The New Trends of Business of Mergers and Acquisitions in The European Union

Introduction

Mergers and acquisitions are the new trends of business, especially at international levels. Over the last decade, companies have adopted this move as a way of minimizing competition, expanding trade and meeting the diverse customer needs (Coyle, 2000). The extension of this move to international level has attracted the interest of international law.

As a way of controlling merger and acquisition to save the interest of other companies and customers, international organizations such as European Union (EU) have come up with regulations to govern this business approach. In most cases, mergers aim at expanding their market to international levels. This extends the coverage to more than one nation. However, the involved nations may have different business regulations. International businesses regulatory organizations are involved in harmonising the mergers and acquisitions at international levels involved (Hitt, Ireland & Harrison, 2001).

According to Kekelekis (2009), every EU member state is linked to each other by European Competition Network (ECN). The ECN enhances coordination between European Commission and National competition authorities to ensure that companies engaging in cross-border practices observe the law of competition and anti-trust actions (Kekelekis, 2009).

EU has a total of twenty eight member states, including United Kingdom, Germany, Poland, Italy, France, Spain, Romania, Bulgaria, Australia and Denmark among others. The formation of this union was to create business relations among the member states as a way of enhancing economic and social-political development. The EU has its own model of addressing issues related to business among its members, inclusive of the merger and acquisition. The creation of international business laws by EU agencies has impacted on trade among its members. Among these laws are the anti-trust actions governing mergers, whose implementation trickles down to non-member states (Rose & Bailey, 2013).

Background of the research

The concerns of EU approach to merger and acquisition can be framed as an emerging issue over the last decade. The EU approach to mergers has been centered towards anti-trust and monopoly issues (Rose & Bailey, 2013). Merging of companies is a remarkable approach to economic development. It minimizes profits, improves the quality of production and the benefit trickles down to the consumers who enjoy quality goods and services at low prices. However, merging between to competitors may cause a negative impact. When two companies merge, they form a giant business organization that takes control of the market.

The mergers may be tempted to misuse their ability to control the market by increasing prices. The unnecessary increase in prices has been evident in business environments experiencing monopoly. Mergers have severally misused their power to control the market by lowering the prices to outcompete their opponents. In order to ensure that mergers and acquisitions do not affect the business environment, EU comes up with regulations that govern their operations (Bishop & Walker, 2010).

The concentration of power facilitated by mergers and acquisitions has highly been discouraged by the EU. Similar criticisms have also narrowed down to the US anti-trust organizations. In the United States of America, the federal government has mandated the Federal Trade Commission (FTC) and the Department of Justice (DoF) to enforce the federal anti-trust laws. When negotiating mergers and acquisitions, it is the responsibility of the Federal Trade Commission (FTC) and the Department of Justice (DoF) to investigate and analyses the compliance of the proposed merger to Anti-trust policies. These two business agencies are responsible for authenticating mergers within the United States. In general, Federal Trade Commission (FTC) and the Department of Justice (DoF) of US are downgraded systems of international business law serving similar interest to that of EU but at the national level (Council & FREDERICTON, 2005).

In the operations of EU and the US Federal Trade Commission (FTC) and the Department of Justice (DoF), the progress of mergers and acquisitions is determined. Some cases have been filed by these organizations over the last two decades, baring various companies from merging. However, the variation in approach to the anti-trust policies between the US government and UN has created questionable controversies. EU uses a different model to counteract anti-trust laws, compared to the Federal Trade Commission (FTC) and the Department of Justice (DoF) approach. The paper seeks to establish the impact resulting from these variations (Kekelekis, 2009).

Problem statement

According to research by Hitt, Ireland, & Harrison, (2001), the control of business mergers and acquisitions by EU and US has been for the interest of all the business stakeholders ranging from the business owners, the customers, suppliers and the competitors. Over the years, the EU and USA have been on toes to ensure that mergers comply with the anti-trust policies. In the aspect of anti-trust policies, the US anti-trust law stands out as the most powerful. However, the aspect of enforcing these laws seems to be loose, compared to the EU anti-trust model of approach to the enforcement of these policies. There has been existing gap between the EU and US anti-trust laws, which has created contradictions and wrangles in the mergers and acquisition process (Lleras, 2017).

Research objectives

Both general and specific objectives guide the research. The general objective is to establish the impacts of the existing gap between the EU and US model of approach towards the mergers and acquisitions in creating an international law that supports anti-trust actions. The study will narrow down to the following specific objectives:-

1. To analyses the international anti-trust policies used by EU model towards mergers and acquisitions.

2. To determine the anti-trust laws enforced by US towards mergers and acquisitions.

3. To determine how the international anti-trust policies used by EU model towards mergers and acquisitions and the anti-trust laws enforced by US towards mergers and acquisitions affect mergers and acquisition.

4. To determine how the gap between EU model towards mergers and acquisitions and US approach can be harmonized to create a common law that supports anti-trust actions.

Research questions

For the research to meet the stated objectives, the following research questions have to be answered:-

1. What are the international anti-trust policies used by EU model towards mergers and acquisitions?

2. What are the anti-trust laws enforced by the US towards mergers and acquisitions?

3. How are the international anti-trust policies used by EU model towards mergers and acquisitions and the anti-trust laws enforced by the US towards mergers and acquisitions affect mergers and acquisition?

4. How can the gap between EU model towards mergers and acquisitions and US approach be minimized to create a standard law that supports anti-trust actions?

Research feasibility

Among the factors that build up international cohesion are international relations. Business across the border has built up healthy international ties between the EU nations. Companies from different nationalities have come together in partnership to conduct joint business through mergers and acquisitions. As a result of the merging, the business environment is becoming dynamic. This requires regulations to guard the business activities and prevent the negative implications of merging to the concerned markets. Among the bodies authorized to formulate and enact international business, laws are EU. Among the common emphasis of EU is the anti-trust law, commonly known as competition law (Kekelekis, 2009).

As stated by Bishop and Walker (2010), the anti-trust model of EU fights on four key aspects; the misuse of monopoly power by mergers and acquisitions, restricting mergers that are likely to lessen competition, restricting cartels under the umbrella of merging and acquisition and collusive practices associated with merging. In its process of formulating policies, EU may end up formulating international laws for international business and merging. The research will evaluate some of the international laws expressed by EU and US anti-trust law agencies and how they may support anti-trust actions.

Literature review

Merging is among the most encouraged business approach when international business is involved. Mergers and acquisitions extend their services to across-the-border, meeting a wider range of customer needs. Competition among companies encourages innovative and efficacy in production, where the customers enjoy quality products at reduced cost. For the competition to be effective, the business rule states that the companies should act independently but subject to the competition pressure brought about by their opponents.

However, the concentration of co-operating power brought about by mergers and acquisition is likely to affect the business relations among the customers. Among the effects of merging is the elimination of competition. Where two giant companies operating in the same industry merge, the aspect of competition is eliminated. The beneficiaries of business competition, who are in this case the customers, suffer monopoly brought about by the merger (Sherman, 2018).

European Union was formed to control the misuse of cooperate power by mergers. According to Pollack (2015), its main objective is to formulate international business laws and enact them in collaboration with respective state business regulatory agencies. The EU regulates anti-trust actions through two rules which were formulated and clearly outlined in the EU treaty. In article 101 of the EU treaty, the organization prohibits collaborative business acts between two or more independent business organizations that are likely to undermine competition. This provision restricts both horizontal (collaboration of competitors in the same supply chain) and vertical (between manufacturers and distributors) business agreements.

The article prohibits formation of cartels which manipulate the business environment through price fixing or market sharing. In article 102 of the EU treaty, the business law prohibits the abuse of cooperate power by mergers and acquisitions through charging unfair prices, manipulation of the market through limiting production and limiting innovation and diverse production to the prejudice of the customers (Whish & Bailey, 2015).

The European Union through National Competition Authorities (NCA) is mandated to apply the two treaties and ensure mergers and acquisitions do not compromise that competition. The National Competition Authorities work in correlation with National courts to ensure that the stated anti-trust policies are not abused. Any merger or acquisition is investigated before approval of the merging. Existing mergers are also monitored by the anti-trust authorities to ensure that they do not breach the treaty (Whish & Bailey, 2015).

EU has banned some mergers and acquisitions for questionable anti-trust actions. The latest victims of bleaching the international anti-trust policy are the General Electric Company and Microsoft Corporation. In 2001, General Electric Company and Honeywell International Incorporation tabled an agreement to merge. This was authenticated by the US Department of Justice (DoJ) and the Federal Trade Commission (FTC).

However, EU blocked the proposed merge upon their investigation, with proves that the merging between the two companies was likely to compromise competition. As documented by Ezrachi (2016), in 2004, Microsoft incorporation was fined $600 million by the EU for anti-trust actions and was ordered by the court to change its windows operating system to offer diverse products. US anti-trust authorities would require a federal court order to block any merger or acquisition that deems to compromise competition and oligopolistic market. However, EU has the authority to directly block such company without a court order (Ezrachi, 2016).

In general EU, through National Competition Authorities (NCA) and the formulated treaties has collaborated with US government to enact anti-trust policies. The US anti-trust laws are documented in Sherman Act and the Clayton Act. The Sherman Act was formulated in 1890 to prohibit the combination of business that may result to monopoly, the abuse of monopoly, and any business transaction or act those intents to manipulate the market through monopoly (Topel, 2018). The formation of the Clayton Act of 1914 was intended to strengthen the Sherman Act and help the US government to counteract monopoly before it occurs. According to Gilbert & Greene, (2014), the Clayton Act involves the aspect of compromising competition by mergers, quoting the penalties for such criminal acts

For the EU anti-trust laws to take action, investigations are conducted upon reasonable suspicions. The records relating to the investigations are documented and presented as evidence for violation of the anti-trust policies. The EU president is responsible for appointing the competition commissioner, whose responsibility is to conduct the investigations related to anti-trust actions. The anti-trust policies are put in place to enhance competition among the existing companies.

In a competitive business environment, companies are forced to lower the prices of their products to gain a competitive advantage. This suits the purchasing power and hence production increases, with economic growth. Competition increases the quality of products, with the competitors attempting to make their products unique and appealing to the customers. In also boosts innovation and diverse production, where the customers enjoy a wide range of products. Adherence to the EU anti-trust policies has made EU companies stronger, adopting an ethical business and gaining competitive advantage even in markets outside the EU (Pollack, 2015).

Over the years, EU has guarded competition by maintaining European Competition Network (ECN). The ECN coordinates National Competition Authority (NCA), respective Anti-trust Authorities within the EU members and the National courts to ensure mergers and acquisitions do not compromise that competition. These organizations coordinate to ban the formation of monopolistic business, cartels and mergers restricting competition. Upon reliable evidence that any business has or intends to engage in anti-trust actions, actions are taken, which in this case may include blocking of the business within EU members or fines. Such decisions can, however, be challenged through appeal to the EU’s General Court. Since the formation of EU, EU members have enjoyed ethical business, with no anti-trust actions. Competition within the EU members has been maintained, with the elimination of cartels and monopoly (Kekelekis, 2009).

In a general perception, EU anti-trust policies may seem to undermine mergers and acquisitions. The imposition of the EU anti-trust laws has faced criticism over the years, with a common perception that the laws are undermining business. However, the case is different. The EU competition commission has authenticated mergers and acquisitions which do not compromise competition. This indicates that the anti-trust laws are meant to enhance ethical business, guarding the interest of the company, the customers and other competitors in the market, all with a key objective of boosting business and economic development (Hitt, Ireland & Harrison, 2001).

The significance of the study

Mergers and acquisitions have become a common trend in international business. Business across the border may be challenging where different nationalities are involved. In various states, the anti-trust laws may vary. The mergers and acquisitions may take advantage and venture into business within nations where the competition policies are less strict. This will lead to accumulation of co-operating power, monopoly and market share. The companies are likely to exploit their customers and undermine the right to healthy competition. The formation of cartels leads to economic decline, with less competitive companies closing down. The EU and US anti-trust policies have been put in place to enhance a competitive business environment. The research will evaluate the impacts of these policies on mergers and acquisitions.

From the research, the operations of EU competition commission in collaboration with the US anti-trust will be understood. The study will analyses how EU and US business laws have shaped business in the US and their influence to mergers and acquisitions. The importance of EU anti-trust laws will be established. Business ethics emphasizes competition with no monopoly and cartels. International laws support business ethics through EU by creating and enacting anti-trust laws.

Limitations of the study

International business laws formulated by EU are dynamic. The regulations, directives and acts of the EU govern the entire business environment, covering personal business, small enterprises and large companies. The laws are numerous, with diverse impacts in the field of business. However, the research will be limited to competition laws that affect mergers and acquisitions only. This limitation is essential in making the research findings relevant and free from biasness.

The use of exploratory research design when conducting the research makes the study to narrow down to anti-trust policies and their impacts to mergers and acquisitions, a case study of EU and US anti-trust laws. This leaves room for further research on the same topic, but in a different context. Although the research is tied to specific variables, it is non-rigorous, creating room on further exploration on international law related to competition, mergers and acquisitions.

Research Methodology

This paper will employ a critical analysis approach in establishing the various EU models that affect international business through mergers and acquisitions. The research will begin with defining international law and its different determinants to develop and identify the independent and dependent variables between EU and US anti-trust policies affecting the mergers and acquisition business. EU model of approach towards competition will be analyzed in details.

The relationship between international laws enacted by EU and US anti-trust laws will be underscored in the introductory part followed by a detailed explanation of the scope and implementation of the specific anti-trust policies. The paper will then delve into critically analyzing the impacts of these anti-trust laws to the involved companies, competitors, customers, business market and the entire economy in general.

Each system will be critically examined within the fundamental subsets that constitute the international business laws, and more particular the EU competition law. Before giving an insight on the impacts of these anti-trust laws to business mergers and acquisitions, the paper will highlight the importance of the study and the correlation between these two factors. A discussion involving the two elements will then be presented comparing between EU and US anti-trust approach and their impact to mergers and acquisitions.

The study will include a comparative analysis establishing that these two factors are interrelated in their effects on business competition. The paper will then give recommendations particularly on bolstering the anti-trust models that seemingly lack an authoritative oversight and supervisory mechanism that if appropriately implemented can serve as a fundamental pillar to boost economic growth through ethical and competitive business within the US and among other EU nations.