Examination of Witness (Questions 140-159)
DR WILLIAM
BISHOP
6 DECEMBER 2006
Q140 Chairman: We are not up to that
level of detail.
Dr Bishop: It probably is the Sony/BMG
one, and there the Commission decision was overturned in the event
for different reasons. Before I forget, there is actually a small
error in the evidence given to you the other day. The CBI said
that, even of those four which were successful, the mergers were
all dead, and they said it twice, but that is not correct. One
of them did actually go through which is Tetra Laval/Sidel.
The Sidel company is now the property of Tetra Laval and
the procedure was effective there to allow the whole thing to
go through.
Q141 Chairman: In Tetra Laval,
and I am just looking at the helpful table we have got in Peter
Roth QC's evidence, I see that process took nine months, so it
still went ahead even after a nine-month process by the appeal
procedure.
Dr Bishop: Yes, it did, but, remember, that
is for a special reason, and you will note that another of those,
Schneider/Legrand, was another French case. The capital
markets work in different ways around Europe. The Paris Stock
Exchange has a rule which requires a bidder to make an unconditional
offer for the shares of a public company. As you know, in London
that is not so, and every offer is made conditional on anti-trust
clearance and lapses when referred to the Monopolies Commission.
Therefore, in Paris, whether hostile or friendly, you are taking
a very big risk, but you have got to take it and it is not irrelevant
that the company concerned, Tetra Laval, was one of the
companies of the Rausing family and they were taking a risk which
many people running public companies would not take. If it was
turned down, they were paying a premium to get these shares and,
if the shares fell back to the pre-existing level, they stood
to lose €600-700 million for absolutely nothing, but they
decided to take the risk and they eventually did succeed and they
own the company.
Q142 Chairman: I am not sure if this
is within the questions that we had thought of putting to you,
but within your statement, paragraph 8 contemplates that you might
have some different system of investigation. You say that one
of the problems is that the investigator/prosecutor is also the
judge/adjudicator. This is within the Commission.
Dr Bishop: Yes.
Q143 Chairman: Yes, actually this is
in fact the question that I was going to ask last, but I can conveniently
put it to you at this stage. From what you say about the three
losses prompting the internal reforms of 2002, does that become
a rather less acute problem?
Dr Bishop: Well, all of the problems are less
acute given that the system is a more responsible system today
than it was before 2002. Officials often were quite arrogant and
knew that they could simply deny mergers because there was no
effective remedy. Now, it is not tremendously effective today
because, first, as was pointed out in the papers to you quite
correctly, many of these cases are not suitable for fast track.
For example, the lawyers for Airtours said that if fast track
had been available in 1999 when their deal was turned down, and,
their deal with First Choice, they could not have availed themselves
of it because there were too many issues that had to be canvassed
in the appeal—unlike the Tetra Laval Sidel and Schneider/Legrand
cases where the lawyers took the view, and the judge agreed with
them, that there were relatively few issues and they could be
narrowed. So there is that flaw: that not every case is appropriate.
In any case, there is no guarantee that the court will rule in
seven, eight or nine months, and seven, eight or nine months is
probably too long in commercial terms anyway. My own belief is
that if Tetra Laval had been a public company raising money
on the London Stock Exchange, the deal would never have gone through,
it would have lapsed and the whole thing would have gone away.
Q144 Chairman: If some of these cases
are simply not apt for the fast-track process, is there any possible
way then of accelerating them short of that?
Dr Bishop: I do not think business cares about
an appeal. I think business cares about a fair decision and it
is that which they do not really trust the Commission to give
because the decider is too close to the investigator/policeman
process.
Q145 Chairman: So we are back to: a reform
too far?
Dr Bishop: That is right, yes. My answer to
it is a system more like the American one or indeed in some other
jurisdictions in which you completely separate the final decision-maker
from the person who assembles the evidence against the merger.
Q146 Chairman: In that scenario, the
Commission assemble the case and then, if they still regard it
as against the public interest, they present that case to the
court and hope to persuade them to that conclusion?
Dr Bishop: That is correct, that is the model
and then I do not think appeals would matter very much.
Q147 Lord Jay of Ewelme: That partly
answers my question because I also wanted to ask a question about
the role of the Commission, but just to be absolutely clear, your
model would be that the Commission assembles the evidence and,
if the Commission decides that the merger can go ahead, then that
should be a decision taken by the Commission, but, if the Commission
decides that it should not go ahead, then that would go to the
court for a decision?
Dr Bishop: You are asking me a question which
I had not in fact focused on at all of what happens in those cases
where the Commission says, "We do not wish to challenge here".
Q148 Lord Jay of Ewelme: Exactly.
Dr Bishop: Perhaps. I suppose you had in mind
that someone else might wish to challenge, say, a competitor or
the employees or someone like that. The way that most of these
systems work is that it is either the authorities who challenge
or no one, so American practice is sometimes criticised on the
grounds that people with a genuine interest, say, a consumers'
association or something, cannot challenge. In practice, challengers
in Europe are far more often people with an interest which has
nothing much to do with the public interest and they might conceivably
be right, but that is not what drives their challenge.
Q149 Lord Jay of Ewelme: You mean they
are resisting a hostile takeover?
Dr Bishop: For example, or a trade union trying
to extract something out of the company or I believe we had a
case, did we not, in which a tribe with some sort of legal personality
in Africa mounted some sort of case because of mining interests
of some party to a merger, or I seem to think that was the case.
There are all kinds of stakeholders or people who claim to be
stakeholders who have an interest and there is a largish number
of appeals. Most of the appeals that you see are pieces of theatre
in which one of these stakeholders is getting some headlines by
challenging and they are not effective appeals. If somebody in
this Committee looked at the statistics, they would think, "Oh,
there are quite a lot of appeals really", and in raw numbers
there are, but they are not actually effective appeals by the
person who has been stopped from doing something and they are
often appeals by someone with a quite different interest.
Q150 Chairman: Just as a supplement to
Lord Jay's question, if at stage one of the Commission's investigation
they do not think there is a case, so to speak, to pursue, so
a sort of summary refusal to take steps against the merger, presumably
nobody has got any right to challenge that, have they?
Dr Bishop: You might think so, but in fact a
judgment of the Court of First Instance itself not more than a
couple of months ago decided to the contrary.
Q151 Chairman: Decided there was a right
to challenge a refusal to carry it to the second stage?
Dr Bishop: Yes, this was the music case which
I was trying to remember, and it might be Sony/BMG. The
facts were roughly these: that the Commission had been working
itself up to a statement of objections and to a potential prohibition
of this merger of two recording companies. The new procedures
of devil's advocate panels and the Chief Economist's taking a
view, and all that, was put into operation. The judgment was then
made by the Commission hierarchy that they did not have a sufficient
case against this merger to justify proceeding against it. Somebody
with an interest, I cannot now remember who it was, whether it
was a competitor or whether it was a trade union representing
employees who might lose their jobs, but somebody with an interest,
challenged and succeeded on the ground that the Commission had
failed to give adequate reasons for its decision not to proceed.
This is generally interpreted as the Commission being required
to give as cogent reasons not to proceed as it would have to give
if it proceeded. This has caused considerable disquiet at the
Commission for reasons I entirely understand: that they can be
in a position in which, whatever they do, they can be challenged
because they do not have the safe harbour of saying, "We
don't know enough to proceed to a prohibition", as that is
no longer enough and you have to have, as it were, a reason to
do so. I should say, I am an economist, as I said at the beginning,
and I am straying here into talking about major legal precedents,
so please take everything I have said with a large grain of salt
as I am not an expert in these matters and you may want to consult
someone who really knows all this in detail.
Q152 Baroness Kingsmill: Are you familiar
with the procedures of the UK Competition Commission?
Dr Bishop: Yes.
Q153 Baroness Kingsmill: It seems to
me, and I wonder if you agree with me, that the process appears
to be quite speedy here when you have fixed time limits within
which decisions have to be taken.
Dr Bishop: Yes, I think that is true, I think
it is quite speedy. I see in the papers here that most of the
difficulty seems to stem from two sources and mainly it is translation
where working in several languages seems to be the difficulty
which adds several months to the European timetable.
Q154 Baroness Kingsmill: Also it seems
to me that you get over your objection that you give in your testimony
about the prosecutorial aspect of the whole thing in the sense
that you have an investigative sort of role as opposed to a prosecutorial
sort of role.
Dr Bishop: Yes, I see why you say that and I
think there is probably more satisfaction with the Competition
Commission than there is with the European Commission on the whole,
certainly more in the late 1990s when the European Commission
was, rightly, so severely criticised. I would go one step further
in the UK and I would have the OFT be somewhat larger and the
CC a little smaller. The OFT would do more investigation and would
put together a statement of objections and that would be the accusation
which had to be answered before the CC and the CC would be a neutral
decider.
Q155 Baroness Kingsmill: And then the
CAT, which is what we are talking about, and the appeal aspect
of that?
Dr Bishop: I am not sure you would need the
CAT for that job in what I am imagining, but, no matter how impartial
a decider is, he can still get things wrong.
Q156 Baroness Kingsmill: But the point
I am really getting to in relation to the CBI's proposal is that
you can skin the cat, if you like, in a different kind of way
by having an investigative process subject to strict time guidelines
and that would cover, would it, or would you agree that it would
cover, the point of speed and certainty that the commercial interests
would require?
Dr Bishop: It would cover most of it. Let me
say, every system starts out with strict guidelines in the interests
of commercial certainty and the like and time and the imperatives
of people trying to make the right decision leads to a chipping
away of that. If you look at the history of Hart-Scott-Rodino
in the United States, it was going to have very strict timetables
so that no merger would be delayed more than a couple of months.
Well, that is just not the way it worked out. There were all kinds
of ways which the authorities, the FTC and the Justice Department
found to say, "Your compliance with the second request on
Hart-Scott-Rodino was not complete". Exactly the same
happened with the Commission. Some people around the table may
remember, when the Merger Control Regulations were being negotiated
in 1988-89 and when they came into force in 1990, that there were
to be absolutely strict guarantees to business that this would
not drag on and on, but, as was rightly pointed out in some of
the evidence to you, cases like Oracle/PeopleSoft were
16 months. Now, how did that happen?
Q157 Baroness Kingsmill: Could it be
because the lawyers were let loose and not the economists?
Dr Bishop: It is partly because the officials
encourage people to come and have pre-merger notification and
discussions and it is a brave lawyer or banker who says to the
authorities, "Oh no, I'm not going to discuss it with you.
I am going to bung in an application and insist that you operate
by the timetables". Well, that is just not a way of getting
along with the guy who has power over your transaction, so with
every system, including in the UK because we have extensions of
time and in your time at the CC you will have seen several cases
being extended, with all the goodwill in the world, you will not
prevent the people operating the system, when the attention is
no longer focused on this, finding some way or other to extend
the period. It is not necessarily a bad thing because there is
a trade-off between speed and accuracy and, whether good or bad,
it is inevitable, in my view.
Q158 Lord Bowness: I would like to clarify
this in my own mind, a very small point. You talked about the
cases where they decided not to proceed and you said the decision
was taken by the "Commission's hierarchy", and please
do not think I am picking you up on that. Presumably it went to
the College of Commissioners or does it not go to the College
of Commissioners, just so we can be quite clear? It is not a decision
made by an official in the hierarchy of the bureaucracy, is it,
perhaps it is, or is it made by the College?
Dr Bishop: A decision not to proceed to prohibition,
is it made by the College, I do not know the answer to that and
you may well be right, that it is not made by the College.
Q159 Lord Clinton-Davis: It is not. Having
been a Commissioner myself, it is not made by the College.
Dr Bishop: The College is itself rather a theoretical
institution nowadays, though I am not sure about in Lord Clinton-Davis's
day. Formerly, the Competition Commissioner would bring a proposal
and he might have to modify it and once or twice he even lost,
but that has not happened in years. Today, they defer to the Commissioner.
During Monti's time, the rest of the College just did what he
wanted and they rubberstamped his decisions, whereas, if I remember
back to one of my first merger cases which was a steel merger,
the merger went through when the Commissioner, a Dutch chap, proposed
that it be prohibited and the vote was six to six in the College
of Commissioners and the President, Delors, declined to exercise
his casting vote in favour of it, so, on the six-six tied motion,
the motion to prohibit failed and the merger went through, and
that is going through by the skin of your teeth, but nothing like
that has happened in the last eight to 10 years.
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