The EU’s expanding view of mergers

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of PLC.

The forthcoming merger of Luxottica and Essilor will create an eyewear giant likely to catch the EU's anti-trust interest.

The EU has stepped up its anti-trust game. But is looking at market share a flawed criterion to ensure consumers’ interests? The forthcoming merger of eyewear giants Luxottica and Essilor will be telltale.

Sir Graham Watson was an MEP from 1994 to 2014. He led the European Parliament’s Liberal Democrats from 2002 to 2009 and presided over the ALDE Party from 2011 to 2015. He is now a member of the European Economic and Social Committee and also advises APCO Worldwide, a consultancy, which has a large health care, technology, financial services and competition practice.

Is change gradual, or do things stay the same until they don’t? This is not an abstract question for historians or evolutionary biologists, it applies to regulation and particularly the regulation of competition. Specifically, have we arrived at a tipping point in how mergers and acquisitions are being addressed by major global regulators, notably in the US and the EU.

What has brought this into focus for me is the upcoming combination of Luxottica and Essilor, a transaction that might once have been nodded through but which might now receive a closer look from regulators on both sides of the Atlantic. Luxottica-Essilor neatly frames the questions of cui bono and cui malo and shows why the old solutions might not work as well as they used to.

The combination of substantial players in frames and lenses seems like a win-win, with minimal overlap but common interests. If you’re one of the 60% of people who use contact lenses or glasses, you might already be reading these words through something from one or other of them. And if this summer a pair of Oakley, Ray-Ban or Prada was keeping the sun from dazzling you, you’ll understand how even people with 20/20 vision are their customers.

Success is not a crime and neither is merging two companies a priori a bad thing unless consumers are harmed along the way. And here, maybe, is where the picture has changed. In recent months, the Dow-DuPont deal was hit by substantial questions over its impact on innovation, whilst Google has run afoul of using its dominance in one sector to crush competition in another.

Regulators can now look at any situation and ask the same questions. Take Luxottica-Essilor, for example. Would the combined company feel any pressure to innovate, beyond nudging the needle of fashion one way or the other to encourage fresh sales? And would a merger where one of the most natural “bundling” instincts in the world, of frames and lenses, not lend itself to the exploitation of market power in one area in order to reshape consumer choices in another?

Essilor has been dawn-raided in the recent past regarding cartel behaviour, and SME opticians across Europe have been raising concerns about the commercial leverage they will be subject to by such a combination of frames, lenses and contact lenses. What would make regulators turn a blind eye to such a potential risk?

Although the recent progress of Franco-Italian mergers hasn’t been smooth, there will be substantial arguments in favour of the combination. It could help create a European champion with strong US market share. There could be value for shareholders. But if consumers’ choice was to shrink, prices to grow, and innovation to dip, the question of cui malo becomes starkly problematic to all but the most short-sighted.

After many years of regulators in the US and the EU assuming the market will both deliver value for consumers and drive innovation as pre-requisites of natural competition, the same questions now seem to be asked in different ways. From farming to online search to the spectacles on the end of your nose, regulators are increasingly less convinced that innovation can be left to chance, that consolidation leads to value and that big is beautiful.

Few are now asking a very fundamental question: if you can only assess a merger on the basis of current market share, making no substantial attempt to look at the shape of things to come, then aren’t decisions inevitably flawed and, worse, impossible to correct once made?

The Trump Administration seems to have stepped back from a position of robust anti-trust interventions at precisely the moment that the EU has stepped up. Competition regulation is not a unipolar world, and there are strong regulatory authorities emerging across Asia, whilst Brexit is likely to add a distinctive and independent UK voice to the discussion.

Yet it seems that the EU can and will change how the world looks at mergers, expanding everyone’s field of vision with regards to what makes for innovation, choice and consumer harm.