EU's 'grey areas' approach to M&A could benefit European telcos

The European Commission has stressed that its approach to mergers and acquisitions is far from being black and white, thus offering encouragement to operators with an eye on consolidation.

The Commission’s EVP in charge of competition policy, Margrethe Vestager, delivered a keynote address at the International Forum of antitrust association the Studienvereinigung Kartellrecht in Brussels on Thursday that was clearly designed to demonstrate that the EU is making an effort to cut red tape in M&A.

But, while most of the cases it deals with are essentially a rubber stamp, there are more complex merger bids that do require a level of regulation, Vestager said, but these do not necessarily come down to a decision simply to approve or to block.

“Currently, some people think that agencies should either block or clear mergers. Nothing in between. So if you block you are a ‘tough’ enforcer. If you clear, well, let’s just say you are not perceived as tough,” Vestager said, according to a transcript of her address published by the EU.

“That is not our policy,” Vestager said, reminding the audience that the Commission opts primarily for structural remedies in order to clear deals – that’s the sale of assets, basically – but also employs other conditions, such as requiring access to a technology or asset.

Essentially, the Commission likes to look at the grey areas and apply remedies of one sort or another to a deal to allow it across the line.

While Vestager’s speech was not particularly directed at the telecoms space – although she did reference the EU’s recent clearance of the Orange/Voo/Brutélé merger in Belgium – it was doubtless closely scrutinised by those in the industry with merger plans. Naturally all thoughts turn to Orange and MasMovil, whose proposed merger in Spain is undergoing an in-depth European Commission investigation that is now due for a final ruling in early September.

But we’re also waiting for an announcement from Vodafone and CK Hutchison regarding their UK operations, and there have been rumblings about Vodafone’s future in other markets too, a key one being Italy. As such, there will be many people taking a fine-toothed comb to the content of the commissioner’s latest speech.

There’s not a lot to go on, when it comes to predicting which way the Commission will jump on upcoming telecoms mergers. But Vestager’s comments on remedies, structural or otherwise, will give hope that there are ways of getting deals done.

“There will be cases where competition issues cannot really be solved by a divestment, and the market will not necessarily be better off if we block the merger,” she noted.

Much of Vestager’s speech centred on Microsoft’s proposed US$69 billion acquisition of Activision, which was approved by the European Commission earlier this month, just weeks after the UK’s Competition and Markets Authority blocked it.

For the most part, the two bodies were aligned in their assessment of the impact of the merger, including expressing concerns over the cloud gaming market. But while the CMA chose to reject the deal, the Commission went for remedies, specifically requiring Microsoft to provide a 10-year free licence to consumers to allow them to stream all Activision games for which they have a licence via any cloud service.

“And why did we do this instead of blocking the merger? Well, to us, this solution fully addressed our concerns,” Vestager said. “And on top of that, it had significant procompetitive effects.” On that last point, she highlighted the fact that the remedy makes life easier for smaller cloud services in the EU to offer big games on their platforms, broadening the choice for gamers.

The aim of Vestager’s speech was clearly to paint the European Commission’s competition policy in a positive light. In addition to explaining the body’s position on the Microsoft/Activision deal, she also talked about the importance of cooperation with other international antitrust bodies and the upcoming introduction – on 1 September – of a Simplification Package designed to further cut red tape in simple M&A cases.

Equally, however, she did not shy away from mentioning cases where the Commission has blocked proposed transactions on competition grounds, where remedies would not work, the abandoned NVidia/ARM merger being a good example.

“I have no crystal ball. But it seems clear that the shifting sands of crisis and transition will set the agenda for mergers in the coming years. Since the pandemic, disruption has become the norm. There are shifts in how consumers shop, work, relax and socialise. We should expect that in the years to come, this will lead to consolidation in traditional sectors but also M&A in emerging ones,” Vestager said.

“Our mission is to accompany that transition, one merger at a time. It is to find solutions that keep the game fair for all players, and working closely together with sister agencies as we do so,” she concluded.

There seems to be an acceptance in there that M&A will be necessary going forward, which might suggest a softer approach to the telecoms space from the Commission. But there will be remedies aplenty, at the very least.

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