International Merger Control: Globalization or Global Failure?
Holloway, Sarah, Denver Journal of International Law and Policy
"It has been said that arguing against globalization is like arguing the laws of gravity." (1) Like the inescapable force of gravity, the world today has succumbed to the force of economic globalization. With technological innovations such as the World Wide Web enabling instantaneous communication and transaction across the globe, companies and consumers have overcome the geographic barriers that once limited their reach. To sustain the needs of an expanding global market, companies must expand globally as well. Companies wanting to maximize the potential of an international market must take advantage of transnational synergies by merging with other companies in other areas of the world. The merger game hasn't changed; the playing field has just gotten larger.
In many areas of the world, domestic mergers face stringent regulations in order to prevent the formation of monopolies and to protect competition in a free market. International mergers are no different; however, conflicts often arise when more than one nation attempts to exert its laws and regulations on the same merger. International mergers are often the subject of disputes arising over which nation has jurisdiction to prescribe its laws, and, if multiple nations have jurisdiction, over which law prevails should the laws conflict. This Note focuses specifically on the conflicts of international merger control arising between the United States and the European Community. Part II of this Note provides a brief procedural history of the current merger regulations of both systems and their application extraterritorially. Part III identifies problems arising from the current system of dual regulation. A brief analysis of the Boeing-McDonnell Douglas merger illustrates the problems arising when political and economic incentives of two legal regimes conflict, even if the substantive law does not. Problems arising from a conflict in substantive law and its application by separate enforcement agencies are demonstrated in a brief analysis of the GE-Honeywell merger. Part IV suggests solutions to these problems, including possible steps for implementation and the likelihood of success, and Part V concludes.
II. CURRENT MERGER LAWS
Every state has its own legal system for handling merger control. While some systems may vary greatly based on the current governmental regime, many are very similar in both regulation and enforcement. This Note focuses specifically on the similarities and differences of the two major economies for international mergers: the United States and the European Community. In order to effectively analyze the effects and consequences of dual regulation of these authorities, it is important to first understand the legal procedures and the role of extraterritorial jurisdiction and comity in the application process.
A. U.S. Merger Regulation
The U.S. federal government has been controlling mergers for well over a hundred years, with laws dating back to the late 1800s. The primary U.S. legislation governing the competitive effects of mergers and acquisitions is section 7 of the Clayton Act. (2) Section 7 prohibits mergers and acquisitions that might substantially lessen competition or tend to create a monopoly. (3) Mergers may also be challenged under sections 1 or 2 of the Sherman Act as placing unreasonable restraints on trade or as creating a potential monopoly. (4) The tests of illegality under both Acts are complementary; the Sherman Act employs general language and broad approach to antitrust problems, while the Clayton Act seeks to reach certain specified practices which have been held by courts to be outside the ambit of the Sherman Act, but which Congress considered dangerous to free competition in trade and commerce. (5) Furthermore, the Federal Trade Commission (FTC), an enforcement agency, may challenge mergers as violations of section 5 of the Federal Trade Commission Act (FTCA), which prohibits unfair competition. …