The Setting of a Merger
threshold: No simple matter
clarity of interpretation the law must always be certain. Any waffling and the
line between what is lawful and unlawful gets blurred. With this in mind the
Fair Competition Act states explicitly that only those mergers likely to
control in excess of 40% of any market must be approved by the Commission. This article attempts to briefly analyse the rationale
behind the setting of these thresholds.
it must be recognized that all mergers will not present a potential for the
lessening of competition. This is because the sizes of the enterprises
effecting a merger and the resulting union may be so small that they do not
significantly alter the existing concentration of the related markets. The size
of the enterprises or the merger unions that need to be targeted by a country’s
legislation should be consistent with those that have the potential to
significantly lessen competition. A threshold too low will mean that too many inconsequential
mergers will have to be scrutinised at the increased expense of the tax payer,
whilst too high a threshold will allow mergers that are likely to have a
detrimental effect on competition to be missed.
of the Economy
sometimes argued that merger regulation and by extension low merger thresholds
are not appropriate for small open economies like Barbados. This view is based on the
fact that the ‘openness’ of our markets forces domestic firms to compete with
international companies domestically and internationally. As such our
inherently micro-sized undertakings should be encouraged to merge in order to
develop the “mass” necessary for the economies of scale required to compete in
international markets. Stringent merger controls it is felt will stifle this.
opposing view is that merger regulation is not intended to prohibit merger
undertakings. In fact most mergers are approved because of their
pro-competitive benefits, and in addition the scrutiny of these mergers is a
responsibility of good governance in seeking to safeguard the interests of
of the particular industries within a country is also paramount. The merger
threshold must be related to the average size of the domestic industries. By
being aware of the general size (gross output value) of the industries and the
sizes (gross turnover) of the respective firms in those industries, one then
has a base from which one can begin to compute a nominal value threshold that
ensures that all potentially dominant mergers can be reviewed.
various domestic industries are vastly different in size one may not wish to
set a nominal dollar-threshold that caters to firms across all sectors. In such
circumstances one may wish to consider a percentage estimate, which will vary
in nominal value from sector to sector.
is seeking to estimate effective merger thresholds one must also give
consideration to the market orientation of the various industries, whether they
are export or import oriented. Special consideration must be given to those
industries in the import oriented non-traded sector (in Barbados these are Construction,
Utilities, Distribution, Mining and Quarrying, Transport Storage and
Communications, Business services, General Services, and Government). Merger
thresholds in these industries will have the greatest potential to manage
anti-competitive risks in the domestic market. In Barbados, mergers in the
traded sector (e.g. Non-Sugar Agriculture, Tourism and Manufacturing), the products
of which are largely destined for international markets, may want to be
encouraged to increase their concentration of power and likewise their
opportunity to penetrate overseas markets.
reviewing the merger thresholds of countries worldwide, it was observed that several
countries tended to have similar provisions. The majority have nominal dollar-value
thresholds above which all potential mergers have to be reviewed. Several
countries also have established nominal thresholds for the individual firms
involved in the merger regardless of the final merged company size. These are
thought to be more easily interpreted by the enterprise. On the other hand several
countries like Barbados
also have established percentage market-share thresholds for the resulting
merged company as well as the individual firms involved.
countries like Canada
have a more detailed process, establishing specific thresholds for the various
types of business unions undertaken. In
addition there is also the case where no specific nominal value is established
in the Act, but rather reference is made to a figure set by the regulator. This
allows for some flexibility, but may reduce the certainty of the prevailing
no hard and fast rule. All approaches have their relative advantages, and
disadvantages. Even a combination of the
above does not eliminate all the concerns.
If you have any queries about fair
competition, please contact the Commission at 421-2FTC or 421-2832.