The European Commission ("Commission") adopted its new guidelines on the assessment of non-horizontal (i.e. vertical and conglomerate) mergers at the end of November. The guidelines will be of interest to all those involved in or anticipating a merger (including joint ventures) between businesses in related markets.
The non-horizontal guidelines are designed to complement the guidelines that the Commission already uses in relation to mergers between businesses operating in the same market (the horizontal guidelines). These new guidelines make a distinction between a) mergers between businesses that operate at different levels of the same supply chain ('vertical') and b) mergers between businesses that operate in related markets, for example wrapping paper and sticky tape ('conglomerate').
Unlike horizontal mergers, neither of these types of non-horizontal mergers will automatically reduce the number of competitors operating in any given market. They may, however, create or strengthen dominance in any or all of the markets affected by the merger. On the other hand, the Commission recognises that non-horizontal mergers can create very efficient outcomes, both through streamlining supply chain processes (for example, in relation to production or distribution) and by reducing margins at the different stages of a supply chain (particularly in vertical mergers). The new guidelines therefore outline the following specific aspects of non-horizontal mergers that pose the greatest risk to overall competitiveness and therefore, the aspects the Commission will pay particular attention to in its assessments:
- Foreclosure – this is identified as the main risk in relation to conglomerate mergers (though it will also apply to vertical mergers) and is, essentially, the risk that as a result of the merger the newly merged business will have greater scope to restrict any competitor's (or potential competitor's) access to supplies.
- Co-ordination – the Commission will consider whether the structure of the affected markets following the merger would make co-ordination between competing firms more likely, or would create the risk of co-ordination where it was not previously a risk.
- Access to confidential information – the Commission will consider whether the merger will give a part of the newly merged business access to confidential information, perhaps in relation to the customer base in a downstream market, that it would not otherwise have had.
Finally, the guidelines have also introduced a market share test, below which the Commission are unlikely to consider the merger in detail. The test is whether the merged business will have a market share of 30% or more in any of the affected markets and whether the HHI (or the Herfindahl-Hirschmann Index, a measure of market concentration) score is below 2000.