Antitrust

3 6 MERGER CONTROL WHAT IS A CONGLOMERATE MERGER? A conglomerate merger is a merger between companies active in closely related, but not competing, markets. Typically this involves the supply of complementary products or products that belong within the same product range. WHAT ARE CONGLOMERATE EFFECTS? Conglomerate effects is the theory that the merged entity will be able to leverage a strong market position in one product market across to a complementary or similar product market in which the merging party is also active. The merged entity will be able to target a largely overlapping customer base for products that have a similar or related end use. The main competition concern associated with a conglomerate theory of harm is anti-competitive foreclosure. Traditionally this has been alleged through 'tying' and 'bundling.' Tying is where a customer purchasing one product is also required to purchase a separate, and normally related, product. Bundling is where the supplier of a product will only sell that product with one or more related products. The supplier will not sell the components on an individual basis or will only do so on worse terms. Tying and bundling are common commercial practices that can be pro-competitive. However, in certain circumstances these practices can have a detrimental impact on a potential rivals' ability to compete. In the long run this may reduce competitive pressure on the merged entity and increase prices. More recently, interoperability has been an integral feature of a conglomerate theory of harm. The concern is that the merged entity will degrade essential interoperability of rival products compared to captive use. If interoperability is important for a rival to offer the downstream product, then this can be an effective foreclosure strategy. This is particularly relevant for software and other technological capabilities more so than traditional products and services. A HISTORY OF CONGLOMERATE EFFECTS The EC prohibited two high-profile transactions primarily on the basis of conglomerate theories of harm back in 2001 (M.2220 GE/Honeywell and M.2416 Tetra Laval/Sidel). However, both these cases were subsequently overturned on appeal by the EU courts. By confirming a high evidentiary standard to substantiate future conglomerate theories of harm, these appeals no doubt left the EC more hesitant to intervene based on conglomerate concerns. This was reflected in the enforcement activity in the decade that followed and in its enforcement guidelines. In 2008 the EC introduced its non-horizontal merger guidelines outlining how it will assess vertical and conglomerate mergers. The guidelines are clear that in the majority of circumstances conglomerate mergers will not lead to competition problems. The EC has not prohibited a merger on the basis of a conglomerate theory of harm since 2001. MERGER CONTROL 06 T H E M E R G E D E N T I T Y W I L L B E A B L E T O L E V E R A G E A S T R O N G M A R K E T P O S I T I O N I N O N E P R O D U C T M A R K E T A C R O S S T O A C O M P L E M E N T A R Y O R S I M I L A R P R O D U C T M A R K E T I N W H I C H T H E M E R G I N G PA R T Y I S A L S O A C T I V E Conglomerate Effects: An EU Resurgence?

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