Competition Policy: Mergers

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Mr. Hugo Swire (East Devon): The Minister referred earlier to a triggering event. Could he enlighten the Committee as to what he would regard as being such an event?

Mr. Sutcliffe: I think that the hon. Gentleman refers to the process by which the jurisdiction is developed, and who is responsible for dealing with the merger, the national authorities or the Commission. The trigger mechanism relates to the proposals to deal with that.

Richard Younger-Ross (Teignbridge): On page 4 of the documentation, it is stated that the Government wanted to

    ''introduce a fresh pair of eyes into all Phase 2 proceedings in the form of a separate case team.''

It also notes the Government's disappointment that the Commission did not go down that route. Is that one of the outstanding issues on which the Government continue to press?

Mr. Sutcliffe: Yes, we are trying to get the situation to a point at which we in the UK feel confident that the rules meet our requirements. We have made it clear that the UK competition regime is one of the strongest in the European Union, and we are trying to ensure that the principles that we introduced in the Enterprise Act 2002 and other legislation are addressed by these changes. We are trying to strengthen our position.

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Mr. Jack: In paragraph 160 of the House of Lords report on EC merger regulations, their lordships state:

    ''A move in Europe to SLC could certainly have short-term disruptive consequences.''

In the light of paragraph 22 of the explanatory memorandum, can the Minister say what action the Government have taken to deal with that observation?

Mr. Sutcliffe: The test contained in the Enterprise Act—a substantial lessening of competition—is the test that we use in the UK, and we believe that that test is appropriate and works well. We believe that SLC—the substantial lessening of competition test—is fundamentally better adapted to merger control than dominance. Its advantages lie primarily in the fact that it is more directly grounded in economic principles and provides the UK competition authorities with greater flexibility to deal with all forms of anti-competitive mergers. The introduction of SLC at the European level would be an important strengthening of the European competition regime.

However, our principal concern is to plug the potential gap in the existing dominance test, which might mean that the regulation cannot deal with non-collusive oligopolies. It is important to do this in as straightforward a way as possible, minimising the risk of any anti-competitive mergers slipping through the Commission's net. It is important that any change to the substantive test meets that end; it is important, too, not to signal a lower threshold for intervention in cases.

Mr. Bellingham: I think what my right hon. Friend the Member for Fylde (Mr. Jack) was getting at, the thrust of which the Minister did not really respond to, is surely what those in the House of Lords are saying—that the move to SLC will lead to many more investigations because there will be more smaller mergers and other similar activities being investigated.

Mr. Sutcliffe: I refer the hon. Gentleman to the base of the evidence of the last 10 to 13 years, the success of the regime and the new changes being built upon that success. Any short-term disruption as he suggests could be dealt with under the guidelines that are offered for support and regulation.

Mr. Jack: Following the Minister's observations about guidelines and communicating, can he tell the Committee how these matters, once they are decided, will be communicated in the clear language to which he referred to those who may be the subject of the ultimate outcome?

Mr. Sutcliffe: In terms of recasting, the hon. Gentleman will see from the large set of documentation that the Committee has received how these issues are laid out by the Commission. The proposals are to recast, to shade in grey, where changes have taken place and in terms of the regulations to explain with clarity and in detail, through the draft guidelines and the codes of practice, how that affects businesses that will want to merge.

Rev. Martin Smyth: Will the Minister try to make things a little more concrete? There is a sense of abstractness in the legislation. How will the proposal

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improve the situation of merging airlines? Ryanair, for example, took over a British company and there were European regulations that should have provided competition protection. We now discover that that is not the case, although I believe that Ryanair may be having some difficulty. Bearing in mind that it is claiming that it will be rivalling what was known as the national carrier, British Airways, although it is now privatised, is there protection in that situation? Is there real improvement in the regulations or is it again just a matter of the verbiage that comes out of Brussels?

Mr. Sutcliffe: I do not think it is the verbiage coming out Brussels. As I said, at the meeting with Commissioner Monti we made it clear that the UK competition regime is a very strong one, and that we are trying to employ the principles that lay behind the UK regime in the discussions and negotiations with the Commission. Commissioner Monti accepted that up to a point.

In the various correspondence that I, as Minister, sent to the European Scrutiny Committee and others, I tried to set out how this measure is part of a series of proposals to improve and modernise the competition regime within Europe. There have been great discussions with a large number of stakeholders, the CBI, the TUC, lawyers and a number of bodies that will be involved. I can promise the hon. Gentleman that this is an attempt to improve the situation, and in no way to make it worse.

Mr. Jack: The Minister will be aware that the provision contains what is described as a stop-the-clock mechanism. Can he tell us what is the Government's latest thinking on how long the clock should be stopped?

Mr. Sutcliffe: When I first came across the clause, I was reminded of Sunday night at the London Palladium, when the game was beat the clock, not stop the clock. The idea is to give as much opportunity to bodies to understand the way a merger is heading and to try and assist that process by giving advice and support in respect of the principles involved. The stop-the-clock mechanism gives alternatives for companies to decide whether they want to move in a different direction. The proposals also turn the time scale into working days, which makes the process clearer. The aim is to try to ensure that there is a smooth interchange in proposed mergers, and no unnecessary delay for bodies when they merge, in what are difficult times. We support the Commission's proposal but we do not want the clock to be stopped for too long.

Mr. Jack: I am still groping with the complexity of the issue, but it is my understanding that the body that determines which cases are referred is the same body that deals with those cases. Does the Minister think that there should be two bodies; one determining reference and the other determining adjudication?

Mr. Sutcliffe: The proposals are appropriate because, if the parties do not agree, there is the opportunity for a judicial review. I think that a referral committee sits alongside the reference body, but I will write to the right hon. Gentleman to clarify that.

Mr. Jack: Reference has been made to the threshold, which I gather is €5 billion, that

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determines whether matters are considered at community level. Will the Minister advise me how that figure was chosen?

Mr. Sutcliffe: I cannot. That would probably be chosen through the discussions on consultations for the original figure. The regulation does not affect the turnover threshold.

Mr. Jack: Is the Minister content that €5 billion is the right figure? Could that figure have been further analysed if the Government thought that it was not?

Mr. Sutcliffe: I am perfectly content with the figure, given the information that I have.

The Chairman: If the Committee has exhausted its questions to the Minister, we will proceed to the debate.

Motion made, and Question proposed,

    That the Committee takes note of the unnumbered explanatory memorandum dated 15th January 2003 from the Department of Trade and Industry on the European Commission's guidance associated with merger control proceedings and horizontal mergers, and European Union document No. 5007/03, draft Council Regulation on the control of concentrations between undertakings (''The European Community Merger Regulation''); welcomes the draft Regulation and associated guidance as an important step in securing reform of the European Community merger regime; and supports the Government's approach in seeking to build on the strengths of the existing Regulation to achieve a modern framework for European merger control as part of the economic reform agenda.—[Mr. Sutcliffe.]

4.22 pm

Mr. Bellingham: I am grateful to you, Mrs. Adams, for chairing the Committee, and to the Minister for his comments so far. The Opposition broadly support the proposals, but we have additional concerns and questions that I felt it best to leave until now. Many of those questions are technical and the Minister may wish to consider them and get back to me later if he does not have immediate answers.

Paragraph 3.12 of the ninth report of the European Scrutiny Committee states:

    ''The Government agrees with the Commission that it is appropriate at this time to look at the Regulation . . . in the context of the overall increase in the Merger Task Force's caseload, developments in merger control''

and so on. What is the Minister's view on draft company law directives 10 and 14? An article in the Financial Times on 23 October, which I am sure his officials alerted him to, expressed concern that British companies taking part in cross-border mergers might be forced to adopt German-style union consultation. In many ways, that may seem like a good idea, but we do not want more burdens put on business. According to John Cridland, the deputy director-general of the CBI, several initiatives have already cropped up. He said:

    ''The last thing we want is a raft of other . . . proposals that could drive a coach and horses through all the good work that has been going on.''

Mr. Cridland's view was echoed by the BDI, the German employers federation.

The EU Internal Market Commissioner, Fritz Bolkestein, said in a letter that, in a cross-border merger, ''the only solution'' that would balance employee rights and be politically acceptable is for

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more extensive forms of worker representation to take precedence. That is relevant to the measure and to the two draft directives on company law. What does the Minister feel about those directives?

Paragraph 3.12 on page 4 states that

    ''the Government welcomes . . . the creation of a Chief Economist's Office, the use of peer review panels and the strengthening of the role of the Advisory Committee of Member States.''

Can the Minister comment on the cost implications of the creation of such an office? I obviously do not hold him responsible for the extra costs stacked up in Brussels resulting from EU competition policy. What will be the implications of strengthening the role of the Advisory Committee of Member States?

Paragraph 3.12 further mentions the substantive test and the concept of substantial lessening of competition, on which we touched during the question session. SLC is incorporated into UK merger law through the Enterprise Act 2002. The Minister will be aware that, to some extent, that moves away from the market dominance test, and it is the Opposition's judgment that more, not fewer, cases will be referred—arguably, more smaller cases. As it will be difficult to reach the threshold, medium-sized companies could be affected. As my right hon. Friend the Member for Fylde pointed out, their lordships concur with that view on page 23 of their report. It is worth pointing out that they do fantastic work scrutinising complex EU legislation. They seem to have a lot of time to put in, and usually publish high-class reports—this is one. They say that

    ''a move to SLC would lead to more investigation''.

Surely that should concern us? They say that, despite the threshold, more companies will tend to be referred. Will the Minister comment on that?

Page 5 refers to venture capital transactions. I am sure that the Minister is aware that such transactions often depend on the party's ability to move quickly to close transactions before the expiry of the one-month deadline for a phase 1 decision. We have a vibrant, robust and effective venture capital sector in the UK, and even the Government are backing VC funds in some of the regions to consider potential investments under the Industrial Development (Financial Assistance) Act 2003. Have problems occurred with venture capital funds before, and have any VC houses made representations to the DTI about the way in which merger regulations can inhibit the speed of transactions?

Page 15 of the explanatory memorandum mentions the change of control ''on a lasting basis''. When control is changed, it almost certainly would be on such a basis unless the company in question has, from the word go, said that it would immediately demerge a particular division of the company that it is taking over. Perhaps it will consider a trade sale of various assets. Those events could lead to a change in control of part of the business. Perhaps the Minister could elaborate on that and explain when change and control would not be on a lasting basis.

My hon. Friend the Member for East Devon (Mr. Swire) mentioned the triggering event. When there is an obligation to notify the Commission of a

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concentration with a Community dimension, does the conclusion of a binding agreement between the two merging parties always trigger the obligation of the principal company in the merger? Will that always be the triggering event, or will there be other triggering events?

One aspect of the regulation that concerned the Opposition is the level of fines. At present the heaviest fine that can be levied is €50,000.

4.30 pm

Sitting suspended for a Division in the House.

4.45 pm

On resuming—

 
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