In order to specify the provisions of Regulation 139/2004 on M&A transactions on maintaining a competitive balance and effective competition, the European Commission developed and adopted Guidelines on horizontal mergers on 5 February 2004 (2004/C). As the title of this document suggests, the Principles apply to the conduct of transactions by companies in the same market and former competitors (European Union Guidelines, 2004).
The conquest of market power by the company after the M&A took one of the central places in the economic analysis of horizontal transactions, which leads to the intervention of regulatory authorities in the relevant transaction. In this case, the merger transaction is assessed as significantly undermining effective competition in the event that it creates an opportunity for the new firm alone or together with other market players to raise prices above the profit-making level that took place before the transaction, and for a significant period of time. Increased and undermining effective competition, market power also can be expressed in reduction of volume of output, reduction of the product line or the deterioration of product quality and in reducing innovation efforts.
The horizontal merger guidelines (2004) introduced estimates of market shares and concentration levels based on the Herfindahl–Hirschman Index (HHI). In this case, the very thresholds of dominance in certain aspects differ from the levels used in the United States. As for the situation when after the transaction HHI does not exceed the level of 1000, in the EU, as in the US, such transactions are not of interest to regulators. Relatively safe for companies intending to enter into a merger transaction are the following levels: 1) transactions, after the completion of which the HH index is between 1000 and 2000, and the change in HHI due to the transaction (delta) is less than 250; 2) transactions, after the completion of which the HH index exceeds 2000, for which the delta is less than 150.
It is easy to see that these parameters may be regarded as less stringent than the thresholds applied in the United States. However, this conclusion seems premature. The fact is that, in addition to these quantitative parameters, the guidelines on horizontal mergers provide for six additional special conditions to be taken into account in order to make final decisions. Among these conditions are the following: does the merger potential new player entering the market; whether the participants of the transaction belong to the leading innovators in the industry, which is not reflected in their market shares; whether there is a significant interweaving of assets (shares) among market participants, etc. Special attention should be paid to transactions, one of the participants of which has a market share of 50% or more (European Union Guidelines, 2004).
In recent years, the use of modern quantitative methods, including econometric and probabilistic ones, has been intensified in the European Union for the economic justification of M&A transactions, as well as for the assessment of regulatory decisions. A similar trend is also characteristic of the United States. As noted in the special work summarizing the results of five such studies, by June 2006 the European Commission had counted more than 2,877 transactions. Of these, the conclusion of 204-x was accompanied by clarification of a number of circumstances, 147 — required detailed reviews and conclusions, and 45 transactions were banned or delayed.
Along with the strengthening of economic, as well as economic-statistical justification of M&A transactions, experts pay attention to the undoubted impact of the political factor, the impact of which is manifested in two main areas. On the one hand — within the EU through the influence of various lobbying groups (Heim, 2004, p. 81-83). At the same time, the most significant pressure of lobbyists at the procedural level manifests itself, as noted above, in phase 2, i.e. is when the position on M&A transactions is agreed by the twenty EU commissioners. On the other hand, a number of studies have identified the significant impact on the regulation and conclusion of geographical origin transactions of the parties to transactions. However, the hypothesis of a stricter attitude towards companies located outside the EU, including North American ones, is not statistically confirmed in all studies (Lrnkque, 2006).
An important stage in the regulation of M&A transactions within the European Union was the adoption of the Guidelines on non-horizontal mergers on October 18, 2008 (European Union Guidelines, 2004).. This document is based on the General approaches set out in Regulation 139/2004 as well as the Guidelines on horizontal mergers (2004).