Into the storm. What now for mergers?

FIPRA Special Advisor on Competition and Anti-Trust, Rory Chisholm, offers his insight and analysis.

Summary

From the 1990s until recently, competition policy has been regarded as a largely legal process, based on economic evidence, rather than politics. Of course, there have always been some merger cases which have attracted political interest, particularly in sensitive sectors like defence and the media. Many jurisdictions have also introduced new or enhanced procedures for cases involving foreign investment, including the Foreign Subsidies Regulation in the EU, the National Security & Investment Act in the UK, and the ongoing operations of the Committee on Foreign Investment in the United States (CFIUS). Overall, however, governments were content to leave competition policy, including most merger control decisions, to the regulatory authorities.

Arguably, this began to change in the US under the Biden administration, with the Federal Trade Commission taking a less bi-partisan and more aggressive approach on merger reviews and anti-trust cases, particularly those involving big tech companies, although both the EU and UK competition authorities were also active in this area.

Yet we are now entering an entirely new situation in which the competition authorities in all three of the EU, UK and US are simultaneously under strong political pressure to change their approach, even if for different reasons. What is this going to mean in practice for mergers – especially against a background of prospective economic tariffs and strained diplomatic relations?

European Union – dogma or double standards?

In the EU, dating back many years there has long been a view, shared by leading businesses and many politicians from both the centre-right and centre-left, that promoting competition is an ‘anglo-saxon’ concept and bad for EU economic interests. In the 2007 Libson Treaty negotiations, the commitment to “undistorted competition” in the provisions of the founding EC Treaty was deleted by the then German Presidency of the EU and moved to a Protocol annexed to the Treaties, with the support of a majority of EU national leaders, with then French President Nicolas Sarkozy stating that:

"What has competition as an ideology, as a dogma, done for Europe? Fewer and fewer people who vote in European elections and fewer and fewer people who believe in Europe … The word 'protection' is no longer taboo. It might ... give a different jurisprudence to the Commission, [and] a competition that will therefore favour the emergence of European champions."

In practice, partly as a result of subsequent rulings from the European Court of Justice, this led to little real change to the European Commission’s approach to enforcing EU competition rules, whether in the case of mergers, monopolies, cartels or the control of state subsidies. Yet the sentiments behind President Sarkozy’s words have never gone away, with the view that true competition should be about allowing more combinations (with less competition) in EU home markets, so that major European corporates can then use their increased profitability at home to underwrite their efforts to compete more effectively with US or Asian competitors overseas.

Officials at the Directorate-General for Competition within the European Commission, along with the European Commissioner for Competition over much of the last decade, Margrethe Vestager, have in the main not shared this view – and have remained doubtful of the benefits of European champions. The key test case was the Commissioner’s 2019 prohibition of the proposed Siemens/Alstom merger, arguing this would have created a dominant player and significantly reduced competition in the supply of high-speed trains and in signalling markets. Although this decision was supported at the time by a majority of national competition authorities from the EU Member States (consulted by DG Competition on detailed merger review cases), politically this was the first time the Commission had ever prohibited a merger publicly supported by both the French and German Governments.

A reaction was not slow in coming. The Economy Ministers of France and Germany published a position paper weeks later calling for a relaxation of competition rules, arguing Europe would only succeed if “European companies are capable of competing on the global stage”. A later Franco-German declaration in May 2024 called for “A new agenda to boost competitiveness and growth in the European Union”, saying there was a need to review the current EU competition rules to allow “consortia and consolidation in key sectors”. This was echoed further in the report commissioned by the European Commission President, Ursula von der Leyen, from the former European Central Bank President, Mario Draghi, published in September 2024, which among its findings recommended a “new approach to competition policy” – a call explicitly referenced the same month by the European Commission President in her ‘mission letter’ when appointing Theresa Ribera as the new Commission Vice-President responsible for competition policy.

The ‘new’ approach now to be taken on competition policy by the European Commission thus has long-standing political origins. On mergers, details are still being worked out – with a review of the merger guidelines underway and a new team established to co-ordinate merger policy across DG Competition’s sectoral teams. Yet Vice-President Ribera has indicated the outlines, saying European companies “should be able to gain scale and make the most of our European home market”, while at the same time ensuring that the interests of EU consumers are protected.

The question remains: what will happen when leading European companies propose a ‘European champions’ merger that is effectively premised on reducing competition and making greater profits at home, at the expense of EU consumers, on the basis of being able to compete more effectively in the wider global market? And even if the new Commission is prepared to allow that, will the European Courts take the same view if a legal challenge is brought, without there having been any change to the EU Treaties or EU law ? As the Director-General for Competition, Olivier Guersent, has pointed out, in reference to the Franco-German declaration in May 2024, the danger is the European Commission tries to move in two contradictory directions at once:

"What you cannot do is develop double standards. Maybe I am wrong, but I read it as: we would like a standard that is really smooth on French and German cases, then another standard [that is] really tough for Chinese or Americans, while silent on other EU countries."

This problem is set to become even more acute with the deterioration in relations with the US. The Trump administration has sought to justify the imposition of tariffs by referring not just to the existence of other countries’ tariffs but also other regulatory barriers – and it is clear this includes objections to aspects of EU regulation, notably in the digital/technology sector. The Chinese authorities are also clearly capable of retaliating if they believe they are unfairly targeted.

It is one thing for the EU to take a more indulgent approach to EU-only mergers – and there are EU-based companies working already on merger plans that will test the boundaries of what is possible. Yet the full extent of the EU’s plans have yet to be clarified. Although some companies may want to seek a first mover advantage, others with overseas operations may be best advised to wait and see how EU-US relations develop, as well as wait for the change in the senior leadership at DG Competition due to take place this summer.

It will also be interesting to see how the EU handles large-scale mergers of non-EU companies with extensive EU operations, as well as how other jurisdictions react to mergers of EU champions which have extensive operations in their countries. The EU itself has not hesitated to act against mergers involving non-EU companies with an EU presence, ranging from non-EU airlines to US technology firms and many others. We should not be surprised if other jurisdictions intervene in their own merger reviews of EU-based companies which also have operations overseas, particularly in the more political world in which competition policy is now operating.

United Kingdom – growth at all costs

In the UK, meanwhile, another major change in approach is underway, particularly towards mergers, but for different reasons. In the UK the situation is also clearly political, but it is not so much about national champions. Instead, it is about seeking more investment and economic growth – possibly even if this means some leading UK companies may now be fair game.

The Labour government elected in July last year has had a difficult start, following a major tax-raising budget, while also seeking to emphasise the need for economic growth as its over-riding priority. As part of this, the Chancellor of the Exchequer, Rachel Reeves, and the Secretary of State for Business & Trade, Jonathan Reynolds, have urged economic regulators to do more to “tear down regulatory barriers” seen as holding back economic growth. A particular example has been made of the Competition & Markets Authority (CMA) by removing its Chair and replacing him with a former head of Amazon’s UK business, with the Chancellor saying at the Davos World Economic Forum that this was intended to send a “clear message” and it was time for him to “make way for someone who does share the mission” to prioritise growth.

As with the EU’s new approach (if for different reasons), this too has been building for some time. The previous Conservative government had also called on the CMA to understand its “wider responsibilities” to encourage investment and economic growth. Even before the budget, the new Prime Minister told business leaders at an investment summit in October 2024 that promoting economic growth was “the number one test” for the government and that it intended to make sure that every regulator “especially our economic and competition regulators” took growth seriously. Ministers are understood to have been hearing complaints for some time about the CMA, particularly on mergers, notably the length of some of its investigations, their alleged unpredictability and lack of transparency, and the CMA’s insistence on ‘structural’ divestments rather than ‘behavioural’ solutions for cases raising competition concerns. The CMA’s initial (and traditional) response that it intervenes only on a minority of cases has not convinced those on large-scale mergers affected by its actions.

The UK government’s ousting of the CMA Chair and its demands for a new pro-growth approach by the regulatory authorities have come as a surprise to many in the legal world, yet arguably the CMA itself is at least partly to blame for the situation in which it now finds itself. First set up in 2013, when the UK was still part of the EU, since Brexit the CMA has looked at a wider range of cross-border international mergers on the basis of their also having a UK impact. Some of these interventions were seen as contentious or even challenged at the Competition Appeals Tribunal (Roche/Spark; Sabre/Farelogix; Meta/Giphy), but the turning point was the CMA’s handling of Microsoft's acquisition of Activision Blizzard in 2023.  Here the CMA initially listed a range of structural remedy options, then blocked the merger in its ‘final’ decision after rejecting the behavioural remedies offered by the merging parties, only then to allow the merger on the basis of new remedies offered subsequently, thereby leaving itself open to the charge that it had effectively introduced a new ‘third phase’ to any review with an initial prohibition.

Microsoft and Activision objected very strongly to the initial prohibition decision, yet for many observers, particularly in the US, perhaps the biggest shock was the realisation that in the UK system CMA merger decisions cannot (presently) be over-ruled by the government nor challenged in the Courts – unlike in the US where the FTC and DoJ must apply to the Courts to prohibit a merger, or in the EU where European Commission decisions can be appealed to the Court of First Instance and the European Court of Justice (even if the process is a slow one). By contrast, CMA merger decisions can be challenged at the Competition Appeals Tribunal (CAT) only on ‘judicial review’ grounds, meaning the CAT can rule if the CMA has followed proper procedure and taken all relevant evidence into account, but it cannot substitute its own decision for that of the CMA, only remit it for further CMA consideration. As the CAT has said, “it is our task not to consider whether the CMA has 'got it right', but whether the decision it made was lawful or not.” In practice, this means it has been almost impossible to overturn a CMA merger decision.

It is of course the wish of all independent regulators to be as free as possible from both political and judicial oversight and the CMA has largely been free of both until now. Yet sooner or later this was always likely to prove unsustainable – and the CMA’s independence from wider political considerations is now ending. The current leadership of the CMA has made clear it will comply with the “strategic steer” given by the new government, saying it is “fully supportive” of the focus on driving economic growth and aims to improve the pace, predictability, proportionality and process of its investigations. That is not going to be enough. The UK government has recently announced it intends to consult on new “legislative reform proposals” to improve the UK’s competition regime, including more certainty on which mergers will be subject to CMA investigation and addressing what it calls current “uncertainty” with the existing share of supply and material influence tests.

UK governments do not generally make time for new parliamentary legislation just to codify what regulatory bodies are already doing. While there are no present indications that the new Labour government intends to revisit the judicial review standard and the role of the CAT, it seems likely that Ministers may want to limit the CMA’s freedom of manoeuvre on its handling of merger cases, at minimum by amending and lowering the existing share of supply and material influence tests, moving closer perhaps to the EU’s higher share of supply test (though ironically the European Commission has meanwhile itself been moving closer to the CMA’s approach on material influence), possibly also by widening the existing scope for Ministers to intervene on mergers beyond the current exceptions of cases affecting defence, media, financial stability or pandemic response, similar to the powers that Ministers have in other European countries.

It remains to be seen to what extent the CMA responds to political pressures on specific cases in the meantime. The CMA’s CEO has always denied coming under political pressure to change its decision on the Microsoft/Activision case, although senior Ministers conveyed their concerns. Yet as in that case, this will not stop companies lobbying Ministers, especially with Ministers willing to listen. It seems unlikely the CMA will be so ready to block mergers raising competition concerns if their promotors convince Ministers they will also deliver growth and investment.

This has already been seen in the recent CMA decision to clear the Vodafone/Three merger in the mobile telecoms sector, based on behavioural remedies. Other examples look likely to follow. The CMA has always liaised closely with other jurisdictions on international cases, but since the Microsoft/Activision controversy, the CMA seems to have been following an unofficial policy of timing its decisions to follow, rather than pre-empt, the decisions of other competition regulators on international cases (Thermo Fisher/Olink; Hewlett Packard/Juniper; TGS/PGS). This has now been publicly taken further forward in a recent blog post by the CMA’s CEO, saying that:

“We also want to take a proportionate approach to looking at global deals, which we know is important to investor confidence. We will always uphold our duty to protect UK consumers and businesses. But we are now carefully exploring how far (under existing law) we might be able to more clearly distinguish between deals with a direct UK impact, vs those where it may be more appropriate to watch closely whether action by other authorities could resolve UK concerns.”

The full effects of the CMA’s new approach are yet to be seen, but the days of the CMA blocking an international transaction which impacts UK consumers, if cleared by regulators elsewhere, looks to be ending. Given the UK government’s wish to act as a ‘bridge’ between Europe and the US, it is unlikely the CMA will want to find itself accused of standing in the way of either major US combinations or the EU’s new-found support for European champions, nor to oppose takeovers of leading UK companies if their acquirers can promise growth and investment. Even UK national champions like BP or BT may now be in play, barring serious national security considerations. In 2014, Labour politicians were prominent among those criticising Pfizer’s attempted bid for AstraZeneca. Yet with AstraZeneca recently cancelling plans to invest £450 million in expanding a UK vaccine manufacturing plant, citing a lack of government financial support, who now could be sure the government would oppose a bid for the company if the acquirer should promise to reinstate that investment?

United States – Trump II

The second Trump administration is taking a radical approach across many areas of both domestic and international policy. One thing that already stands out is its willingness to link trade and economic considerations with other policy priorities, including introducing tariffs in response to both perceived direct and indirect trade barriers. How far the Trump administration is willing to link competition and regulatory outcomes with other considerations is not yet fully apparent, but already the new Chairman of the Federal Trade Commission (FTC) has suggested that the EU Digital Markets Act is unfairly aimed at US companies. President Trump is also asserting more direct control over the operations of the FTC, dismissing the two Democrat FTC Commissioners (who are challenging the decision). Some US technology companies are also clearly expecting the US administration to intervene on their behalf. Yet it may not be quite so straightforward.

Over the last decade or so, many national competition authorities came to the view that there had been under-enforcement of the digital sector – and that several mergers approved at the time should have been scrutinised more closely or even prohibited. The FTC under its recent leadership was a particular proponent of that view, but it was also widely shared by the CMA (which commissioned studies of past merger decisions in digital markets) and elsewhere. Both the EU and the UK have brought a number of anti-trust cases against leading US technology companies, and both have passed major new legislation aiming at regulating digital markets.

Many of the large technology companies are unhappy about this. Meta’s CEO, Mark Zuckerberg, arguing the EU authorities have imposed over $30 billion dollars in fines on technology firms in recent years, has said this is “almost like a tariff,” calling on the US administration to come to the aid of the sector. Meta’s new Global Affairs Chief has even more explicitly said that: “"When companies are treated differently in a way that is discriminatory against them, then that should be highlighted to that company’s home government. So I think we will do that with President Trump.”  Other firms such as Apple have also complained to President Trump directly, referring to the European Commission's state-aid case which required Apple to pay €13 billion euros in taxes to the Irish government, along with a more recent fine of nearly €2 billion euros for anti-competitive behaviour in the European market for music streaming services.

In addition to the strong support of Elon Musk during the election campaign, the fact that the founders or CEOs of Alphabet (Google’s parent company), Amazon, Apple, Meta, Microsoft and Uber all made significant financial donations to President Trump’s inauguration, with several attending in person, has been interpreted by some as showing that a grand bargain has been made – and that the new US administration will ride to their support.  It may well be that the US administration is prepared to go further and intervene with its EU and UK counterparts on specific merger and anti-trust cases For now, the European Commission has been relatively robust, indicating it intends to press on with investigating so-called ‘killer acquisitions’ of EU start-up companies (despite recent legal setbacks) as well as fines against Meta and Apple, and that it will respond to any US attempt to intervene through the threat of tariffs. Yet like the UK, the EU is clearly anxious to avoid a tariff war. Will it really not back down on some competition issues and/or lower some fines, even if done quietly, if EU wider economic interests demand it?

As for the UK, it is a great irony that, several years after the proposals in the Furman report on ‘Unlocking digital competition’ were initially put forward in 2019, the CMA has finally got new powers in the Digital Markets, Competition & Consumer Act 2024 to address competition concerns with the digital sector, including on the review of so-called ‘killer acquisitions’ – just at the moment when a new government has come into office which has evidently been listening to complaints from the tech giants (and others) about the CMA, has appointed a former head of Amazon’s UK operations as its new Chair, and has promised to work with the US on a “a new economic deal, with advanced technology at its core” in the hope of mitigating US tariffs.

It is clear we are entering a more political era of anti-trust and competition policy, even if the new FTC Chairman has argued this is not wholly new, saying “the idea that the independent agencies were going to be comprised of politically aloof experts has simply not been true as a historical matter” and that politics and the administration of government go together. But at heart, what the new US administration seems most concerned with is that it should be the US authorities who take the lead in regulating US companies, even if they operate globally. This doesn’t mean the US technology giants are off the hook, just that it should be the US authorities who should take the lead in policing them. Many of the concerns about their actions have bi-partisan support in the US. Their presence at President Trump’s inauguration could as easily be interpreted as a hope rather than expectation of avoiding regulatory action against them.

The new FTC Chairman has signalled a change in approach to mergers compared to his predecessor, claiming that under the Biden administration merger reviews were excessively lengthy and secretive, so that merging parties were unsure what the FTC’s theories of harm were, saying the FTC is “not just going to sit” on reviews of deals that don't violate antitrust laws. At the same time he has said it is not going to be ‘open season’ and that every merger needs to be evaluated on a standalone basis to determine if it poses a threat to competition, promising to act “vigorously and aggressively” if transactions are deemed problematic, including those by big tech:

“I don't want a system where monopolies exercise unbelievable amounts of power over our lives and defend that by saying, ‘It's important to have small government.’ It is important to have small government, but it is not so important to have [it] that we replace government with monopoly.”

Although the Trump administration is clearly making radical changes in many areas, it may be that actually we see something of a return to the more traditional approach taken by the FTC and DoJ, prior to the recent Biden administration, with straightforward deals no longer opposed by questionable theories of harm or arguably non-competition factors such as union bargaining powers, but with deals that do raise major competition concerns still opposed and taken to Court, as the new FTC Chairman has vowed to do. This will not stop lobbying by US corporates to seek clearance for their deals, or even to try and get ongoing court cases against them suspended, but they may not be as successful at this some are assuming. If the FTC and DoJ stick to a firm line, with or without Presidential intervention, it may in turn make EU and UK regulators less nervous about large US corporates - including those in digital markets - being seen as untouchable, even if they are more wary than before of intervening too aggressively.

The pace of change is currently so great that it is hard to make too many predictions. US-EU relations may worsen further, or may improve. The UK may press ahead with legislative changes to its own regulatory regime, or other developments may make this seem too peripheral. For now, all bets are off. Earlier this year, some bankers and lawyers were predicting a coming “flood” of deals. They may ultimately be right, if and when things settle down somewhat.  For the time being, economic dislocations, sharp currency movements and trade stand-offs all make international deals hard to price and get underway, harder still to execute and complete. And although the EU, UK and US are all to varying extents looking to make mergers face fewer regulatory obstacles than before, there will still be limits on what each jurisdiction is likely to allow in practice.