markets. Behavioral commitments, on the other hand, are remedies by which a company undertakes to follow determined economic behavior. This may, for example, be a framework for pricing and commercial policy.
The Commission will examine, if necessary, whether the proposed commitments are capable of remedying the competition concerns identified during the preliminary phase I investigation. If this is not the case, it will not authorize the transaction, as it did for the Alstom-Siemens merger project.
Is a veto irremediable?
By opening phase II, the Commission has decided to carry out an in-depth analysis of the operation in order to determine whether the merger will significantly impede the exercise of effective competition within the European Economic Area. At the end of its analysis, the Commission may decide to authorize the operation, with or without taking commitments.
As underlined by the Commission in its press release of 17 June 2020, the vast majority of the notified mergers do not pose any competition concerns and are authorized after a routine phase I review. However, the Commission clarified that five other in-depth Phase II investigations were currently underway, including in connection with the proposed acquisition of Transat by Air Canada.
Are there any possible remedies for PSA and Fiat Chrysler? If yes, which ones ?
In the event of the Commission's refusal to authorize the procedure, the parties may consider lodging an appeal with the General Court of the European Union within two months of notification of the decision. This prospect of litigation is however long.
Alstom and Siemens did not seize this opportunity when the Commission prohibited their merger. This was not the case with the German companies Aurubuis and Wieland, which appealed to the General Court following the ban last year on their plans to concentrate on the copper market. The case is still pending.
It will be noted that, in the case relating to the proposed acquisition of O2 (owned by Telefonica) by Hutchison 3G UK (owner of Three) in the sector of the mobile telephony market, the Court canceled, on May 28, the Commission prohibition decision, considering that it had not demonstrated how the effects of the operation would have been likely to constitute a significant obstacle to effective competition.
In particular, the Court did not follow the Commission's analysis of the effects of the operation on prices and on the quality of services to consumers. However, it cannot be ruled out that the Commission may appeal against this annulment to the Court of Justice, such an appeal being limited to questions of law and to be exercised within two months and ten days from of the notification of the decision.
What is the impact of a European veto on two companies wishing to merge?
As the Commission itself recognizes, it is important to note that most of the transactions notified obtain authorization. There have only been around a dozen Commission refusals in the past decade. In addition to refusing the Alstom-Siemens merger, the Commission also prohibited in particular the joint venture project between Tata Steel and ThyssenKrupp on the steel market in June 2019.
In the event of a ban, companies cannot carry out the proposed operation, on pain of being fined financially. Nothing prevents companies from reorienting their strategy. After the refusal by the European Commission of its merger with Three, O2 has, for a time, maintained an independent strategy to finally announce very recently its merger with Virgin Media, cable operator controlled by Liberty Global, on the British market.
Similarly, following the veto imposed by the Commission in 2019, Alstom and Siemens immediately abandoned the project. However, despite this refusal, Alstom notified on June 11 a new merger with Bombardier. The Commission's decision is expected to be released before July 16, 2020, if there is no suspension of time or the initiation of a Phase II.
What are the procedures to follow in the event of a merger to obtain the approval of the European Commission? What are the criteria?
Transactions meeting the definition of concentration within the meaning of Regulation No 139/2004 must be notified to the European Commission if the parties' turnover reaches the thresholds set by the regulation. If the parties decide to implement the transaction without notifying it or before obtaining authorization, the Commission has the power to impose a fine up to 10% of the total turnover of the parties. companies involved. Altice was thus fined € 124.5 million for having implemented the acquisition of the operator PT Portugal before the authorization of the Commission.
When the transaction is notified, a phase I of 25 working days in principle opens during which the Commission proceeds to a preliminary investigation. In the event of competition concerns, the Commission opens a phase II during which it has 90 working days in principle to examine whether the operation significantly prevents the maintenance of effective competition on the markets concerned.
Throughout the notification procedure, the Commission addresses a number of specific questions to the parties allowing it to better understand the consequences of the operation. It should also be checked that all the information provided by the parties is correct, otherwise they will be fined up to 1% of the total turnover.