World of profitable outputs and murderous acquisitions

I was pleased to see Lex responding to recent comments that suggest that the Government will intervene in more decisions of the United Kingdom competence authority, the competence and market authority (“the antimonopoly interference of the United Kingdom is not a magical formula for the growth”, LexJanuary 27).

Most of the debate focuses on mergers and much of the discussion loses four key points.

First, as Lex says, “the number of mergers (the CMA) investigates that they are rejected or abandoned is small and falling.” Government statistics suggest that it is around 0.2 percent of the agreements.

Secondly, where a fusion is challenged, it is to protect competition and keep an environment alive in which the competitors of merger companies can prosper and potentially grow.

In other words, blocking a fusion can be positive for economic growth. A case analysis is required.

The third consideration is that there is a common erroneous idea that mergers and acquisitions are inherently good for investment. They can be, they may not be.

When a company buys another, that scenario implies a transfer of property between a group of shareholders (typically corporate) and another group of shareholders.

The acquirer company can subsequently increase the investment in the target company, or may not. The reduction of costs and/or the removal of assets can be on the agenda.

Therefore, there is no inherent reason to believe that blocking a fusion will reduce investment in the United Kingdom. Each agreement is specific to the case.

The fourth point is that a common argument to wave through agreements is that the blockade of an agreement eliminates the incentive for new companies, since many will seek a way out through a sale to a larger company.

What is lost this argument is that they are generally only one (or very few) companies that would not be allowed to buy the new company.

This would leave a lot of scope for a good profitable exit (perhaps the most profitable exit, since it could include a premium that the leading company is prepared to pay to eliminate a potential competitor, its “murderous acquisitions”).

Again, this must be examined by case, which is what the CMA, like other leading competence authorities worldwide, will do.

Simon Holmes
Visiting Professor in Law, University of Oxford, Oxfordshire, United Kingdom;
Member, Court of Appeal of Competition of the United Kingdom;
Co -President, International Sustainability Chamber of Commerce
and competition work group;
Legal Advisor, Customerarch, London, United Kingdom