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

Interview with Etienne Chantrel¹

Head of Mergers Unit, Autorité de la concurrence, Paris

Etienne Chantrel (Autorité de la concurrence) has been interviewed by Mélanie Thill-Tayara (Dechert) in anticipation of the roundtable "Killer acquisitions: Should they be prevented?" organised at the occasion of the 7th Global Merger Control Conference in Paris on Friday 6 December 2019.

The roundtable is also composed of Svend Albaek (DG COMP), Luis Campos (Frontier Economics), François Garnier (Ipsen), Mike Cowie (Dechert) and Clemens York (Dechert).

To read the program and register, click here.

The French Competition Authority is considering the introduction of an ex-post control regime in France – on the model of what exists in Sweden, for instance – in order to be able to catch so-called killer acquisitions, in particular in the digital sector. Isn’t there a risk that innovation may be stifled as a result, as the actual objective of most start-up owners is to sell their company to a major player? May such a reform not significantly increase the workload of the FCA – in particular to identify the cases that would require an ex-post analysis – for an uncertain outcome?

There are many operations that impact the markets and that we don’t control because of our current turnover-based thresholds. This is not in itself necessarily a problem: it is normal not to control everything (no net is perfect) and there is always a trade-off between controlling too many operations, to the risk of imposing an unnecessary burden on companies and agencies, and controlling too few. But we consider, and many regulators, academics and business representatives agree with that finding, that current trends and evolutions in the economy have increased the proportion of significant operations that are not controlled and that this justifies a change in our merger control regime.

Everybody has in mind “killer acquisitions”, especially in the digital sector. Indeed, there is an Intense policy of start-up buy-outs by certain players, particularly major digital groups, and a strong suspicion that some companies (e.g. digital or pharmaceutical companies) aim to capture the innovation of a potential competitor to extinguish this competition. This constitutes a threat to the competitive dynamics of markets, innovation and growth. But there are other types of operations that are problematic! One can think of a company consolidating its dominant position with a string of small acquisition. Even it is possible sometimes to use antitrust tools to control that type of behaviour, those tools are lengthy and merger control would be swifter and more efficient. A third type of operations one can think of consists in acquisitions in a niche market, for example a local niche market or a small sectoral niche, that falls below our current thresholds and yet can have a big impact on some markets.

Once we’ve established that there is a loophole that needs to be closed, the question is how to close it. Any reform has its costs, and our preferred solution, establishing an “ex-post” regime in France in addition to the existing mandatory “ex-ante” one, is not without potential problems. We consider nonetheless that there are ways to alleviate these potential concerns and that the benefits to the public interest far outweigh the costs. The nice point about an “ex-post” regime is that it is a very targeted solution, that targets only operations that pose a problem because they challenge the competitive dynamic of the market. It could be combined, as is the case in Norway and as has been proposed for the UK in the Furman report, with an obligation for a small list of systemic companies to inform the Autorité of all acquisitions.

Of course, there are potential drawbacks in terms of legal uncertainty or lesser immediate financial benefits for some startups founders, but there are ways to design the system to minimize those, for example with a rather short timeframe when it could be possible to evoke a case. We have conducted two public consultations on the matter, in 2017 and 2018, and many technical suggestions have been made by various stakeholders in that regard. We can also profit from international examples. After all, in the US an operation can be challenged “ex-post”, with no time-limit, under the Clayton Act, and it does not appear to have stifled innovation too much.

The prohibition of the Alstom/Siemens merger has triggered a larger reflection in Europe about the aims of competition policy. Should merger control take other objectives than protecting competition into account? What should such objective be: protecting employment such as in William Saurin or industrial policy in creating a national or European champion, other?

I am a firm believer that we need to have one tool for one objective. Competition policy is effective because it is impartial, neutral and technical. As soon as you ask agencies to weigh public interest concerns, whatever they are, against their usual objective of defending competition, their decision becomes less predictable and less neutral, since you ask them to compare concerns of a very different nature.

French law includes a provision for an intervention by the minister for the economy. If you read carefully, it is nicely designed in the sense that it allows competition policy to care purely about competition. If other objectives need to be taken into account, another entity, the minister for the economy, has to do it. He can do it only on grounds other than competition, as explicitly stated in the law. This works as long as ministerial intervention remains exceptional, as has been the case so far, with only one intervention in 10 years.

As for industrial policy, this is a revival of a very old debate: is merger control too strict? Is it a handicap for industrial policy in a globalized world? It is striking by the way that Europe revives this age-old debate at a time when the US debate whether or not their merger control has been too lax, with a suspicion that is has and that this has hindered productivity in the US.

The way this debate is usually framed in France, people take for granted that we need national (or European) champions as an answer to global competition. But this is not a given! The business literature, and innovation economics, have debated for years the relationship between size and productivity, and between competition, productivity and innovation. Even though there is no definite answer to that question, it is at least certain that bigger is not necessarily better, and that many big mergers produce no synergies and fail, even from the point of view of the firms that merge. Big companies are not necessarily more innovative and productive, and markets and countries with less competition tend to be less competitive.

Even if we admit that we have a problem with international competition, is competition policy the right tool? A recent report by the Conseil d’analyse économique concluded that it is more a matter for trade policy than for competition policy, and I fully agree with that conclusion.

Merger control is increasingly technical. In digital sectors, in particular, it has become very difficult to accurately predict the effects of a concentration. How is the French Competition Authority adapting to these new challenges? Do you think the FCA should have the possibility to rely on independent experts (specialists of a specific sector for instance) to support its decision-making process?

Our concepts are sound and flexible enough to take into account the effects of new business models and developments. On a practical ground, though, it is certain that we need to be even more forward-looking and to take better account of technological developments. This is why the Autorité has been a driving force in studying new developments, particularly in the digital sector, with sectoral inquiries, e.g. on online advertising, big data or recently on algorithms (a joint work with our colleagues at the BKA).

In merger control per se, our recent case “Se Loger/Logic Immo” is a nice example of how we constantly try to adapt to ever more complex and technical cases. On 24 July 2017, the German group Axel Springer, which owns, in particular, the online property portal Seloger.com, notified the Autorité de la concurrence of its plan to acquire the French company Concept Multimédia, which itself publishes the portal "logic-immo.com" and the property advertising magazines “Logic-Immo” and “Lux Résidence”. The Autorité had to, for the first time, issue a decision on a merger involving two online platforms. To do so, it had to take into account network cross-effects and took an interest in the importance of data in this transaction. We based our review on a broad consultation of all of the professionals in the sector (portals, estate agents, and trade associations), on the analysis of numerous internal documents and, for the first time, on the results of an online questionnaire conducted by the Autorité on more than 30,000 estate agencies. Based on our examination, we considered that the transaction, which admittedly reinforces SeLoger market share, will not significantly harm competition.

In this decision, we have to update our usual tools, building on theoretical work that has been conducted over the last few years to better analyze these digital companies.

^{1 The views and opinions expressed in this document do not necessarily represent those of the speakers’ institution or clients.}