A thought on the failing division defense, industrial policy, and commitments
The EU Commission has often been – in our view incorrectly – criticized for its blindness to industrial policy considerations.
Caution: propaganda With my assistant Norman, we wrote a lenghty paper explaining how such considerations can, and should, play a – circumscribed – role in EU antitrust law.
A recent case suggests that industrial policy arguments are not devoid of all traction.
In Nynas/Shell’s Harburg Refinery, the Commission cleared the acquisition of distressed oil refineries by Nynas (
a nice an EU firm) on the basis of the failing division defense.
Interestingly, the reasoning seems based on the conjecture that absent the merger, the refineries would be shut down. As a result, there would be “reduce[d] production capacity in Europe for a number of specific oil products”. And the closure of those refineries would expose European consumers to the full exploitative might of Ergon, a
bad US importer.
Of course, the reasoning remains competition based. The Commission stresses that absent the merger, prices would likely increase. And assumes that with the merger, prices will not.
But this is only true if Nynas keeps the refineries in business.
My question then is: shouldn’t failing division defenses be systematically accompanied with a commitment from the acquiring firm to keep (all or part of) the acquired assets in operation?
After all, some companies do purchase fledging entities to shut them down, and meanwhile acquire technology, know-how, other intangible assets. This may be part of a strategy to actually gain control over supply and reduce capacity (think of Mittal Steel).