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Joint Ventures And Mergers Notes

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Competition Law Reading Session 3 See lecture notes and cases/points referred to in Jacob's notes not covered by reading Furse Textbook notes Joint ventures and the ECMR JVs are encompassed within the definition of "concentration" at art 3(4)

1. Two key elements are that the JV must be

1. Lasting

2. Autonomous

2. Commission notice on concept of "full function JVS" draws distinction between

1. Full function JV: which operates on a mkt, performing functions normally carried out by undertakings operating on the same mkt

1. Jv must have management dedicated to its day-to-day operations

3. But note that a JV will not fall within ECMR if it performs only a single ltd function on behalf of its parents, i.e. an R&D activity JVs and Art 81 Cooperative JVs are horizontal agreements which fall to be considered within the terms of art 81(3) where they do not have the concentrative aspects to bring them within the ECMR Guidelines on applicability of Art 81 to horizontal cooperation agreements confirms that the fact of horizontal cooperation, and not its form which should form the basis of analysis Simple function JVs can come within art 81, whereas full function JVs are dealt with under ECMR art.3(4) i.e. if the JV is 'performing on a lasting basis all the functions of an autonomous economic entity'. Appeals These may be made by the parties, or by 3rd parties with appropriate locus standi, i.e. competitors A fast track process may be used where an urgency test is met, i.e. for a merger that has not been abandoned despite a decision by the commission blocking it

4. This was used in Schneider Art 288

Applicant in Schneider sought damages under 288, which provides for non-contractual liability of the commission

5. CFI found that Schneider was entitled to damages

6. CHECK FINAL AMOUNT

Third party rights It is not the purpose of merger control to protect undertakings from better competition

7. I.e. shareholders in the Zunis case were directly affected under 230, but not individually, as there were 140,000 of them An Efficiency Defence?

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Big debate over whether there is a defence to the SIEC test based on efficiency

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In the guidance on horizontal mergers (see below) the commission states that it is possible for the efficiencies generated by a merger to counteract the effects on competition and any harm to consumers that would otherwise occur. In this respect factors considered by the the commission 'include' (NB doesn't say these factors exclusively) those mentioned in art 2(1) ECMR: development of technical and economic progress, provided that it is to the consumers' advantage and does not form an obstacle to competition.

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Commission says it will consider any substantial efficiency, and these may lead to the merger being cleared if the commission believes that the efficiencies will allow the firm to act pro-competitively for the benefit of consumers The efficiency must benefit consumers, be merger-specific and verifiable. The test for assessing efficiency claims is whether consumers will be no worse off than before the concentration. Efficiencies in marginal or variable costs are more likely to lead to lower prices that reductions in fixed costs, so that they are more likely to benefit consumers. The greater the possible negative effects on competition, the more the commission has to be sure of the substantial efficiencies and their being passed on to the consumer. It is v unlikely that a concentration leading to something close to monopoly could be justified by efficiencies.

Intro: Mergers can be vertical, horizontal or conglomerate (where firms in different markets merge, and their products are to some extent substitutes) Merger may have advantages when an undertaking wishes to diversify into a new market

8. Overcomes barriers to entry

9. Avoids intense comp should incumbent choose to defend territory

10. Mergers also tend to break into profit quicker (although see citi, and timewarner...) Horizontal Mergers May be substitutes for cartels - Neumann Mergers tend to be more efficient than cartels, as they generate economies of scale and scope Where a merger would lead to a monopoly, then it will usually be blocked Control under ECMR Control relates to the possibility of exercising decisive influence on an undertaking

11. Even a minority shareholder can have a "decisive influence" depending on the rights attached to those shares

12. Essential factor is the level of influence over the business strategy of the entity concerned Decisive influence not defined, but would appear to be limited in almost all cases to holding in excess of 25% share capital by a single person

13. But note CCIE/GTE, 19% (although all remaining shares were held by an investment bank, whose approval was not needed for significant decisions) Note that individuals may be considered undertakings by virtue of their holdings of other companies, i.e. Asko/Jacobs/Adia Note that states can be considered persons, even though they are not undertakings... see Airfrance/Sabena, re Belgian state's holdings

14. But note that this rule does not apply where state acts qua public authority, rather than commercial actor Remedies under ECMR Neelie Kroes (Commissioner for competition) stated in Oct 05 that the Commission should accept remedies only when they "clearly and unambiguously eliminate the identified threats to competition"

15. Structural remedies have the advantage over behavioural remedies in that they do not require ongoing monitoring or complex supervisory measures

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