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Monti come Saddam Hussein. Economist del 2002

Monti’s double whammy

Two decisions by the European Commission to block large mergers have been overturned in recent days. The court rulings are likely to lead to a shake-up in European competition policy

Oct 25th 2002 | from the print edition

THE past week has been a bad one for Mario Monti, the European Union’s top trustbuster. He and his Merger Task Force (MTF), the body within the European Commission responsible for reviewing deals and making policy, have suffered two major setbacks. First, on October 22nd, judges at the European Court of First Instance ruled that the commission was wrong to block the merger last year of Schneider and Legrand, two French electrical equipment makers. That followed a similar, excoriating, ruling in June involving First Choice and Airtours, rival British tour operators that were prevented from merging in 1999. Then, on October 25th, the court threw out the commission’s decision last year to block the merger of Tetra Laval and Sidel, two packaging companies. The rulings have have done huge damage to Mr Monti’s already shaky credibility. They have also highlighted the need for the EU to overhaul its approach to vetting mergers and takeovers.

American businessmen have regarded Mr Monti as the corporate equivalent of Saddam Hussein ever since he dared last year to block Jack Welch’s audacious bid to merge Honeywell into General Electric. Though fears that Mr Monti would provoke a trade war over merger policy have subsided, not least because merging is currently so unfashionable, those businessmen feel that European competition policy is in urgent need of change. Nor is it only Americans who criticise Mr Monti. Whereas some Europeans admire their man for standing up to the Americans, others—especially those who have direct dealings with him and his team—worry about Mr Monti’s methods and decisions, which are increasingly being challenged in court. Even the GE-Honeywell decision, perhaps the bitterest of a series of adversarial cases, is under appeal.

Mr Monti shrugs off such criticisms, saying that he is only doing his job. He says he had been in office for just five days when the First Choice-Airtours decision was made, so it was not his fault. As for the court’s ruling on Schneider-Legrand, it merely showed that effective judicial review is available to companies that disagree with rulings, he has said.

But the court’s comments on how the Schneider-Legrand case was handled suggest a situation that is harder to defend. The judges identified two areas where Mr Monti’s MTF had manifestly failed to do a competent job. First, its economic analysis of the relevant electrical markets was marked by “errors, omissions and contradictions”. The MTF muddled its arguments and over-estimated the combined group’s likely economic power. Second, the court described a procedural failing so serious that Schneider had, in effect, been denied its right to conduct a reasonable defence of its merger. When the MTF made its original “statement of objections”, a formal document listing its reasons for making an in-depth investigation of the deal, it noted one main problem. Schneider duly concentrated its defence on that, only for the deal to be rejected on quite different grounds, leaving the company no time to suggest remedies.

After such a public savaging, Mr Monti will be under intense pressure to show that he presides over a fair and sensible competition regime. And that might mean ripping up the modestly reforming Green Paper he is currently thought to be preparing, to have a more fundamental rethink.

A first essential is a coherent policy. Americans often complain that the commission sees markets in static, not dynamic, terms. They also argue that the commission has no clear policy framework against which officials and companies alike can test mergers. Instead, it frequently appears to make merger policy on the hoof. In both the GE-Honeywell and Tetra Laval-Sidel cases, for example, a new and controversial theory of “bundling”, by which a merged company might crush competitors using a broad range of related products, was inserted into the economic case for blocking decisions. The theory could yet be discredited, but in the meantime it has become a main plank in European merger policy. Mr Monti might find it easier to alter this on-the-hoof approach if he employs a chief economist, something he has already hinted that he wants to do.

Another area that needs to be reviewed is procedure. The MTF, to its credit, tends to rule on a merger more quickly than do its counterparts in America—and a bad decision, taken in haste, can always be reversed on appeal. But by then, the opportune time to merge may have passed. Mr Monti could alleviate this problem by making his case officers more accountable during the merger review process. One idea being put forward is that within the commission, work could be monitored by specialists appointed to challenge poor thinking. If procedures could be made more straightforward and officials more accountable, merger policy should become accordingly more consistent.

Following the Tetra-Sidel ruling, Mr Monti admitted that “our record in the merger area is less glorious after these court rulings.” He then vowed to restore the credibility of his team and win back the public’s trust. The merger regime, he said, would be reformed. But he rejected the idea of ripping up the current blueprint and starting again. That is a decision he may have to rethink. Drastic measures are needed to restore credibility to European merger policy.

from the print edition