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Sorting Out Shifts in European Merger Control: Proposed rule revisions may be friendly to American acquirers.

Article Excerpt
Former General Electric Co. CEO Jack Welch learned not to take European deal regulators for granted the hard way: Mario Monti, European Competition Commissioner, shot down GE's bid to buy Honeywell Inc. in 2001.

But three court defeats in merger cases last year - the first-ever reversals of the commissioner's decisions - chipped away at some of Monti's clout. In response, the commissioner and his minions proposed a series of reforms in their rules for reviewing deals. Along with other proposals, Monti issued a draft Commission Notice on assessing dominance, the central test by which the European Union rates a deal's effect on competitiveness in a market or industry on the Continent.

The changes in the draft Commission Notice presently apply only to horizontal mergers - deals that link competing producers. Rules for vertical and conglomerate deals will be issued later this year.

However, there is a sharp debate among competition experts at the commission's home base in Brussels and elsewhere over whether the changes are window-dressing that in some cases actually strengthen Monti's hand or sincere attempts at reform of the regulatory system. "The Commission has learned its lesson. It has tinkered with the formula. It's quite ingenious. Now they will have more power to strike down mergers and have less chance of being overruled," said Pontus Lindfelt, a competition attorney at White & Case in Brussels.

While there had been speculation about dramatic reform, which might have created some kind of independent review of the commission's decisions, that was not part of the new proposals. Instead, the commission will continue to play the role of prosecutor and judge. And in redefining dominance, the commission chose to stick with its traditional yardstick for evaluating mergers. "Fundamentally, the commission will be using the same process, but with some tweakings," said Simon Baxter, a Brussels-based lawyer at Clifford Chance who follows mergers.

But even as many competition lawyers concurred that the effect of the changes won't be earth-shattering, others recommended that dealmakers pay close attention to the new approach. "What they've changed is more procedural than substantive, but procedural changes can have a lot of practical significance," notes Barry Hawk, a competition lawyer at Skadden Arps Slate Meagher & Flom.

Although it may seem that some of the European initiatives are only variations on existing policies, it behooves U.S. dealmakers to take these changes into account if they are involved in deals - both at home and overseas - that will be reviewed in Brussels. Acquisitions by American firms, even if...

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