But that's changing. The European Commission has created a unified market. To make sure it works, in recent years the Commission has attacked lazy national monopolies, instituted new rules to ensure a level playing field, and, most important to acquisitive U.S. outfits, applied antitrust law more aggressively than ever. The latest to face the new reality is General Electric Co. (GE
) Chairman John F. Welch, who has struggled to save his merger with Honeywell International Inc. (HON
) despite European objections.TWIN AIMS. What is Brussels up to? Many Americans are quick to complain that the European Union is simply defending local champions. There's good reason to entertain such suspicions. France, Germany, and Spain have spent billions subsidizing their aerospace industries. The GE deal has been also heartily attacked by European rivals ranging from Rolls-Royce (RYCEY
) and Lufthansa to French avionics manufacturer Thales. "Basically, what they're saying is: [GE] is going to be a strong competitor, and that's bad," says John E. Scribner, an antitrust partner at Clifford Chance LLP, the Washington, D.C., law firm representing GE in the EU hearings..
But whatever the outcome of the GE deal, there's more going on than mere European protectionism--and it will have big implications for future mergers. Although the EU imported much of its antitrust law from the U.S., the doctrine has evolved in different ways. In America, antitrust aims to protect consumers. Across the Atlantic, the main goal is guaranteeing the fairness of the unified market. That means that all companies should be able to compete on equal terms--and that the EU is just as concerned with how a deal affects rivals as consumers.
As a practical matter, it's much easier for rivals to kill a merger in Europe. "The EU doesn't believe in the U.S. view that if a competitor complains, it must be good for consumers," says Eleanor M. Fox, an antitrust professor at the New York University School of Law.
That competitor focus has also led Europeans to develop some unique antitrust theories. One is "portfolio power." It posits that a merger enabling two companies to offer a broad portfolio of related products--as GE is hoping to do in the aerospace industry--may threaten competitors and should be blocked. In the U.S., such combinations are encouraged, on the theory that they create efficiencies that can help consumers.OVERLAP. This isn't just a theory invented to lob at American targets. European regulators took a similar stand in the 1997 merger that created the world's No. 1 liquor giant, Diageo PLC (DEO
). In that case, merging parties Grand Metropolitan and Guinness didn't overlap in many specific beverage markets. But by bundling their portfolio of drinks, from champagne to whiskey, the EU feared that Diageo would be able to pressure distributors into buying more of their products and shutting out rivals. To O.K. the deal, the EU required Diageo to sell two whiskey brands, including best-selling Dewar's, among other things. The EU believes that sometimes "the combination of the party's strength is greater than the individual sum of their parts," says Brussels lawyer Ken Daly.
Still, the prospect of such reasoning being used to significantly alter or even torpedo a deal between two American companies is likely to lead to increased tensions with the U.S. In recent years, a host of European companies such as Daimler (DCX
), Vivendi (VVDIY
), and British Petroleum have been allowed to buy big U.S. targets. U.S. companies--not to mention the Bush Administration--are unlikely to sit quietly by in the face of a more aggressive EU. With the two already in disagreement about everything from agriculture to taxes to global warming, antitrust policy could easily become the next flash point. By Mike France
With Dan Carney in Washington and William Echikson in Brussels