Corporate mergers, when formed, have advantages and disadvantages – not only for the firms involved but also to the general economic environment. There is a law known as Antitrust or Competition Law. This law seeks to regulate mergers so that not too many mergers are created or no irrelevant or competition-killing mergers are created to affect the overall market or economic factors within a country as well as the companies themselves.
Merger control therefore refers to the procedures used for reviewing corporate mergers and acquisitions in relation to the antitrust or competition law. Per statistics, more than 60 nations worldwide have instituted some form of governance or governing agencies and regulations for merger control.
Some of the agencies entrusted with merger control are national whereas others are multinational or continental agencies. The US Federal Trade Commission and the European Union Commission are two of such organizations that are entrusted with this role. Organizations or authorities in charge of merger control are also known as competition authorities.
Why Merger Control?
Countries adopt merger control regimes in order to prevent the anti-competitive consequences of mergers and acquisitions which are also jointly referred to as concentrations. They seek to prevent cases of monopoly or the creation of monopolistic markets which may lead to the provision of inferior goods and services, exploitation of customers through high prices etc.
When competition authorities realize that a merger, if created, will result in anti-competition effects, they will either require the parties to the merger to agree to commitments that will help remedy the effects or totally prohibit the transaction from taking place.
Most merger control regimes worldwide will seek answers to at least one of these questions:
- Does the merger cause significant impediment on effective competition?
- Does the merger cause substantial reduction in competition?
- Will the concentration cause the creation of a dominant position?
Types of Merger Control
Merger control regimes come in two forms. They are either mandatory regimes or voluntary regimes.
1. Mandatory Merger Control
Mandatory merger control regimes refer to merger control regimes that have a mandatory or compulsory requirement for filing transactions. Usually, this type of merger control also contains the “suspensory clause”, which indicates that both parties to the transaction are indefinitely unpermitted to close the deal or transaction until they have obtained a merger clearance.
The European Union Merger Control is a typical example of a mandatory merger control system that uses a suspensory clause. Most merger control regimes around the world use this type of merger control system.
The extent of the effect of a suspensory clause on closing a transaction is dependent on whether it is a local or global bar. Whiles some mandatory regimes imply that the transaction cannot be executed within its jurisdiction (a local bar on closing), some provide that the given transaction cannot be implemented in any part of the world until a merger clearance is acquired (a global bar on closing).
Countries which adopt merger control regimes which impose global bars on closing may create some complications for the parties to the merger. This requires that the parties close the transaction until some required regulatory clearances are obtained.
2. Voluntary Merger Control
Merger control regimes are said to be voluntary when parties to the merger are allowed to close the deal and implement the transaction even before a merger clearance is acquired.
In such cases, the parties to the merger are taking a risk that if the merger control authorities find out later that the merger transaction is more likely to result in inefficiencies, they will not be required to undo the deal.