Market Reactions to European Merger Regulation: A Reexamination of the Protectionism Hypothesis

Abstract

This article revisits the protectionism hypothesis related to the European merger regulation (EMR). In the 1990s, EMR was biased against foreign acquirers, especially if the deal harmed domestic rivals (i.e., protectionism). At the end of the 20th century and at the beginning of the 21st, the European Commission (EC) has been criticized in the financial press to have blocked mergers between US companies which have been approved by the US authorities. In addition, in 2002, the Court of First Instance overturned three prohibitions by the EC and criticized its economic analysis. These events hastened EMR reform, including amendments introduced in May 2004. Previous empirical studies find evidences of protectionism of the EC in the 1990s. With a sample of 474 merger proposals submitted to the EC during 1990–2007, we show that the EC’s protectionism from the 1990s did not extend into more recent periods. We implement for this an analysis of the probability of intervention of the EC. It turns out that, when domestic rivals are harmed by an operation, the EC does not seem anymore more inclined to intervene when the bidder is non-European. The change of policy toward foreign acquirers seems rooted in Court judgments of 2002 and subsequent regulatory reforms.

Keywords: mergers and acquistions, regulation, protectionism, event study

JEL Classification: G34, G38