THE GLOBAL MERGER CONTROL CONFERENCE
Agencies and general counsel: what's on their radar?

Interview with Carol Xueref

Board director – Strategic committees - Eiffage + Ipsen, Paris

Carol Xueref (Eiffage, Ipsen) has been interviewed by Mélanie Thill-Tayara (Dechert) in anticipation of the roundtable "In-house Counsel Showcase Session: Industrial policy considerations in merger control" organised at the occasion of the 7th Global Merger Control Conference in Paris on Friday 6 December 2019.

The roundtable is also composed of Pascal Belmin (Airbus), Susan Hinchliffe (General Electric), Clara Ingen-Housz (Saint Gobain) and Michael Weiner (Dechert).

To read the program and register, click here.

There is currently a strong call for the European Commission to take into account, when reviewing a merger, industrial policy concerns in its decisions. Yet, in Member States that have a mechanism allowing the Government to override a competition authority’s decision (e.g. France or Germany), such mechanism has in fact only rarely been used, suggesting that a few transactions actually benefit (or suffer as the case may be) from a change. With this in mind, is the current debate worth adapting European merger control rules or should objectivity, impartiality and legal certainty continue to prevail? Is there a middle path that could be found to satisfy all the interests at stake?

This is not a new debate; amongst others there have been research papers in the 1990s, Mrs Kroes’ statements in 2006 around global champions and of course more recent moves by a number of countries involving foreign investment control, screening and national security considerations in the context of trade tensions.

Industrial and competition policies are usually seen as contradictory or conflicting opposites, although under certain circumstances and depending on content they are compatible (for example if structural reform is the joint objective). Historically competition policy has been behind rapid economic growth or recovery and industrial policy has reduced such growth rates (at least if one looks at Japan in the past with its targeting of certain industries through protection, tax breaks and loans). That being said, the traditional discussion of competition policy vs industrial policy is now more difficult in today’s world as technology, globalisation and protectionism are vying for attention and support.

Nevertheless, it would not be a wise move to deviate from competition as the fundamental model; competition policy is politically independent and applies without discrimination to all.

Industrial policy can be efficient when there is a market failure or when used to foster innovation and applied to targeted industries. Competition policy can select industries that grow by allocating resources efficiently (higher productivity, higher rewards if no market failure). Where there is little growth, competition policy is vital. It can however be improved by intelligent industrial policy taking into account globalisation enforced changes.

Can there be a middle ground on the basis of interaction between competition policy and industrial policy without causing a contradiction or conflict? The answer is probably yes,if there is the aim of introducing industrial policies which can remove those market imperfections which tend to impose constraints on investments in innovation and growth and which also encourage reallocation towards new growth enhancing activities. Put another way, if markets are inherently competitive, state or regional industrial policy can be more effective if it provides assistance to enter and scale up markets. A middle ground could also be that where industrial policies are not selective and specific to a particular company, but sector wide, sustainable and without discrimination. Market forces and competitive process should continue to determine leadership.

As already indicated, with globalisation, we are currently facing industrial policies of other jurisdictions towards specific firms that compete worldwide and such policies can distort competition. Certain authors such as Bruegel suggest that a form of middle path could consist of, for example, developing an EU platform to react against distortionary subsidies, state aids etc. Open dialogue resulting in specific binding agreements to balance the benefits/obligations theorem and in particular with a view to regulating market entry by sectors or companies benefiting from jurisdictional subsidies could be pursued complemented by the ability to put on the table well defined concerns with information exchanges on known cases of state aid. Others say that (intra EU) the EU Competitiveness Council could have input on merger policy and an Advisory Committee in Merger Control could provide input on industrial competitiveness when considering merger enforcement. Other topics such as screening of inward investment and reciprocity in relation to public procurement rules could be considered. In any event, what the market and companies require is consistency and predictability. Changes setting up a middle path should not give rise to additional burdensome processes to traditional competition based reviews.

In a speech given on 4 September 2019, Margrethe Vestager, Vice President and Commissioner in charge of competition, recalled that competition law aims at protecting consumers. In a fast-moving and increasingly digitalised economy, where the European Union is caught between the US and China, is consumer welfare still (i) the only and (ii) the right standard for competition law enforcement?

Consumer welfare is the difference between what consumers would have been willing to pay. From an antitrust perspective, it consists in measuring benefits or harm to consumers in the form of lower or higher prices. An alternative criterion is total welfare.

The difference between total and consumer welfare is basically the producer’s profits. Total welfare may increase in a situation where consumer welfare decreases if the profits of a producer increase more than the decrease in consumer welfare. This surplus in the digitalised economy is very different from that in past traditional economies and as a result, I do not think that consumer welfare can be the only standard for competition enforcement in the digitalised economy.

A report on competition policy for the digital era presented on 4th April analysed possible changes to competition law in order to ensure innovation in favour of consumers as a result of the ways in which markets now function in the digital era and economy. Currently, market abuse is easier inter alia because of extreme returns to scale (the big players get bigger be they from the US or China); network externalities (a better service is no longer enough) and the role of data as an essential contribution to online services. In the age of platforms, consumer welfare needs to be re-thought as harm to users cannot be accurately measured and potentially abusive strategies of dominant platforms to reduce competitive pressure can be put in place or maintained even if there are no clearly established consumer benefits. Further, market definition is currently the approach for competition law; consideration should be given to counterbalancing this by theories of harm and anti-competitive strategies as well as specific obligations on data sharing, access and restricted MFN clauses. « Killer acquisitions » are not currently caught by merger control thresholds and as a result consumers are not benefitting from the competitive potential of young innovative companies.

Faced with these challenges, there is a dichotomy between what people are beginning to express they want and what the competition framework can currently provide. Technological development has changed the nature of markets and business models and these new realities and challenges need to be taken into account by competition law and different tools and in particular with regard to the weight of consumer welfare as a standard. Certain scholars, such as Khan, notes that the consumer welfare approach fails to detect anticompetitive harm in the digital economy and suggests that authorities should adopt a process-based approach to platforms which would focus on entry barriers, conflicts of interest, gatekeepers, the use and control of data and the dynamics of bargaining power. Svend Albaek suggests that predatory pricing practices (an ongoing strategic element of dominant platforms to grow their markets) are not properly covered by consumer welfare. As a result, in the short to medium term, prices decrease until competition disappears. Price decreases look like a consumer benefit and, thus, are not often scrutinised. Under the consumer welfare standard it is difficult to carry out price analyses of platforms due to rapid price fluctuations and personalised pricing put easily in place with the use of algorithms, not to mention that in many cases services are used for « free » (against the use of personal data). Criteria retained under consumer welfare could be changed in order to take into account the consumer privacy and choice, personal data protection vs. anticompetitive effects of the control of personal data by dominant platforms as well as switching costs. Reforms of privacy and competition policy could also be considered in light of the link between market share and the control of data.

You are a board member of two prestigious companies. Are the consequences of a contemplated acquisition or merger on jobs, environment, sustainability etc. a concern at board level when reviewing the potential of an operation? If yes, how is it assessed? If no, do you think the recent developments in the aftermath of the Alstom/Siemens case would change their approach?

Obviously each operation is different (dimension, activity) and a board will reach its decision depending on the strategic importance of the operation under consideration. However, as a general rule and subject to the confidentiality and constraints in sharing information under competition law, a board will indeed normally want to understand the deal, look at the global outcome of due diligence, have the possibility to propose a project reorganisation, and discuss upfront concerns about all topics (including, but not limited to, jobs, environment, sustainability) before approving the operation and authorising the company to go before enforcement agencies with the aim of obtaining transaction security for the deal. Purchasers (and as a result, boards) are generally increasingly requesting deal security. In practice, that means that all risks, their various facettes and the relevant importance thereof are presented and discussed at board level by the management during the process of authorisation management before proceeding with an acquisition or merger. In particular, a structured board will look (inter alia) into the following topics:

- ability to give a « go/no go » in light of the proposals being presented and the ability to remedy through contractually protective clauses in the case of a « go »;

- ability to integrate an acquisition or merger;

- acceptability of customary target practices even in light of geographical location and related risks

- reputational risks

No company or board wants a long and costly process that can fall through, nor the reputational risk involved with the outcome of such considerations. The likelihood of being able to execute seamlessly an operation with limited risks (should it have to be aborted or is brought into the spotlight as a result of repeated difficulties) should be part of a board’s strategic control. Certain companies will have a standard practice of closing down an apparently strategic acquisition/merger (if there are non-compliant or risk prone practices) before bringing it to the board. This is particularly true in the case of a merger or joint venture.

^{The views and opinions expressed in this document do not necessarily represent those of the speakers’ institution or clients.}