This presentation by John Davies Freshfields was made during a roundtable discussion on Public interest considerations in merger control held at the 123rd meeting of the Working Party No. 3 on Co-operation and Enforcement on 14 June 2014. More papers, presentations and contributions from delegations on the topic can be found out at www.oecd.org/daf/competition/public-interest-considerations-in-merger-control.htm

1. Public interest considerations in merger control:
a practitioner’s perspective
OECD Competition Committee
Working Party No. 3 on Co-operation and Enforcement
John Davies, 14 June 2016

2. Agenda
• Introduction: the relevance of public interest criteria to merger activity
• The challenge presented by public interest regimes
• Illustrative examples of Australia, China, Ecuador, South Africa and the United States
• Merger activity within the EU: Article 21(4) EUMR
• Reflections on the Article 21(4) EUMR regime
• Conclusions
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3. Introduction: the relevance of public interest factors to merger activity
Potential benefits
of merger activity
Public interest
factors associated
with merger
activity
Impact on technical
capabilities, jobs and
exports
Effect on businesses of
national strategic
importance
Impact on national
security
Effect on competition
Driving efficiencies,
productivity and
technological
innovation
Movement of capacity
from declining to
growth sectors
Purchase of weak firms
Opportunities for
management
innovation
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4. The challenge presented by public interest regimes
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Lack of
legal
certainty
and
predictability
Complexity
Merger
specificity
• Public interest goals
expressed in broad terms
• Limited examples of ‘soft law’
guidance or comprehensive
jurisprudence
• Unpredictable in application
• Subject to change according
to governmental approach
• Highly differentiated rules
generate procedural and
substantive complexity
• Can give rise to important
differences in some
transactions
• Concerns and/or remedies
may not relate to issues
specifically raised by the
merger
• Potential for remedy clash

5. Illustrative examples (1)
Country Rule Application
Australia The Foreign Acquisition and Takeovers Act
1975 enables the Treasurer (advised by the
Foreign Investment Review Board (FIRB)) to
make orders to restrict or prohibit foreign
investments which are deemed to be contrary
to the national interest
According to FIRB guidance, factors which
may be taken into account include national
security, governmental policy (taxes, the
economy, the environment etc.) and the
character of the investor
Archer-Daniels-Midland Co/ GrainCorp Ltd.: cleared
by the ACCC but blocked by the Treasurer on the
grounds that there was a lack of sufficient competition
in the grain handling industry
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6. Illustrative examples (2)
6
Country Rule Application
China Anti Monopoly Law 2008 (AML)
• Article 1 of the AML states that the reasons
for its enactment include:
“protecting consumers and the public
interest”
“promoting the healthy development of the
socialist market economy”
• Article 31 enables MOFCOM to undertake a
“national security review” of mergers
involving foreign investors
Myriad of highly complex and specialised
foreign investment laws in China containing
strong indications of public interest factors.
E.g.:
• Wholly-Owned Enterprises Law 2000 Article
3 states that wholly foreign-owned
enterprises “must benefit the development of
the Chinese economy”.
• The draft Foreign Investment Law 2015 also
indicates that its purpose includes
maintaining “national interest and public
benefits”
Overlap between the AML and the foreign
business licensing process
AML allows MOFCOM to impose extensive remedies to
address its concerns, competition or otherwise
e.g. Marubeni/ Gavilon (2013): MOFCOM imposed a
hold-separate remedy on the parties’ entities exporting
soy beans to China
MOFCOM did not disclose the parties’ combined share of
the soy bean import market but information publically
available suggests it cannot exceed 27%
MOFCOM’s stated rationale related to the merged entity’s
ability to damage downstream Chinese players’ bargaining
power due to:
• Enhanced ability to increase the export of soy beans to
China
• Strengthened position in the soy bean import market in
China
• Ability to increase control of the Chinese market
InBev/ Busch (2008): MOFCOM imposed a condition
requiring InBev to obtain its approval before acquiring
new interests or increasing existing interests in certain
Chinese companies
MOFCOM’s stated rationale was that the transaction was
sizeable and the merged entity would have substantial
market share and an increased competitive ability

7. Illustrative examples (3)
Country Rule Application
Ecuador Organic Law for Regulation and Control of
Market Power
• Art. 4: the human being is the subject and
purpose of the economic system
• Art. 21: in clearing transactions, the degree
of employees’ participation in company
equity should be considered, and
conditions may be imposed to facilitate
employee participation in company equity
• Art. 22: criteria to evaluate mergers
includes the promotion of technological or
economic progress of the country, and the
participation of workers in the merging
parties’ equity
The LORCPM was only adopted in 2011 and there are
limited examples of public interest remedies being
imposed
In Arca/Coca-Cola/Toni (2014) a behavioural remedy
was imposed requiring the merged entity to permit its
customers to use Arca-provided coolers to also stock
non-Arca products, with a preference for products
marketed under an Ecuadoran trademark or produced
locally
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8. Illustrative examples (4)
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Country Rule Application
South
Africa
The CA 1998 requires the authorities to
consider the merger’s effect on the public
interest, including the ability of national
industries to compete in international markets
Final guidelines were published in May 2016,
outlining a 5 step test for assessing public
interest factors.
Wal-Mart/Massmart: despite no competition issues
• 2 year ban on merger-specific redundancies to
address concerns over potential job losses
• development fund established to address concerns
over the impact on domestic production
Afgri/ AgriGroupe: Competition Commission initially
recommended unconditional approval after finding no
public interest or competition concerns. Four
government departments continued to have concerns
on public interest grounds and reached agreement
directly with the parties to address these. The
Competition Tribunal amended the clearance decision
to impose the terms of the agreement as conditions for
approval of the transaction
United
States
Under the Exon-Florio provision, the
President has power to block foreign
acquisitions where “there is credible
evidence… that the foreign interest
exercising control might take action that
threatens to impair the national security”
Ralls Corporation’s acquisition of four US wind
farm companies: President Obama blocked a Chinese
owned company from acquiring four small wind farm
projects as they were located geographically close to a
naval weapons systems training facility
Shuanghui International Holding/Smithfield Foods:
Smithfield Foods’ role in supplying pork to the US
military was used as justification for launching a review
of the proposed merger on public interest grounds

9. Merger activity within the EU: Article 21(4) EUMR
• When EU Merger Regulation jurisdictional tests are met, the Commission generally has
exclusive competence to review a merger and it will only consider competition factors in that
review
• However, under Article 21(4) “Member States may take appropriate measures to protect
legitimate interests other than those taken into consideration by [the EUMR] and compatible
with the general principles and other provisions of Community law”
• Actions to protect interests recognised by Article 21(4)
• Public security, plurality of the media and prudential rules are all specifically recognised interests
• Measures taken to protect recognised interests will be compatible with EU law so long as they are
proportionate and non-discriminatory
• Actions to protect ‘any other public interest’
• Member states wishing to take action to protect any other interest must communicate that to the
Commission
• The Commission has 25 days to assess the compatibility of the proposed action with the “general
principles and other provisions of EU law”
• Member states must not take action until a decision is adopted by the Commission
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10. Reflections on the Article 21(4) EUMR regime: benefits
From a practitioner’s perspective, the EUMR regime generates greater legal certainty and
minimises complexity
Most large scale transactions with an EU dimension will fall within the exclusive
competence of the European Commission
The Commission’s review of proposed mergers is limited to competition interests
Very limited gateways for EU member states to intervene on public interest grounds
When the Commission reviews a merger, member state power is limited to prohibiting
or applying conditions to mergers that cause legitimate public interest concerns
Even then, member state actions must be proportionate and non-discriminatory and may
require prior approval from the Commission
EU member states have made few attempts to bypass these rules and the Commission has
demonstrated willingness to initiate enforcement proceedings in such circumstances (e.g.
Portugal in Cimpor (2000), Poland in Unicredito/ HVB (2006) and Italy in Abertis/ Autostrade
(2006). See also UK in AstraZeneca/ Pfizer (2014))
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11. Reflections on the Article 21(4) EUMR regime: limitations
Operation of national regimes where the EUMR thresholds-based test is not met:
a) Lack of harmonisation in member states’ procedures and substantive considerations
could generate complexity and/or legal uncertainty
b) National rules can, in some cases, be used to authorise the creation of a national
champion notwithstanding any potential harm to competition in the EU
Where the EUMR jurisdictional test is met, Article 21(4) does not provide an
exhaustive list of public interest factors that may be taken into consideration so
there is an element of legal uncertainty/ risk of unpredictable outcomes if a
member state invokes the Article 21(4) regime to protect a non-recognised
interest
The extent to which EU member states may restrict foreign investment from outside
the EU/EEA is not clear
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12. Conclusions
• Foreign investment and M&A activity raises a number of competition and other public interest
considerations for national governments
• National rules for considering public interest considerations in merger control vary considerably across
the world both in terms of process and substance, generating complexity
• Public interest goals are generally broad and lacking in clear guidelines by which to assess them,
leading to uncertainty and unpredictability
• Mechanisms are available to minimise these concerns, such as soft codification (e.g. the South African
guidelines) and imposing limitations on the exercise of discretion (e.g. the EUMR approach)
• Merger activity around the world would benefit greatly from such steps being adopted more widely,
although this may be an ambitious aim as governments are unlikely to want to impose limitations on the
exercise of their powers
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This material is for general information only and is not intended to provide legal advice.
© Freshfields Bruckhaus Deringer LLP 2014
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