ACM wants to be able to assess small acquisitions
The Consumer & Market Authority (ACM) wants to be able to intervene in smaller mergers and acquisitions too, if they are suspected of restricting competition. This would require amendment of the Competition Act by a new cabinet, said ACM board chairman Martijn Snoep.
The ACM’s supervision of takeovers aims to prevent market power of companies. They want to prevent acquisitions from creating companies that can dictate prices locally or regionally. Or, in addition, lower the quality of their products and services or hamper innovation. The ACM currently has no power to subject small acquisitions to a merger or takeover test under the Competition Act. Only acquisitions where both the acquiring and acquired company have a turnover of at least €30 million in the Netherlands can be tested by the ACM. The idea behind this is that takeovers, below this threshold, usually rarely pose problems. This, while the ACM’s review involves significant costs.
ACM wants to combat ‘beading’
Meanwhile, the ACM has found that takeovers below the turnover threshold can indeed lead to problems. This is at least the case, according to its board chairman, when the acquiring party is a large party that is ‘stringing beads’ on the basis of a deliberate strategy by acquiring small players in the market one by one from veterinarians, GP practices, day-care centres and car repair shops on a local or regional level. The ACM is concerned that these acquisitions could lead to higher tariffs for consumers or a stripped-down service.
There is also another category of small acquisitions that can lead to competition problems, but which the ACM cannot test. These acquisitions are also known as ‘killer acquisitions’ and occur in the pharmaceutical sector, among others. This is the case when a company that already has market power acquires a new company that has developed a revolutionary technology that has yet to be commercialised. In such an acquisition, the company with market power can protect itself from future competition. Since the new company does not yet have sales, the acquisition remains below the thresholds and the ACM cannot intervene.
Opportunities for supervision
A number of countries do provide for small acquisitions to be subject to a merger or takeover test. Germany and Austria have lowered the turnover thresholds for such a test, but this entails a higher supervisory burden. This happens while only a small proportion of acquisitions actually lead to competition problems. It also raises the possibility of lowering the thresholds for transactions in specific sectors where a competition problem has already been identified. Until last year, such a reduced turnover threshold of 5.5 million applied to the healthcare sector. On average, one acquisition was banned, withdrawn or allowed under conditions every year. According to outgoing health minister Kuipers, these results did not outweigh the benefits of cooperation between healthcare providers. He therefore decided to abolish the reduced turnover threshold. The ACM disagreed and warned of a gradual growth towards ever stronger dominant positions.
A so-called statutory ‘call-in power’ is proposed as a final supervisory option. This would give the ACM the power to select a small takeover within a specific period and indicate its intention to investigate it under the regular procedure. This period will cover about two or three months after publication, according to Snoep. During that period, he says, companies usually have not yet merged. Nevertheless, this possibility entails the disadvantage of creating uncertainty for companies. This is separate from whether an already completed acquisition can be undone.
Still, weighing up all the pros and cons, the latter option seems to have the most to say for itself, according to the board chairman. This option has also been chosen in other countries in Europe, such as Sweden, Iceland, Italy, Norway and Ireland. The said uncertainty could be reduced by offering companies the option to get clarity in advance, for instance by voluntarily notifying the takeover.
Competition law under scrutiny
It seems prudent for the ACM to have a close look at the Competition Act, 25 years after its entry into force, and weigh up the options for testing small takeovers. In doing so, the functioning of supervisory options in other countries could be considered. The regulator announced to organise a roundtable meeting in the coming months. It will then be possible to exchange views on this topic with specialists and interested parties.