The Full Monti
from
March/April 2002
by William J. Holstein
His
job title—Member of the European Commission Responsible for
Competition—is a mouthful, but it comes with a lot of muscle. Mario
Monti, 58, rejected the GE-Honeywell merger and has said that Microsoft
violates antitrust laws in Europe. If his final ruling goes against the
company, Microsoft may be fined up to 10% of its worldwide revenues (a
penalty that could reach $2.5 billion). Hewlett-Packard’s acquisition
of Compaq may land on his plate next. Is Monti, a native of Italy, just
plain anti-big-business, particularly if it involves U.S. players? Not
at all, he told Corporate Board Member’s William J. Holstein. in fact,
more often than not he and his American counterparts see eye-to-eye on
mergers that span the Atlantic.
The GE-Honeywell ruling has left the perception in the U.S. that Europe, especially your commission, is blocking deals that Washington approves. Is that the case? On GE-Honeywell, it was of course the case that there was a divergence of views. Washington made one decision, and Brussels [where Monti is based] a different one.
You’ve already charged Microsoft with violating antitrust laws in Europe. Is Microsoft facing a GE-style confrontation with you? It’s premature to make any comparison.
Do you sense a different antitrust philosophy in the Bush administration than in the Clinton administration? Not really. What I do see, and consider very encouraging, is the continuing willingness to work hard in terms of bilateral cooperation with the European Union. If anything, I see an increased determination to work for multilateral cooperation in antitrust policies. We have worked very closely to launch the International Competition Network, which will streamline the processes by which some 80 nations, including the U.S. and EU members, assess how proposed mergers will affect different countries.
Specifically, what did GE do wrong? The merger was rejected due to our concerns about competition in sectors such as avionics. The remedies that GE presented were not adequate.
What did you think of the way Jack Welch described your decision in his book? He was a bit contemptuous of the process at the European Commission. He must not be very used to having an institution or a counterpart say no to him.
Was the heart of the problem style, substance, or both? It was an issue of substance. I don’t know whether you would categorize the massive deployment of political pressures and lobbyists as part of a “style.” That, at any rate, did not have an influence on the substance, nor on the decision.
We’ve seen other U.S. companies run into problems in Europe. For example, AOL Time Warner had difficulties with its planned deal with EMI, and MCI with Sprint. A series of cases, yes. A series of divergences between Washington and Brussels, no. Both the U.S. Justice Department and the European Commission rejected MCI Worldcom’s proposed merger with Sprint. So that was convergence. And I’ll say even synchronized convergence, because the two decisions came within a span of 24 hours.
We authorized the AOL Time Warner deal well before the Federal Trade Commission did, because the impact on the European market was less complicated from a competitive point of view. But the part of the deal we had the most problems with, namely the joining of Warner’s music business with EMI’s, was also a big worry to the FTC. That’s another example of convergence. So while GE-Honeywell was a very important, very visible case of divergence, it would be difficult to find other examples.
It still seems that the U.S. allows more mergers among big companies than Europe does. That’s not necessarily correct. I can point to two recent examples of concentration that were authorized in Europe and not in the U.S. The first was L’Air Liquide and British Oxygen, two European companies. Their merger was authorized by the European Commission but was blocked by the FTC. In a second case, we authorized United Air Lines’ purchase of US Airways. The Justice Department did not.
You do use different terminology in framing your policy about mergers and their threat to competitiveness, don’t you? I have a treaty and a merger regulation that speak of “dominant position.” We must not allow abuse of dominant position. We cannot authorize a merger that creates or strengthens a dominant position. In the U.S., the key phrase is “substantial lessening of competition.”
Does that represent a difference in philosophy between Washington and Brussels? In legal terms, yes. But even so, we have been able to achieve a remarkable degree of convergence. The GE-Honeywell decision has had an immense psychological and political effect, thanks in part to the charismatic personality of Mr. Welch and his book. I don’t want to hide a remarkable case of divergence. But it would really be improper to extrapolate from one case to say there is a widening gap across the Atlantic. It would be even less founded to say there is a different philosophy.
What would you say to boards of American companies about the right way to resolve issues with you? First of all, American companies shouldn’t accept at face value this recent wave of superficial literature about the competition authorities in Europe being less pro-business than elsewhere. As many U.S. companies have witnessed, we sometimes help create a more competitive market by controlling the use of state aid and public entities. UPS, for example, saw us follow up on its complaint against the colossal former monopolist Deutsche Post. We imposed a fine on Deutsche Post and made it restructure itself into separate companies. We are really working to crack down on public-sector abuses in Europe.
What tips can you provide about winning approval for a merger? The advice I give to American companies is the same I give to EU companies: Approach us very early on. It is possible to maintain confidential contacts. If they wish, we can look at a deal before it is actually consummated to offer an early opinion of what the potential competition problems might be. The other important point is that when the merger is announced, do not delay unduly in notifying us. One problem in the GE-Honeywell case was the long time-span between when they went to the Justice Department and when they came to us.
After you’re informed of a deal, you issue a “statement of objection” if you have concerns about it. How is that different from the process in which a U.S. antitrust agency is notified and then makes a “second request” for information? The statement of objection is a very detailed description of concerns we have about competition. In the U.S., when the antitrust agencies file second requests, they do not have to indicate what the problem might be. We try to front-load our procedure by explaining what the difficulty is.
Our procedures, unlike those of the U.S., also have a stringent deadline. That is all to the advantage of companies. So they should not push us, or themselves, into a difficult endgame very close to the deadline. This is very important.
You seem to be suggesting that the process is more transparent in Europe than in the U.S. That’s what corporations normally say. But Washington and Brussels can learn from one another and see what interesting improvements we can each introduce to our respective systems. This will be one of the things we’re looking at in the working group that we have set up with the Justice Department and the FTC.
We also hope to explore merger procedures in depth as part of the International Competition Network, which we hope will bring different competition authorities together sometime this year so they can streamline their own processes. [The participating countries include EU members, the U.S., South Korea, Mexico, Canada, and Israel.] We hope that the ICN will be in effect soon.
Is this group good news or bad news for a company? Is it just one more layer of bureaucracy, or will it really be a clearinghouse that makes for clarity and speed? It is certainly not one more layer of process. It is a way that the various merger-related agencies in different countries will be able to develop more similar ways of operating across national boundaries. The ICN would not assess a particular merger. It would bring our processes closer together. That’s what companies involved in international merger activity have asked for.
Do you think 2002 will be a good year or a bad year for transatlantic mergers? Do you mean, will there be more transatlantic mergers? Or do you mean, will they sail through EU regulatory review? I’m afraid my crystal ball is not so sophisticated as to be able to answer either of these interesting questions.
