The term ‘Merger Regulation’ refers to a set of laws or rules which govern the creation of mergers. Mergers can have tremendous effects on the merging parties as well as on the economy of a country or the global economic market.
Due to the collapse and economic crisis that befell many great corporations in the past – after they engaged in a merger – and the concurrent negative effects such fails had on national and world economy, these merger regulations are instituted so that such failures can be prevented. Merger regulation also encompasses all the due procedures firms must follow and all requirements that must be satisfied before a merger can be successfully created.
There are a number of bodies in charge of merger regulation but generally, they can be categorized into two which are the National Competition Authorities, and Supranational Merger Commissions. The most popular among them is the European Council Regulation of 20th January 2004. Though there are different institutions – national and supranational – in charge of merger regulations, there are common issues or provisions that cut across all regulations.
How Merger Regulations Operate
A Merger Regulation is meant to provide a mechanism for the control of concentrations (mergers and acquisitions) within the regulating body’s jurisdiction. The regulation is applicable to an entity only when the entity falls within the jurisdiction of the regulations – per the definition of jurisdiction in the merger regulation – and also per the jurisdiction’s dimension.
The jurisdiction dimension refers to particular or specifically stated turnover thresholds that should be met in order to be qualified for a merger. For example; The EU Merger Regulations have stipulated amounts or levels of annual income that must be met – both independent and joint targets – before merger parties can be qualified as within the EU’s dimension.
Since supranational agencies are not the only organizations engaged in merger control, they liaise with National Competition Authorities. Mergers that fall within the jurisdiction but not the dimension of the EU or the supranational merger commission are handled by the National Competition Agencies in accordance with their local merger control rules.
Why Merger Regulations?
Although mergers, when created properly, can help the merged companies enjoy economies of scale, produce better products, reduce their research costs and enjoy improved efficiencies which lead to healthy competition in the market, there are instances where mergers may cause the reverse of these. These negatives can be very catastrophic to the market.
Merger regulations are instituted for the following reasons:
- Mergers that have the potential of causing reduced competition in the market because it leads to the strengthening of a dominant player are avoided or prevented. Such reduced competition would result in consumers paying very high prices, less innovation, and reduced choice or options for consumers.
- It is also to help simplify the procedures involved when a merger transcends beyond the borders of a single member state. For instance, if there is a proposed merger between three companies from UK, Wales, and Portugal, the EU Commission of Merger Regulations ensures that all clearances needed are obtained from the EU in one go, rather than lobbying from one NCA to the other and meeting various different requirements by each NCA.