The EC’s Draft Merger Guidelines

Welcome to Cleary Gottlieb's Antichrist Review, a podcast focused on antichrist enforcement, policy and practice. In an increasingly complex and noisy world, we strive to provide insight, clarity, wisdom and light. My name is Nick Levy and I'll be your host today. Today's topic is the European Commission's long-awaited draft merger guidelines. Their release at the end of April is a big event in the competition world in Brussels. There are today two sets of guidelines, the horizontal merger guidelines that were adopted in 2004, and the non-horizontal merger guidelines that were adopted in 2008. The genesis of both of those guidelines flowed from a trilogy of judgments rendered by the community courts in the early 2000s that overturned three commission prohibition decisions, et al's first choice, Schneiderl-Gran and Tetral-Avalsido, and in doing so raised important questions about the purpose, architecture and analytical framework of EU merger control. The guidelines are binding on the commission and they endeavour to provide guidance as to how the commission assesses concentrations and they set out the analytical framework used by the commission in its appraisal of horizontal and non-horizontal guidelines. The commission's decision to revisit the guidelines was in part a response to the Draghi report published in September 2024. The regular listeners will know Draghi warns of an existential challenge to the European Union. He argues that the only way for Europe to become more productive is for Europe to radically change. He proposes a new industrial strategy and in the field of competition law argues that enforcement should be more forward-looking and agile. And in particular, he called for a change in the operating practices and updated guidelines to make the current merger regulation fit for purpose. Shortly after the Draghi report was published, Commission President Vonder Lyon wrote to Theresa Rebara the incoming competition commissioner encouraging her to modernize the EU's competition policy to ensure it supports European companies to innovate, compete and lead worldwide. She asked her to prioritize a review of the merger guidelines. A few months later, in May 2025, Theresa Rebara announced a comprehensive and ambitious review of the EU merger guidelines, which she described as a unique opportunity to modernize the commission's framework for assessing the impact of mergers on competition. That would allow the commission to account for disruptive changes in our societies and our economies over the past 20 years, such as digitalization, and enable us to ensure that innovation, resilience and the investment intensity of competition are given adequate weight in light of the European commission's acute needs. One year on, white smoke emerged from the Belamon in late April 2026, and the draft merger guidelines were published. Here to discuss what they say and what they'll mean for enforcement, we have an all-star panel. Three brilliant lawyers and re-k Gonzalez-Dias, Chris Cook, and Anita Magrita Oliver, three terrific economists, Jorge Padilla, Ethel von Säcker, and Kustin Edwards-Warran, two former director generals, Sir Philip Lowe, and Sir Jonathan Falle, and a financial tines as Brussels correspondent Barbara Moons. So let's turn first to Sir Philip Lowe. There are a few people best oppositions to give a historic perspective of the commission's proposal than Philip. Philip was one of the early heads of murder enforcement at DigiComp and subsequently Director General at the time when the first guidelines were adopted and he'll recall well all the debates around the need for guidelines, what the guidelines should say, and so forth. So Philip, as I mentioned, you were Director General at the time the existing guidelines were adopted. As you know, well, they were provoked in Least and Part by the EU Courts in Luxembourg, which overturned a series of commission prohibition decisions, prompting what some felt was a crisis for the commission at the time. The commission's ongoing re-evaluation of those guidelines has a different origin as you know, the Draghi report, which as I said in the introduction, among other things called for new guidelines that took account of scale, innovation, resilience, competitiveness, and efficiencies. So a few questions. Do you think there was a need for new guidelines or what shortcomings do you think the commission is seeking to address? Do you think as you look back, there's any substance to the suggestion that the commission has in fact stood in the way of scale enhancing mergers that may have enhanced European competitiveness and what's your overall reaction to the draft? Well, hello, and thank you for your welcome. I'm very in favor of guidelines for two reasons on the, from the point of view of emerging parties, the legal certainty and greater clarity which they can give, sometimes they don't do, but on the whole they do. Secondly, from the point of view of effective enforcement by a coalition authority, of course, guidelines of this kind are binding on the authority and not on the courts, but they do provide a degree of visibility to the enforcement policy followed by the, by the competition authority. And therefore, actors are a signal to parties as to what would be regarded as relatively positively in a green zone, what is in a red zone, what is in a gray zone in terms of a potential authorization? Therefore, I think from the two sides, from the side of the competition authority and side of the parties, there are clear advantages to it. Now, after only 10 or 14 years of enforcement, the commission dared to produce the merged constraint lines in 2004, on the basis of a relatively short period of enforcement. Now, we're 36 years beyond that the date of the enforcement of the regulation. And I think it's natural in a world in which markets change rapidly and technologies change rapidly that things are brought up to date. And I think it's essentially essential that parties in looking at the potential approach of public authorities to their merger need to recognize language which is informed by what's happening in markets are not simply looking at an ancient text of what are in principle the basis of measure control. As far as the motivation for these guidelines are concerned, the political context is obviously different in 2004 and in 2006. There's certainly the context of the quote, the closest scrutiny of the a theory of harm for example, which the commission brought forward in the series of cases. And there, desire that the commission should adhere more to the prescriptions of law. However, those guidelines were already planned even before 2004. By the way, you were self-origin article in 2003 called on merger guidelines called from birth to adolescence. Which is and now I think we can safely say after another 22 years that we are reaching a point of a set degree of adulthood in the merger control. It is entirely natural that the commission should bring up, bring the guidelines up to date. By the way, in particular by bringing together examination of so-called horizontal merger, and vertical mergers, things that are a lot more complicated in today's world. Not just in terms of cringloras and vertical mergers, but in terms of that ecosystems in terms of scale effects. And it is entirely natural that the commission in my view should come forward with these guidelines. Whether in the past merger control has stood in the way of the creation of European champions, I'm in a skeptical in the skeptical campaign, I respect. I think there are situations where if a merger had been designed differently, then the justification for European champion for certain markets could have gone ahead without difficulty. But in a number of cases, parties choose to want to merge companies in their entirety. And if they do that, sometimes you pick up their involvement in markets, which gives them considerable market power with no contestability. So yes, I think the new guidelines do help in emphasizing the possible theories of benefit, scale in terms of innovation, investment in terms of fan, wide efficiencies. But I do think that one has to be very carefully about the reasons for lack of creation of European champions. One of them has been raised very forcefully by let Enrico Letter and Mario Draghi as to say the lack of creation of a seriously integrative market in which scale could be tolerated without difficulty. But if you look at the US new US merger guidelines together with these draft guidelines, one can say that, well, why is it that innovation and innovation investment has gone ahead and has so significantly in the US compared with you? I don't think that the merger control and control enforcement is a major influence on that. But there are situations where, as I say, with a little bit more dialogue with the parties, perhaps Remedisk could have been found to allow a merge to go ahead. - Hello, thank you so much. Thank you too for reminding me of the birth to adolescent sarticle. I guess written in my professional childhood, I think the merger regulation has developed into adulthood. I think my family probably still thinks I'm stuck in adolescence. Let's turn to the guidelines themselves. I'd like to introduce Barbara Moons of the Financial Times. Barbara, in an article entitled EU to relax merger rules in bid to create European champions, you broke the story that the draft guidelines were on their way and citing an EU officials view that, as I quote, "The guidelines are a break from the past, "the reflected the priorities of this Commission mandate "and vision and scale." You predicted they would cause them as radical shake-up by Brussels since the 2000s. Now some have speculated that left to its own devices, DG Comp would have proposed a more limited reform and that your story was designed to establish a narrative that the Commission was readying itself to approve scale enhancing mergers that would previously have been challenged. My questions are what's going on? What are you hearing about DG Comp's view? And is the Commission aligned on what the draft guidelines are designed to achieve and the signal they're intended to send? - Thank you, Nick. Thank you for having me. I think if we look back to where this is coming from, the Draghi report, the Mission Letter for Teresa Rivera, it was very clear that Ursula von Erlein as European Commission President, put a lot of emphasis on these guidelines and what they could mean for the brother issue of European competitiveness. She put a lot of pressure on Rivera to present sooner than expected and also gave very clear instructions to them. Indeed, I think if this would have been solely left to DG Comp, it would probably have a different result and different interpretations. As is usually the case that if you come from a certain house or certain institutions, change is not always easy. Whereas Damesh is from von Erlein after the Draghi report was very clear that they had to have a thorough look at these guidelines. And I think now that we have seen the draft that is open for consultation, we have seen the text. What is interesting is that there are still different interpretations of that text, some on the record by Teresa Rivera and von Erlein. And I think that that tension will continue because of course the text is one thing. The way that it is used when you actually assess certain cases or certain mergers, that will be the real test. And there we will see which emphasis has the most impact on the actual assessments. - Thanks Barbara. A quick follow up question. The press release announcing the guidelines was fronted by the Commission President von Der Lein. She underlined the need to better support companies to thrive, scale and innovate. So we can meet the realities of the fiercely competitive global economy and boost our competitiveness. Executive Vice President Rivera followed and she emphasized the unchanged purpose of protecting strong competitive markets without allowing an accumulation of power that can be abused. So the consumer welfare standard front and center of what Rivera is emphasizing, von Der Lein's focusing on scaling up competitiveness of European companies. Should we read anything into these two statements or do they just underline the tension that exists within the Commission about what the draft guidelines were intended to signal? - I think it's definitely not a coincidence that they stress different things in their statements. These things are looked over very in detail. And it's a narrative that we have seen from both of them since the beginning, right? Terazira bearing, pinning more focus on consumer prices, on integration of the single market, competition policy cannot solve anything. We don't just have to listen to the big players. That's the Rivera line, which is very consistent and the same goes for the funner line line, which has also been very consistent that competition policy is a key part of the competitiveness agenda that we need scale, that we need these European champions. And so that tension has been there. It's now, we've now kind of seen it more openly in the whole debate about the guidelines. And we will continue to see it throughout the next couple of years, I think. - Thanks so much, Barbara. A final question. And then I'll turn to our next guest. Some have speculated that notwithstanding DGCONs, historic efforts to defend its independence, that we may now be moving to a new era in which geopolitical industrial considerations are given greater emphasis. And this may be opened up the whole merger control process to great scope for political pressures coming to bear on commission decision making. What are you hearing and what's your view? - I think funner line has made clear that competition policy is for her part of industrial policy and of the whole competitiveness debate. When it comes to the second part of your question on the political pressure and the tensions there, I think there has always been political pressure on certain high ranking, high profile cases. Maybe it was more done behind the scenes and less in the open, less people knew about it. And so the fact that now some of these tensions are pretty, pretty public, pretty open is maybe a difference from the past. But I think that the political struggles, the pressure from certain capital, from certain companies, that has always been there as far as I could tell. - So Barbara Moose, thank you so much. Very much watch this space. We'll be looking forward to further stories in the financial times on exactly what's going on. So let me turn now to Sir Jonathan Fall. I've known Jonathan for well over 30 years. We first met when he served in the private office of Suleon Britain, a competition commissioner at the time the European merger regulation entered into force. He then held a series of other jobs within DG competition before becoming chief spokesman to commission president Proty, director general in director general for internal market and services and the director general for financial stability, financial services and capital markets union. Now chair of European public affairs at the Brunswick group. My question to you Jonathan, you provide strategic public affairs advice to companies contemplating significant transactions all the time. What's your reaction to the draft merger guidelines? Do you see a greater role for political and industrial considerations of merger control? Has the playbook changed and if so, how? And what advice are you giving clients about the most effective public affairs strategy in this new environment? The guidelines obviously, it, it, it, it, it responds to expressions of concern about the state of the European economy, the state of the European Union more widely, they are still of course only a draft out for consultation, we will have to reserve judgment until we see the final text, they are only guidelines. They are not a change in the law, but they should be expected, I suppose, to weigh on the minds of those in charge of interpreting and applying the rules in future cases once they, they come into force. So that's a long answer to say it's significant that they have been issued, that will be a great debate. about the final content and I don't think it's a sea change that we are going to see, but we will certainly see some changes if only because inevitably the wording of the final guidelines will not be terribly precise and there will be great arguments from both or all sides in future cases about what exactly they mean. What are we telling our clients? Well, we're telling our clients that, but I think we did already, that they should have a consistent narrative about the deals they want to do or indeed the deals by other people they may want to stop. But let's assume we're talking about companies doing a deal merging. They need a consistent narrative which will be used for all their stakeholders, their employers and their investors inside, outside, in their countries, outside their countries worldwide. Everybody knows what everybody else is doing and saying about the reasons for the proposed merger and the impact, the positive impact, they think the merger will have and it's when arguing about the positive impact that they will seek inspiration from the guidelines and they turn out about the benefits which the European Commission will be saying it will take into account when considering the transaction. Some have speculated, Jonathan, that the intention between DGCOM and others in the Commission, in particular, Commission President Von DeLien, who fronted the release of the guidelines. The press release talks about a scale, talks about the importance of competitiveness, commission of rebarra, reinforcing the view that merger controls are about consumer welfare. Had you picked up any tension within the Commission and perhaps more significantly looking forward, do you think geopolitical and industrial considerations are now going to play a greater role in merger control? Well, it's not as though they didn't play a role before. There is nothing new in the great debate about the balances that have to be struck in the analysis of a merger's impact in the short term, in the medium term, in the long term. So those are issues which were debated in, frankly, rather similar terms when I was active in this field 20 or 30 years ago. They have taken on added importance in recent years, no doubt, because of all the geopolitical turmoil around us, and because a very strong sense that in key industries, perhaps in the key industrial revolution of our era, Europe is lagging behind. Now, my personal view is that that is not the fault of competition policy. It isn't the problem, and I don't think the solution lies, centrally, within the realm of competition policy, but other people seem to think it does. Jonathan, you referred your time at the Commission in the early 90s. You'll remember well, Leon Britain steadfastly defending DG Coppance independence, resisting pressure to approve what was presented at the time as being a transaction designed to create a European champion. It was the first transaction, the Commission prohibited in the face of opposition from, I think, the industry commissioner. Do you think the guidelines are going to relax the rules with respect to European champions and that the Commission is going to be more sympathetic to transactions that are said to create a European champion? No, they're not going to relax the rules, because the rules are the rules, and guidelines don't change the law. They may, in particular cases, bring about a wider taking into account of certain considerations than would have been the case in other eras. But, as you said, there is very little that's new under the sun, and these debates have raged before and have led to speeches and statements rarely to change in the law, but it can't be denied that those debates are part of the context in which the Commission takes decisions. I mean, you talked about the independence of DG competition. Let's, and one of the ironies of the administration of competition policy, is that the Commission advocates independence of competition authorities for everybody but itself, and DG competition and the DG staff, and indeed the commissioner for competition are all deeply embedded in the commission, and therefore all sorts of policy considerations are perfectly legitimately brought to bear inappropriate circumstances on decisions. Now, there is a tradition of deference, there is a certain degree of delegation of at least procedural powers, but at the end of the day, Commission decisions are just that commission decisions. Thanks a lot, Jonathan. Let's turn now to Enrique Gonzalez-Dias. Enrique has been one of the towering figures in European merger control. He spent the early parts of his career at the court and then the legal service before being one of the most feared enforcers of the merger regulation in the early 2000s. Now, at Cleary Gottlieb, he's been involved in a whole range of very significant transactions of the past 20 years. Enrique, like Philip, you were at DG comp in the early 2000s and you played an important role in drafting the existing guidelines. So I'm really interested in your reaction to the draft guidelines. Two or three specific questions. Firstly, how should we understand the long passages explaining the benefits of scale and hazing mergers in strengthening European competitiveness, particularly given what comes after them, which seems like an updating of reasonably orthodox guidelines. Secondly, do you think as some have suggested, the Commission will now have greater flexibility to approve mergers that might have been challenged in the past? Do you think the Commission's opening the floodgates with respect to efficiencies? And finally, what are you happy about and what would you like to see changed before the guidelines are adopted in final form? Many thanks Enrique for the opportunity to talk about the draft guidelines. My general reaction, based on a first reading of the document, is that they appear to be the result of trying to strike a balance among at least three or four different constituencies. Those advocating for a much more flexible approach to merger control were both investment and dynamic efficiencies can play a more prominent role. If anchored on a sound economic analysis, those in favor of not just maintaining the status quo, but in fact of opening the doors to a more interventionist merger control policy, those in favor of a more proactive industrial merger control policy to support European consolidation. And finally, those concerned with preserving the Commission's managing of maneuver and thus its legal position in court. Overall, as currently drafted, my fear is that while the guidelines contain both positive and negative elements, on balance, it does not really contribute to the mach needed legal certainty to foster investment and innovation in Europe. Do you more specific question on whether the guidelines provide the Commission with greater flexibility to approve mergers that might in the past have been. I personally believe that legal flexibility that you are referring to was already there, both in the merger regulation and in what could have been a more efficiencies interpretation of the current guidelines. What these guidelines as drafted do is to send a stronger policy signal based on the draggy and leather reports to interpret the rules in a more pro-investment, pro-innovation manner than before. In particular, when the merger in question posters, European consolidation, resilience, etc. And in that regard, to allow for efficiencies in particular non-marginal cost efficiencies to be relied upon more often, then indeed it could lead to clearing transactions that in the past were either blocked or subject to conditions or simply transactions that did not take place in the first place. But what the draft also appears to do in addition to opening the door to a more proficiencies analysis is to give the commission much more leeway to be more interventionist by pursuing novel and untested theories of harm and I'm referring to theories of the type developed to ineluin agraeil or in booking by toughening the standard for non-horizontal mergers by diluting to a certain extent the third limb the limon on effects and possibly to do this asymmetrically i.e. depending on who the merge the merge in part is maybe. So all you know I'm happy about the stronger message to take efficiencies, investment and innovation more seriously. I'm not that happy about the apparent toughening of the non-horizontal merger standard and the introduction of untested theories of harm that we thought were already abandoned at the end of the 90s and I'm not happy about the ample margin of discretion given to the commission and about the correlative increasing legal uncertainty on which the draft seems to be built. I thus think that the draft requires a proper and thorough consultation period and that at the very least a serious reconsideration of some of the changes relative to the existing guide as well as more work on the type of objective criteria that should discipline the analysis both for the merge in part is under commission should be taken please. In reek a thank you so much will come back to some legal perspectives later but now to some economists. Curst in you've been practicing competition economics for a long time you spend much of your life advising companies on mergers. I'm really interested in your takeaways from the draft merger guidelines in particular what seems to be the commissions embrace of of Shumpatah's thesis that market concentration may increase incentives to innovate and some of the early parts of the guidelines that talk about how our mergers can transform the competitors of companies. I'm also interested in the advice that you're now giving companies contemplating a challenging merger and whether the advice you're giving now is different from the advice you would have given in the past. So one of the biggest changes is indeed that the concept of innovation is woven throughout the draft guidelines so it's actually like you say it's lauded in the introduction as one of the benefits of pro competitive mergers is even listed ahead of affordable prices. And then throughout the guidelines there's discussion of an innovation theory of harm that's the safe harbor innovation shield there's the invitation to submit a theory of benefit which can include dynamic efficiencies. So actually the guidelines not only accept that concentration may increase innovation but also that mergers can increase the ability and incentive to innovate by relaxing constraints like financial or resource constraints by pulling our ND capabilities by accelerating access to scarce resources. But there are your question is in any individual case how does this specific merger change the parties innovation capabilities and incentives relative to the counterfactual and I think we really need to be conscious that there's a difference between what the commission acknowledges to be possible based on economic theory or on exposed evidence and what we can prove in any individual case to ex ante and it's that proof that's going to be challenging I can see three challenges in particular one is evidence collection so actually the guidelines give lots of ideas about the types of evidence that you can collect with respect to demonstrating competitive effects or benefits in innovation markets but firms tend to be pretty secretive about their R&D resources and efforts so it's going to be really challenging for the parties to assess merger risk in particular if they don't have good insights into what their competitors are doing but it's also going to make it difficult to rely on the innovation shield if they don't know whether for example there are three other firms with similar R&D projects and second challenge is uncertainty the commission acknowledges that you know innovation comes with uncertainty and you know that I think there's a welcome focus on capabilities and access to resources because of that but nonetheless it's going to be challenging to meet the verifiability and consumer benefit limbs if you can't demonstrate that an innovation is going to be substantial in materialised quickly so it's not clear how you know then the the commission is going to deal with dynamic efficiencies if for example you have a merger that's going to have you know lead to ten new projects or a hundred new projects and one of them's going to be wildly successful but we don't know ex ante which one it is how are we going to deal with that in the context of this framework and then the final challenge is the counter-factual so there's a nice new section on the counter-factual which I'm firstly very happy that it's there but it still says you know we're going to assess pre-merge conditions for the most case and they the guidelines do allow for adjustments for market evolutions that can be predicted with a sufficient degree of certainty but in innovation markets there may be certainty the market's going to change but there's not certainty about how it's going to change like AI for example and so it makes that standard comparison between pre-merger and post-merger scenarios unstable and in innovation cases the parties are going to have that additional challenge that they need to evidence not one but two uncertain future states of the world the one with merger and the one without the merger so my overall takeaway is that the guidelines are offering an opportunity to have a really serious discussion about the innovation effects of a merger with the commission including the benefits but there is a price and that price is at a still a very high evident tree burden with respect to advice so what advice are my giving companies now contemplating a challenging merger so so three pieces of advice at first submit a theory of benefit early in the process the commission signal could not be clearer and but at the same time we can't expect case teams to just accept an innovation narrative or a theory of benefit narrative so we are going to be needing to submit theories of benefit early in the process that are consistent with the merger rationale well evidence stress tested against different assumptions like the timing of innovation the probability of success different competitor responses different availability of talent and so that's something we're going to need to be doing early on and taking very seriously second parties need to be prepared to explain their deal valuation and this is particularly the case for high-value deals where there appears to be a premium on the deal as compared to comparable transactions and in those cases the commission is going to want to know why there is a premium and the parties will need to be able to explain whether that premium is due to factors that increase productivity or increase efficiencies or whether it's due to the accumulation of market power and then finally with respect to deals involving innovation theories of harm and benefit the commission's really emphasize the important of capability importance of capabilities and resources I would suggest the parties really early on conduct a full internal audit both parties innovation capabilities of resources identify bottlenecks identify how bottlenecks might be alleviated by the merger conduct external market research to try and identify and synthesize all the possible information about how the industry is involving about what competitors capabilities are possibly hiring external consultants to to carry out this because they might get more information that way and and finally seeing whether they can conduct their own exposed studies but I think again there's unlikely to be one nice data source that is going to give us the answer in these cases so I think what we are going to need to do what parties need to do is really get creative up from think of all the different evidence sources they can they can gather and you know we're going to have to embrace imperfection and get used to making judgments across the wide range of information and data thank you so much Kirsten let's turn now to Ethel Fonseca of RBB economics that's what I have worked on many cases over the years especially interested Ethel in your reaction to the guidelines in particular you take away on the treatment of efficiencies has the commission to open the flood gates to approving mergers that raise competition issues on the basis of efficiencies and what advise you currently giving companies contemplating a challenging merger that's different from the advice you would have given in the past in particular with respect to the generation of evidence that can make a strong case that any harm will be outweighed by efficiencies thanks Nick I'm have they open the flood gates good question and to be honest with you I think the answer depends on whether you're reading the introduction or the main body of the text Nick now look joking aside let me just start by saying that there is really a lot of great stuff in there and I agree with much what with what has been said before in terms of there being a genuine intellectual upgrade here the shift on the benefit side is significant let me just walk you through a couple of examples the current guidelines consider to implicit categories of efficiencies namely cost efficiencies preferred when they reduce variable costs and are indeed driven products launches or improvements we now have a much more formal taxonomy of synergies that may lead to direct efficiencies looking at for example the condoms of scale condoms of scope and complementary capabilities we also now have a new dynamic efficiency category reflecting innovation and investments in a over a longer horizon. Out of market and collective benefits that were not at all contemplated in the current guidelines are now being considered, subject to a substantial overlap test. And just one more sustainability and resilience, which again, not addressing the current guidelines now feature in the draft as a standalone category of consumer benefit. So I think that these examples reflect that the Commission engaged quite carefully with the consultation process and it's clear that these various emissions that were made and the discussions that we've had during the workshops had a significant impact. No, what does that mean in practice? Will it change outcomes? Will it change the advice that we give? The draft states that demonstrated efficiencies will play a key role in the assessment of a mergers going forward. Demonstrated, I think, is the key word here. The eventuary standard remains very high. The current guidelines refer to the three cumulative pillars that we all know too well. Efficiency needs to be very viable, mergers specific and they need to benefit consumers in the affected markets in a timely manner. These three pillars remain in the draft, but they are reorganized across these two subsections covering separately those direct and dynamic efficiencies I mentioned earlier, each with with the safety and pass on guidance. And this is where Nick, I start having some reservations about weather or how things will change. And the key one I would like to highlight here is the verifiability bottleneck to me seems unchanged. Innovation outcomes are skewed and uncertain, but nothing in the draft suggests the commission is moving away from its stringent approach requiring near certainty. But as I said in the beginning, there is a lot of good stuff in there and we should take advantage of this changing mentality if you like on how to approach efficiencies, which is very welcome. Nick, there is this book series called Little Miss and Mr. Man. Do you remember that from when your kids were younger? I do remember Mr. Man, yes indeed. I was always Mr. Happy, as I'm sure my daughter says to me that there should be one called Little Miss Optimistic, just says that there would be my book. So there you go, I am optimistic that efficiencies will now get the consideration they deserve. So in terms of what changes for us advisors, let's get those efficiencies submissions ready, quantified and ready early on. So great advice, Essol, thank you so much. Turning now to Jorge Padilla, Jorge, you've worked as a competition economist for well over 30 years. As you know, well, consumer welfare has long been recognized as the principal objective of a you merger control. Announcing the draft guidelines, Commission President von der Leyen, underline the need to better support companies to thrive, scale and innovate so we can meet the realities of the fiercely competitive global economy and boost our competitiveness. This seems to signal what could be a significant change from identifying mergers that may harm consumers, the supporting mergers that may allow companies to scale up. Relatedly, when we were chatting on the last pod with a lively discussion about Shumpeter, Arrow, Shapiro and others on the relationship between increased levels of concentration and incentives to innovate, the commission seems to have embraced Shumpeter whose thesis as you know well was that mergers were generally positive for innovation and competitiveness. So without long introduction, what's your reaction to the draft guidelines? Is it a fair reading that the consumer welfare standard seems to be deemphasized in favor of greater attachments to mergers that may scale up companies? Do you think we're going to see a significant change in the type of deals that are getting approved? And what are the implications for economic consultants like yourselves and the empirical work your advising companies to undertake? Well, thank you, Mick. And thank you for the opportunity to discuss the kind of impromptu reactions to the guidelines. The answer to the first question is that I actually think that beyond the rhetoric about the need to ensure the competitiveness of the European economy, etc. The draft guidelines are actually very orthodox as regards consumer welfare and the goal of protecting consumer welfare. Yes, the section on efficiencies is expanded. The so-called theory of benefit has been introduced, but ultimately what the commission in the draft guidelines refers to are efficiencies, whether they are direct efficiencies or dynamic efficiencies, whether they are the traditional cost of demand side efficiencies or efficiencies related to resilience and sustainability, which ultimately benefit consumers and offset any potential harm that those consumers may suffer. So I believe that at the end of the day, these draft guidelines do not depart that much from the existing ones because the emphasis is still on the welfare of consumers in the relevant markets that are affected by the transaction. To the extent that out of market efficiencies, sustainability efficiencies or resilience are taken into consideration, will require that the benefits that are identified benefit and compensate the very same consumers who are potentially negatively affected by increasing prices or reduction in quality resulting from from the other labs. So I think that this is consumer welfare. Now, is the commission embracing Schumpeter? Again, my view is that no, they don't. I think that yes, in the first opening paragraphs and perhaps even in the first section, there is quite a bit of discussion about the scale, about competitiveness, about resilience. But if you look at the section where benefits and innovation are discussed and the section on anti-competitive effects, you will see that actually the number of pages that are devoted to theories of harm that concern innovation way exceeds the number of pages that are dedicated to innovation or a shield or dynamic dynamic benefits. That doesn't mean that they are not going to take innovation seriously. They are. But I think that is going to be a two handed approach on the one hand, they will look at potential anti-competitive effects on that dimension and the arrow tradition is well reflected in the section on anti-competitive effects. And when when it concerns benefits and efficiencies, I think that yes, they are going to keep an eye on on scale, but they're very clear that scaling up, etc. It's only something that will be credited to the extent that the benefits are passed on to consumers. And I think that there is a paragraph somewhere that repeats an old mantra that you and I have heard many times, which is that if the market is highly concentrated, is the major reduces competition significantly, it is very unlikely that any of these efficiencies, the traditional ones or the new ones, will be taken into consideration or will lead the commission to modify their conduct. And I think that is more positive because I've been saying no, no, I think that where I'm more positive is about economic consultants and what this means for economic consulting because what you can see is that the work that I think that is going to be conducted in the context of merger review is going to be, the amount of work is going to be increased. I think that this is true for lawyers because I think that there is a lot about internal documents with respect to the theory of benefit, etc. But also for economists, you know, these guidelines, these draft guidelines refer to merge assimilation assessments of willingness to pay compensating marginal cost reductions, structural indicators, press price pressure indicators, developing a theory of benefit and quantifying efficiencies is going to require economic work. And some of the theories of harm that are discussed, which we have seen in recent cases like ecosystems and entrenchment, etc. And I think that you have actually experienced some of those in your recent work and required economic input. So I think that what companies may end up realizing is that they may be more work that they're going to have to undertake when they're going to be able to do it. are considering a transaction that they are going to have to look at internal documents very seriously and not just in order to advance arguments against anti-competitive effects, but also if they want to establish a theory of benefit and that the range and scope of theories of harm and analysis has broadened quite significantly. How to conclude, how does all these square with von der Leyen original ideas and propose or program before parliament and how all these squares with the mandate that Commissioner Teresa Rivera got from President von der Leyen is utterly unclear to me. I think that there is going to be much more about the innovation, much more about resilience, but not necessarily that means a more lenient stance vis-a-vis mergers. So the consumer welfare standard, very much the guiding principle, talk of competitiveness and scaling up, interesting packaging, but in practice is not going to lead to significant change in enforcement and the Commission is not signaling that this is open season for European champions. That's what I would think. One thing that one caveat, however, is that I don't think that I have ever read a guidelines document with so many references to the margin of discretion of the Commission. I think that there are three, four or five times where we are reminded that especially as a matter of economics, the Commission has discretion, whether that means that there is an open door for outcomes that may be politically driven, that I don't know. It makes you wonder why they need to repeat once and again that they retain a margin of discretion. Thank you, Jorge. I'd like to turn to Chris Cook now. I've known Chris for well over 20 years. We've worked together on many cases going back to G Honeywell and we write and edit a book on the European merger regulation. So Chris, you advise companies all the time who are contemplating transformative mergers. How if at all do you think the draft merger guidelines will affect the risk calculus? Do deals that might previously have been challenged or would have died in the boardroom, now of a better chance of getting approved? And what are you hearing from companies and from bankers? I think the playbook has changed a little bit. I would say that particularly since the Droggy report, considerations like strengthening European industries, competitiveness and resiliency, in view of Europe's structural disadvantages, often much larger foreign competitors, those have been part of the playbook. The prospect of the Commission giving more weight to those arguments than they maybe would have five or ten years ago has been seen to be greater. So I think this has already been very much the direction of travel for the last couple of years, not only in terms of advocacy before the Commission, but deal risk assessment in the boardroom as well. I would see the Droggy report as the real watershed moment here. That being said, the new draft guidelines make this more concrete. The Commission has written this down in a document that says this is how we decide cases. Transactions that bring about increased scale and consolidation can be viewed positively, they say. It's not the sort of language we're used to seeing out of DG comp. This is as much of an invitation, I think, as companies are going to get. If you've got a deal that would raise eyebrows under a traditional approach, that is one focused purely on the risk of consumer harm in narrowly defined markets. Well, come in and explain to us why we should approve it because it's going to support broader EU policy objectives like global competitiveness or supply chain resiliency, investment in technology or defense. I am sure we will see those sorts of arguments becoming more prominent in deal advocacy. Of course, no one knows how this is going to play out over time in Commission decisions. It is not self-evident that scale in itself is going to foster those broader EU objectives. I have the strong sense that people in DG comp services do not believe that the Commission's historical merger enforcement record has contributed to the European economic shortcomings that the Draghi report highlighted. The draft guidelines now link those, though, more closely to merger control. But still, one has the suspicion that the DG comp reject the basic premise here and they're the ones who apply the rules. Nevertheless, there's been direction from the very top. It's clear where the wind is blowing. I think it would be a mistake to assume this is all just fluff intended to appease the politicians. So it may be not many, but there must be some deals that would have been challenged five years ago that would be clear today. Thank you, Chris. Let me turn to another clear colleague, Anita McGrann or Oliver. Anita, as you know, much of the commentary on the guidelines has focused on the question of whether they anticipate more permissive, less interventionist enforcement. In at least one respect, however, they do seem to give the Commission greater scope to intervene. They formalize an entrenchment theory of harm under which acquisitions may be challenged where they risk entrenching a dominant company's position, including by reducing market contestability and deterring entry, expansion or innovation. Now as you know, well, this theory under the Commission's controversial prohibition of the Booking E. Trevelli transaction currently under appeal to the EU court with a judgment expected quite soon. Tell us a little about that theory, why the Commission believes it's needed, and identify some of the shortcomings identified in that decision. Like Nick, that's a great question, and it really goes to the heart of the draft guidelines. The introduction of an entrenchment theory of harm is one of the most significant and controversial new elements in the draft. And perhaps somewhat at odds with the increasing emphasis on scale, competitiveness and resilience. It reflects a line of reasoning that the digital competition has been actively developing in recent years, particularly in digital murder cases. So what is this theory? Let me break it down in three steps. Under the traditional framework, non-horizontal mergers are assessed through foreclosure. That means asking a great question. Can the merge firm restrict rivals access to something they need, like customers, input or interoperability, and thereby weaken competition? That analysis is structured, you need to show ability, incentive and effects on competition. And importantly, the concern is tied to some form of foreclosure conduct. Some mechanism implemented by the merge firm that excludes or hamper's rival. The entrenchment theory takes a different approach. The idea is that the merger can raise concerns, even without any foreclosure conduct, without tying, without bundling or any other excursionaries to strategies. Instead, the concern is that the merger, straight and a dominant firm, in a way that makes the market less contestable over time. And the mechanism is typically structural. The acquiring firm gains control of our assets that are strategically important to compete, such as user traffic, data or complementary services. Once integrated, those assets can reinforce network effects, increase customer lock-in, and make entry or expansion more difficult. So the concern is less about immediate exclusion and more about weakening, gradual weakening market contestability over time. Now why does the commission think this is needed? I think there are two main reasons. First, the commission considers that there was an enforcement gap. In its view, the existing framework focuses on foreclosure conduct, but doesn't fully capture competition in digital ecosystems, where dominance can be reinforced without any excursionary conduct. And second, the commission sees the strengthening of dominant itself as potentially harmful, part of where it reduces market contestability. That is exactly the logic in booking it, traveling. The concern was not foreclosure conduct, but reinforcement of booking the consistent and dominant position. So what are the concerns with the theory? Let me highlight three of them. First, the theory moves away from the traditional structured ability incentive effects framework. And that framework matters because it enters the analysis. in a clear mechanism of harm and in evidence, showing how the merger is likely to affect competition. Historically, humorous control has started from the principle that non-horizontal mergers are generally less likely to produce anti-competitive effects, and in fact often generate efficiencies. The concern with the theory here is that without that structured framework, the analysis risk shifting from identifying an anti-competitive conduct to treating the strengthening of the dominant firm as proleretic in itself. And that matters because competition though is not meant to prevent firms from becoming stronger through innovation, duration, or complementary capabilities. Those in fact are often the very efficiencies that merger are supposed to generate. The second concern I see is that the entrant theory risks blurring an important distinction in e-unitro control. The legal standard is not whether a merger is traced in a dominant position. It is whether the merger results in a significant impediment to effective competition. And the EU courts have repeatedly met that here, the Tralaval and Dutch Ali coming in particular, have confirmed that tracing in a dominant position is not enough. You need to show a significant impedimentary effective competition. The third point is that there is a need for a clear limits. That is key. And this is a bit that made you missing from the death merger guidelines. Calling something, and Frenchman doesn't change the legal test. You still need to show a significant impediment to effective competition based on robust evidence. And we don't have a lot of guidance in the dark merger guidance for now on that point. Second, rivals being disadvantaged is not enough. Competition already allows rivals to be hampered, but only where that significantly impairs a competitive process. And third, we need a clear distinction between and type a competitive harm and a stronger competition. If rivals lose because the merge firm innovates more, scales more efficiently or offers better products tends to emerge. Or that is not a competition problem. It is competition working as it should. So to conclude, entrenchment is a major evolution in humor to control. It reflects a shift from static towards dynamic and ecosystem based analysis. But it raised real questions about evidence, legal certainty, and the limits of intervention under the significant impediment of effective competition standard. And ultimately, as you were saying, those questions will be shaped by the e-cords in the booking case. Thanks so much Anita. So very much watch this space. I guess this is a section of the guidelines that's going to be impacted one way or another by the court's judgment. And now, in lieu of the quickfire questions, a final question for each panelist. Assuming the draft guidelines are adopted in their current form and recognizing that as the legendary baseball player, Yogi Berra famously said, predictions are tough, especially about the future. What effect do you think they will have? Should we expect more interventionist or more permissive enforcement? Let me turn first to Saffelblow. Well, I think it's healthy that the guidelines articulate the need, the possibility of developing credible theories of benefit and that these need to be assessed on a, in a Justin Fairway with the theories of harm. I think there have been many occasions throughout the world where the potential for looking at efficiencies has simply been ignored. And I think it's very, very healthy to find that these guidelines really clearly open the door. For a case to be made. Whether that case to be made by certain parties is going to be convincing or not. Here again, I would be in a skeptical camp. I think that while everything is going to be more transparent and more informed as a result of these guidelines, I think there's no obvious or immediate possibility of change as such. The commission has already looked closely at some, these, some of these positive effects before. I think that perhaps the advantages that the parties will be less deterred by the traditional apathy or lack of interest in efficiencies and maybe treating them as rather unsurius in themselves. These, I guidelines don't say that. They say they can be a good case, a good case for a theory of benefit. It's up to you to prove it. I think that's sensible, that's straightforward. And I, and it may lead to indeed, after a certain time, to better presentation of mergers by parties. If there's a better presentation, I think the reaction of the commission will be much more open. Philip, thank you so much. And now to Bob Ramun's with the Financial Times. Reading the guidelines, I expect a relaxation of the rules as we, as we wrote, because the rules remain the same, apart for certain extra things that will take into account and will give, give leeway to a couple of more deals if they have, if they have the right wording and the right assessment. A lot of the proof of the putting will be with Anthony Wheelan, I think, of course he comes from the runner line, Cabinet. But he's a, he's very rooted in DG Comp. And it will be interesting to see which direction he will steer to ship in. So far in his public commons, he has been very careful as, of course, you're doing every new job. But that will definitely be something that will watch very closely. Thank you so much, Bob Ram. For those who don't know, Anthony Wheelan is the recently appointed Director General of the DG Composition. It said to be a close with ally of Commission President von der Lien. Barbara, thank you very much. You're welcome. Inrique Gonzalez, yes. I think that there is a clear and strong message to make the analysis of certain concentrations in particular those promoting European consolidation and possible and in doing so, getting the analytical framework of the merger guidelines, you need to open and to be more flexible in the, in the, in the taking into consideration of efficiencies, including the non-marginal cost efficiencies, which was, I think, the real blockage of the, of the way in which the all, the existing merger guidelines have been interpreted. But I'm not, I'm not certain that, that this approach is going to be applied in a, in a symmetrical manner. A number one, number two, when you read carefully the sections on efficiencies, you will see that there is a lot of narrative on, on the criteria. But in reality, there is very little objectivization of the criteria in such a way as to discipline, or frankly speaking, reduce the margin of discretion of the European Commission, which means that in practice, the way the guidelines are drafted would allow a more variable approach to, to merger control. For one transaction, you may have more openness to efficiencies and, and a clear and decision subject to more or less stringent remedies. And for others, you may see a bloated development or theories of harm that, as I mentioned before, I believe, were, were ousted by the, at the time, new merger guidelines in the, in the early 2000, and without the correlative, taking into account of efficiencies. So, so you may have this asymmetric approach that, that, that, that, while it may support European consolidation, I think it will make ultimately a, a, it is favor to investment and innovation in Europe. Because I think we need both stronger European companies, absolutely efficient, able to compete in the global market. But we also need inward investment and applying that asymmetric test or standard, maybe problematic. And so what we need is something that is governed by clear rules and that are amenable to first objective application and then effective control, trying to speak. Thank you so much, Enrique, and Kirsten Edwards-Worm. But I generally like these guidelines because they take the old ones and they update them for 20 years of thinking on cases. So to some extent, the commission's current practice is already reflected. In there, you can see the developments from Bayon Monsanto on innovation, booking you travel eye on entrenchment, and even the unpublished Mars College. and over on portfolio effects. So I'm not expecting a huge dramatic change immediately, but the signal is generally towards a more symmetric assessment of harms and efficiencies and towards more evidence-intensive decision-making. I'm not sure we conclude it will be more permissive, but I do think the pool of mergers that parties are willing to contemplate will increase. That doesn't mean all the transactions in that new pool will be cleared. But more importantly, I think one impact the draft guidelines might be that the parties and the commission start having more constructive dialogues going forward and the process is more productive and that can lead to quicker decision-making. And I think that's an excellent result, even if we don't see huge swings in recorded outcomes. Thank you, Kirsten. And the same question, I'm interested in your views, Ethel, Fonseca. Well, my view is that both harm and benefits become harder to evidence. If you look at the current draft, so I think these guidelines would give more discretionary power to the commission. Will you make a difference in terms of more intervention, more permissive approach? I think you may make a difference for a small number of cases. But I think it's unlikely to be meaningfully changing enforcement practice. I think one thing is for sure, as I said earlier, the evidentiary burden is high. And so the next few years will be certainly a lot of fun. Thanks a lot, Ethel. Oh, hey, Patia. You're view on the final question. I would expect that it's going to be broadly the same. I think that they may be the odd case where we are able to minimize certain remedies or-- but I think that the amount of work that is going to be required in order to move the dial in that direction is going to be very extensive. So I don't expect a very significant change from practice. And I'm saying this, taking a reference point the last couple of years, not necessarily 2004, when the previous guidelines were issued. But with respect to the last few years, I think that practice is going to be more or less the same. Thank you, Hoi. Chris Cook. I would start here by recalling the simple point that the guidelines are fundamentally backward looking. They set out the analytical framework that the commission applies in assessing mergers. And this reflects what the courts have said, what the commission has done before. They are not an announcement of change starting from today. With that in mind, as to whether we should expect more or less intervention, I don't think the guidelines will trigger a more interventionist approach. It's ultimately the courts and not the commission who decide what theories of harm are legitimate, what kinds of evidence are sufficient under the merger regulation. As Jonathan said a few minutes ago, the guidelines don't change the law. And I don't think they really seek to move the enforcement goal posts to make it easier for the commission to bring cases. Even if they did that, those moves would, in any case, be tested before the courts. I'm thinking, for example, about the passage on entrenchment of dominance. The guidelines set out what the commission thinks through rules are, or where they should be. But the general court's judgment in booking each traveling is going to override anything the commission sets out here. So as to whether we should anticipate less intervention, I do think it's easier for the guidelines to usher in, sort of, change of approach away from intervention. They make it pretty clear that the commission is going to be more willing to listen to justifications outside the traditional consumer harm in narrowly defined markets. They remind us that the courts have given the commission a margin of discretion to weigh various factors in coming to an overall assessment of emerges, effects on businesses and consumers. I do think the commission will be more open to considering a broader range of factors in deciding whether a merger is going to be good for Europe. And that means that there probably will be some deals that receive more permissive treatment than they would have a few years ago. Thanks very much, Chris. Sir Jonathan, for what's your view on this question? If you put a gun to my head and insist on an answer to that, I would say more or less the same. There will be big controversial cases there always were. It will not be enough to jump up and down and wave flags and say, I want to be a European champion. Let me do it. What I think the guidelines will do is invite argument, perhaps in a more insensitive way, because there will be hooked on which to hang the argument about the consequences of a merger. There will be indications to lawyers and economists and consultants about the sorts of arguments which the commission is willing to entertain. Then people have to go out and make the analysis, find the facts, and argue as best they can, and ultimately, this is a legal system under the rule of law. Matters will be adjudicated by judges if necessary. And finally, Anita McGregor, all of her. I think the outcome is likely going to be overall the same. We will probably see much more emphasis on efficiencies during merger reviews. But the legal standard remains demanding. So I think efficiencies may help in a limited number of close cases, but is unlikely to fundamentally shift your merger control toward a more permissive approach. At the same time, if I can add, I would also expect continued intervation in digital and semiconductor mergers. And so in many respects, the draft formalized trends that are already emerging in the commission recent practice. Thank you so much Anita. And thank you to all the panelists. It's been a really fascinating discussion. It's clear we're going to have to watch closely the commission's enforcement of the merger regulation in the coming months to see the extent to which the direction of travel anticipated in the guidelines actually starts to manifest itself in the way in which the commission decides cases. I'm Nick Levy, your host of the Antigest Review. I look forward to welcome you to the next edition of the podcast. (upbeat music)