On 31 January 2007, the European Commission (“the Commission”) launched a public consultation on its draft guidelines for the assessment of mergers between entities in a vertical or conglomerate relationship (also known as non-horizontal mergers). The guidance on non-horizontal mergers will complement the existing guidelines on horizontal mergers, which deal with mergers between companies competing in the same levels of the supply chain.
Vertical mergers involve companies operating on different levels of the supply chain, while conglomerate mergers take place between firms which are active in closely-related markets and are in a relationship which is neither purely horizontal nor vertical. Non-horizontal mergers do not involve the loss of a competitor in the same relevant market as the merging firms; this is in direct contrast to horizontal mergers. As a result, non-horizontal mergers are less likely to give rise to competition concerns.
A non-horizontal merger may even improve efficiency within a market as the activities and/or products of the companies involved in the merger are often complementary and the integration of complementary activities or products into a single firm can often be pro-competitive.
The Commission notes in its draft guidelines that non-horizontal mergers pose no threat to competition unless the merged entity has market power in at least one of the relevant markets concerned. The draft guidelines set out market share and concentration levels below which the Commission is unlikely to identify competition concerns.
The draft Guidelines describe the main scenarios, based on established economic principles, in which competitive harm is likely to arise as a result of vertical mergers, and then also conglomerate mergers. For example, a vertical merger may significantly impede competition through so-called “input foreclosure” where the post-merger entity would restrict access to products or services, leading to increased costs for competitors and the ultimate consumer. The possibility of foreclosure is also the main concern in conglomerate mergers. The combination of products in related markets may allow a merged entity to leverage a strong position in one market to another by means of tying or bundling of products or other exclusionary practices.
The public consultation will remain open for three months and the Commission has invited all interested parties to submit their observations by 12 May 2007. The Commission intends to publish its definitive guidelines by the end of 2007.
Source : European Commission Draft Guidelines on Non-Horizontal Mergers available .