Age of transatlantic mega-mergers dawns

Date: 03/04/1997

By Chris Johnstone

TRANSATLANTIC corporate shopping trips have surged over the last ten years, giving EU and US regulators a lot more to worry about as the world becomes a smaller market-place.

BT's virtual take-over of MCI, British Airways' alliance with American Airlines, BP's joint venture with Mobil, and Deutsche Telekom and France Télécom's stake in Sprint Corporation have captured the business headlines over the last year.

The deals share a common characteristic: most of them are in already global or virtually global markets and the majority of them are Anglo-American, with the Anglo doing the buying.

Insurance and finance could be added to the list of sectors which have largely hurdled national frontiers.

Mega-mergers are expected to continue anticipating and following market-opening measures, but at a quicker pace. “They will continue, especially in sectors such as telecommunications,” says Angela Ward, deputy editor of UK-based Acquisitions Monthly.

Industry analysts expect most of the looser telecoms alliances between European and US companies to follow the BT/MCI model.

European and US airlines might similarly want to seal their alliances with purchases of share stakes if BA/AA proves an encouraging example to follow - and memories are

sufficiently short to forget BA's earlier experience with US Air and KLM's mixed fortunes with Northwest.

But if that proves to be the case, competition officials in the EU and US will be doing a lot to boost transatlantic traffic via the newly emerged telecom giants with flurries of calls to discuss their shared concerns.

Sectors such as food processing and construction are, however, likely to remain sedentary, with Coca-Cola's recent take-over of Schweppes Beverages and Dutch Ahold's purchase of Stop & Shop seen as exceptions to the generally established rule.

The picture of Anglo-American take-over activity over the last ten years is telling evidence of the emergence of the mega-deal.

US acquisitions totalled 1 billion ecu in 1987, increased tenfold by 1995 and reached 15.25 billion ecu in 1996.

European company spending in the US doubled from 1995 to 1996 to reach 58.6 billion ecu. UK deals accounted for over half of Europe's spending, with 148 US companies bought at a cost of 33.8 billion ecu, according to Acquisitions Monthly.

German firms were the next biggest spenders, with the purchase of National Medical Care by Fresenius and the acquisition of reinsurance group American Re Corp by Münchener Rückversicherungs-Gesellschaft topping the list.

“There has been a clear increase in US cases,” said a Commission competition official bearing the brunt of the extra workload.

This has forced even closer cooperation between both sides, a fact due to be reflected in the next few months by completion of an updated competition agreement, building on the one already in place since 1991.

This accord would take the bold step of calling for EU and US authorities to decide which of them was most affected by a transatlantic competition case, with the least concerned stepping back to allow the other to take the lead in dealing with it.

This practice has already begun unofficially, with American officials recently allowing their Union counterparts to lead the probe of US retail sales analyst AC Nielsen for an alleged abuse of its dominant position because most of its activities were based in Europe.

But any more formal arrangement would not touch on the vetting of mergers and joint ventures, which would remain separate, although there is already a high level of cooperation between the two sides in swapping product and turnover details.

That has been particularly true in pharmaceutical cases such as Glaxo/Wellcome and Hoechst/Marion Merrill Dow, where data from national drugs authorities were a key to assessing the likely impact of the deals.