Seeking another path
With in-country mergers blocked, mobile-phone firms in Europe must now find other ways to grow
May 21st 2016 | PARIS
THREE was a magic number. At least, that was what mobile-phone operators and regulators in Europe believed a few years ago. Letting just a trio of rival companies compete inside each national market would supposedly produce decent outcomes. Customers would see enough competition to deliver low prices and innovative service; firms, despite mature markets with already high penetration rates, would get profits plump enough to allow them to invest in infrastructure, such as for rolling out 4G and 5G services.
Allowing so few operators was intended to bring other boons. One argument of proponents was that if companies could bulk up in-country they would try cross-border mergers next, creating European rivals to American giants such as AT&T and Verizon. Another was that having just three firms would actually limit the dominance of the biggest fish—usually the former monopoly, such as Deutsche Telekom or British Telecom—because the two smaller players would challenge the biggest, not scrap with other minnows. Another claim, just as hard to prove, was that regulators, by waving through mergers, would encourage dynamic markets. Mergers offered an exit for those who invest in, or launch, smaller telecoms firms. Blocking mergers, in contrast, would deter them.
For a time European regulators accepted the received wisdom. So mergers took place in Austria in 2013, then in Ireland in 2014, reducing those markets to three operators from four. Firms in bigger countries prepared to move. Orange, France’s leading operator, held talks from January to buy Bouygues, the third-largest, for an expected €10 billion ($11.3 billion). In Britain CK Hutchison, which operates the brand Three, agreed last year to pay £10.25 billion ($15 billion) for O2, the second-ranked operator, owned by Spain’s Telefónica. And in Italy another merger involving Hutchison was proposed. In each case, the number of operators would have fallen to three.
None of these big mergers is now likely. French officials quietly scotched the Orange-Bouyges deal in April, before it troubled Europe’s regulators: they apparently fretted that Martin Bouygues, a billionaire industrialist, would get too much clout in the newly merged firm. Orange is partly state-owned and is seen as a national champion. Last week the EU’s competition commissioner, Margrethe Vestager, scrapped the British merger, anxious that a lack of competition would hurt consumers. Most in the industry expect she will block the proposed Italian merger between Hutchison and VimpelCom too. In March she launched an “in depth” study into the effect it would have on competition.
Ms Vestager is not alone in doubting the magic of three operators. Britain’s regulator also opposed the Three/O2 merger. And research last year by the OECD suggests users prosper with four operators. After Austria lost its fourth, costs for consumers promptly rose. When France gained a disruptive and innovative fourth player, Free, in 2012, prices fell quicker than before, even as spending on infrastructure rose. In both countries four operators offered customers better international roaming deals than three did. As for spending on networks, other analysis from OFCOM , Britain’s communications regulator, has found “no linkage between consolidation or higher concentration in mobile markets and an increase in investment”.
Some in the industry are dismayed. “Both EU and UK regulators seem only concerned with consumer pricing and don’t think of the bigger picture,” complains Bengt Nordstrom, who advises firms on mergers. He warns that blocking unions of smaller firms will mostly help market leaders, which he says typically grab over 50% of industry revenues already. And markets dominated by former monopolies, he worries, will foster too little competition in building networks and laying fibre cables to prepare Europe for future digital growth.
If in-country mergers are off the table, firms need other ways to prosper. One option might be for more to share networks, thereby cutting costs. Another is for more mergers of fixed-line and mobile business. In Britain BT, a fixed-line operator, has bought EE, a mobile firm. In the Netherlands Liberty Global combines fixed and mobile. Vodafone, the most successful example of a pan-European mobile firm, present in 14 countries, is in fixed-lines too. Vodafone’s boss, Vittorio Colao, said on May 17th his firm had just enjoyed the “first quarter of positive revenue growth in Europe since December 2010”, after spending £19 billion on infrastructure.
Yet fixed-mobile mergers are no cure-all, argues James Barford of Enders Analysis, a consultancy. Whereas in-country mergers of mobile companies offer lots of efficiencies, combining fixed and mobile delivers more modest benefits. Worse, these tend to accrue to more dominant firms, notably old fixed-line incumbents.
What really counts, says Mr Barford, is how firms are placed to transmit huge quantities of data to customers, mostly for watching video clips and TV. He estimates that telecoms firms already make about half of their revenues from data, and mobile-data volumes are rising by 60% to 70% a year. The mobile business is increasingly about transmitting bytes, which depends on how much of the spectrum a firm controls and how efficiently it is used. Small firms with rights to the spectrum could thus look for new sorts of partners. Outsiders—perhaps private-equity firms with deep pockets, says Mr Nordstrom—may want to team up with them to roll out television, internet, mobile, fixed and other flashy services. So there is life beyond in-country mergers.
Weekly Market Update: Markets Reprice Fed Policy Risks
The FOMC minutes out on Wednesday drove a major reconsideration of the Fed's policy outlook this week. With the sense that the economic weakness of the first quarter was passing and a bottom had been found in energy markets, Fed officials were out in force telling markets they were wrongly pricing in a more cautious Fed policy view. Risk assets swooned with the repricing action that followed the minutes on Wednesday, but the impact was notably short-lived and equities were already climbing higher on Friday. Separately, China released a raft of weak April economic data last weekend, but even that had no more than a passing impact on global markets and commodity prices, suggesting that a newfound sense of robustness appears to be supporting global markets. Equity markets churned sideways and for the week the DJIA slipped 0.2%, the S&P eked out a 0.3% gain, and the Nasdaq added 1.1%.
The FOMC minutes indicated that most Fed participants feel current and future conditions in economic activity, labor markets and inflation could be supportive of tighter policy by the time the committee meets in June. The language echoed the FOMC position last October that economic trends were already likely to justify a December rate hike, although analysts caution that the corresponding passage in the April minutes was more conditional. Most importantly, the FOMC did not reach a consensus about whether conditions had already been fulfilled, but agreed that a rate hike would become likely if the economy improved further, and remained divided about whether that improvement would actually materialize. Fed fund futures significantly repriced the chances of a June rate hike in the latter half of the week, rising from around 4% on Monday to around 30% at week's end (off the 35% chance seen in the immediate aftermath of the minutes).
A chorus of Fed speak accompanied the report, aiding the overall repricing theme. Ahead of the minutes, Fed moderates Kaplan, Lockhart and Williams emphasized that rates need to start rising and that the June meeting would very much be live. Later in the week, Dudley said that if his personal economic forecast is on track, then June or July tightening is a reasonable expectation, while Lacker said he would like four rate hikes this year and chastised markets for overestimating how likely the Fed was to pause its tightening campaign. The greenback saw its third straight week of gains, with the dollar index rising to near two-month highs in the wake of the minutes. Commodities prices suffered, and crude prices paused on their march back toward $50.
Last weekend saw the release of disappointing China April retail, industrial output, and fixed asset investment reports. Retail sales fell to an 11-month low and industrial output was lower than expected, restrained by the key power generation component, which returned to contraction. The M2 money supply fell to a 10-month low and new loans hit a 6-month low. Property prices were a rare bright spot: home prices posted their fastest growth in two years in April, with gains in regional centers indicating a broader recovery beyond major cities. Earlier this year, a brace of terrible Chinese economic data would have driven big declines across global markets, but today markets have reconciled themselves to the "slowing China" theme and traders have more pressing issues to worry about. Chinese officials kept up a drumbeat of commentary to drive home the "stability" message, and Premier Li Keqiang once again repeated that Beijing would be able to keep economic growth "within a reasonable range."
The preliminary look at Japan's first quarter GDP performance surprised to the upside thanks to better consumption levels. The better result contrasted strongly with the contraction seen in the final quarter of 2015, helping the economy avoid a technical recession. The q/q sequential Q1 preliminary GDP hit a one-year high at +0.4% v -0.3% prior, while the annualized measure was +1.7% v -1.1% prior. Exports returned to growth and consumption hit a three-quarter high of +0.5%, however no recovery was seen in capex spending. Meanwhile, the debate raged on over the planned April 2017 sales tax increase - an important component of the third arrow of Prime Minister Abe's grand economic reform plan. Press sources once again reported the hike would be delayed, but officials quickly denounced the stories. Ruling LDP lawmakers recommended that PM Abe proceed with his plans and add an extra budget to deal with the impact. Abe aide Yamamoto said the extra budget could be as high as ¥10T, plus an additional ¥5-10T for aid to quake-hit Kumamoto prefecture.
There was some tension at the G7 conference in Sendai, Japan as US and Japanese officials sparred over currencies. US Treasury officials said that yen moves continued to be "orderly," signaling that Tokyo has no justification to intervene in the market soften the currency. Japan Finance Minister Aso responded by reiterating his government's standing policy view that excessive and disorderly FX moves were undesirable, hinting that Tokyo won't hesitate to intervene if they think it necessary. US officials fired back by saying currency moves are only "disorderly" enough to warrant intervention when they are triggered by a crisis. While post-FOMC greenback strength appeared to be limited on Friday, the yen continued weakening, with USD/JPY marking fresh three-week highs just shy of 111, before reversing back toward 110 on a Nikkei report that the BOJ had begun building reserves to pay for an eventual exit from monetary easing.
There are five weeks to go until the referendum on the UK's European Union membership on June 23rd and the polls suggest voters are all but deadlocked over the question of whether to stay or go. On Tuesday, an ORB telephone poll showing a 15% point lead for stay, but within hours a second poll, conducted online by TNS, showed the out campaign with a three-point lead - the first time a major poll put the leave camp in the lead since February. In many polls, the undecided camp is taking more than 20%. After falling to 1.4350 last week, cable surged to test above 1.4650, although that had much more to do with the FOMC minutes than Brexit polling. BoE Governor Carney faced plenty of politicized backlash for his remarks at last week's policy meeting regarding the negative economic implications of Brexit (higher unemployment, slower growth, higher inflation), and this week he said that ignoring the risks would not make them go away.
Goldman Sachs reversed its famously bearish view on the oil market - it was calling for $20 crude earlier this year - in a note that argued oversupply might be over and the market may be facing shortfalls. According to Goldman, the physical rebalancing of the oil market has finally begun, and while supply remained higher in the first quarter of the year, the market has likely shifted into deficit in May. Factors adding to the situation include the Canada wildfires and the Nigeria outages. Crude prices hit fresh six-month highs, with WTI and Brent ending the week just shy of $49/bbl.
There was more carnage in the retail sector this week, with Target leading the charge lower. Share of TGT were down as much as 10% at one point following the retailer's terrible comp sales performance and weak guidance. L Brands sagged 9% on the week at its worst. The women's clothier may have maintained positive comps and met expectations in its first quarter, but it also slashed its FY view and warned that May sales comps were in the red. Footlocker and Ross Stores saw losses despite decent earnings reports, as analysts slammed the entire mall chain sector. Meanwhile, Walmart rose nearly 10% after earnings as it beat expectations, while TJX gained around 5% on very strong comps. In the home improvement space, Lowes saw strong gains on a very good first quarter, while Home Depot was down on the week despite turning in a pretty decent result.
Spurious takeover rumors whipped around consumer staples name Church & Dwight and natural gas powerhouse Apache midweek. Relatively obscure sources pushed stories that the firms were looking at potential takeover offers, but the thin reports were dismissed relatively quickly. In more substantial M&A news, Pfizer reached a deal to acquire Anacor Pharmaceuticals for $5.2 billion just a month after it scrapped its $160 billion deal to buy Allergan Plc under pressure from new regulations on tax inversions. Valued at $99.25 per share in cash, the deal adds an eczema gel to Pfizer's portfolio. Papua New Guinea-based firm Oil Search reached a deal to acquire rival InterOil for $2.2 billion. InterOil's best assets include a 36.5% interest in the Papua LNG Project and its Elke-Antelope field, one of Asia's largest untapped gas fields.
Closing Market Summary: Stocks Rebound as Technology LeadsThe stock market ended a flat week on a higher note as the S&P 500 (+0.6%; week-to-date +0.3%) broke a three-week losing streak. Today's action featured a rebound in global equity markets, a modest gain in the dollar, and the outperformance of the heavyweight technology (+1.1%), health care (+0.8%), and consumer discretionary (+0.7%) spaces. The Nasdaq Composite (+1.2%) ended its week ahead of the benchmark index (+0.6%) and the Dow Jones Industrial Average (+0.4%).
Today's session began on a higher note as investors looked to a rebound in global indices after this week's recent Fed-fueled selling. Participants recently dialed up their expectations for the speed and path of future fed funds rate hikes, responding to Fed speakers and the FOMC minutes from the April meeting.
The major averages extended their opening gains as investors looked to sector leadership from the heavily-weighted technology (+1.2%), health care (+0.8%), and financial (+0.6%) spaces. However, equity indices pulled back after the benchmark index fell short of testing its 50-day simple moving average (2060.54).
The broader market ticked lower in the final hour, but nine sectors finished above their flat lines. The influential technology (+1.2%) sector led health care (+0.8%) and consumer discretionary (+0.7%) while countercyclical consumer staples (-0.4%) ended with the only loss.
In the technology space (+1.2%), the high-beta chipmakers ended the week on a strong note as the PHLX Semiconductor Index gained 3.2%. In the sub-group, Applied Materials (AMAT 22.66, +2.75) spiked 13.8% after beating estimates for the quarter and issuing above-consensus guidance. Elsewhere, Yahoo! (YHOO 36.50, -0.52) displayed relative weakness after headlines speculated that bids for the web portal would register between $2 billion and $3 billion. The broader technology space gained 1.4% this week, trailing only energy (+0.4%; week-to-date +1.5%).
Biotechnology demonstrated relative strength as the iShares Nasdaq Biotechnology ETF (IBB 264.18, +5.28) gained 2.0%. For the week, the ETF climbed 4.1% compared to the gain of 0.6% in the broader sector. Elsewhere, Pfizer (PFE 33.74, +0.36) led the drug manufacturer sub-group while Dow component Johnson & Johnson (JNJ 112.64, +0.59) underperformed the broader market.
Retail names ended their week on a mixed note as disappointing guidance from Ross Stores (ROST 52.49, -3.03) and Foot Locker (FL 54.77, -3.78) weighed on the names. Elsewhere, Gap (GPS 18.01, +0.73) gained 4.2% after announcing that it would close 75 stores worldwide. Separately, Nordstrom (JWN 38.12, +1.01) and L Brands (LB 63.54, +2.92) rebounded 2.7% and 4.8%, respectively.
The Dow Jones Transportation Average (+1.1%) demonstrated relative strength with courier and logistics names leading. In the broader industrial sector (+0.5%), Deere (DE 77.74, -4.51) underperformed after lowering its year-over-year cash flow guidance. However, the company did beat analysts' estimates for the quarter.
Campbell Soup (CPB 59.90, -4.08) underperformed in the consumer staples space (-0.4%) after a sales metric missed its mark.
The U.S. Dollar Index (95.34, +0.05) ended its day modestly higher, but the greenback trimmed its gain against the yen and the euro. The dollar/yen pair finished higher by 0.2% (110.16) after slipping from the 110.55 level. Separately, the euro gained 0.1% against the dollar (1.1217).
The Treasury complex finished flat with the yield on the 10-yr note ending unchanged at 1.85%.
Today's volume was above the recent average with more than 953 million shares changing hands on the NYSE floor. However, this is relatively light given that today marked an option expiration date.
Today's economic data was limited to April Existing Home Sales:
- Existing home sales increased 1.7% in April to a seasonally adjusted annual rate of 5.45 million (consensus 5.40 million) from an upwardly revised 5.36 million (from 5.33 mln) in March.
- The April number was better than expected and qualifies as another data point supporting a pickup in second quarter growth.
- The uptick in April was fueled by a 12.1% increase in home sales in the Midwest.
- That gain, and a 2.1% increase in home sales in the Northeast, offset existing home sales declines of 2.7% and 1.7%, respectively, in the South and West.
- On a year-over-year basis, existing home sales are up 6.0%, which incorporates a 3.7% year-over-year decline in the West that was attributed to the constraints of supply shortages and price growth.
- The bulk of the total existing home sales increase was led by sales of existing condominiums and co-ops, which jumped 10.3% to a seasonally adjusted annual rate of 640,000 units.
- Single-family home sales were up just 0.6% to 4.81 million, although they are up 6.2% year-over-year.
- The median existing condo price was $223,300 in April, up 6.8% year-over-year, while the median existing single-family home price was $233,700 in April, up 6.2% year-over-year.
- The median price for all housing types in April was $232,500, up 6.3% year-over-year.
- The share of first-time buyers in April was 32% versus 30% in March and the same period a year ago.
- The pickup in first-time buyers is good to see since they are integral to driving existing home sales activity.
- At the current sales pace, unsold inventory sits at a 4.7-month supply, which is up from 4.4 months in March. Still, that is well below the 6.0-month supply typically seen during normal periods of buying and selling.
There is economic data of note scheduled for Monday.
- Nasdaq Composite -4.8% YTD
- Russell 2000 -2.1% YTD
- Dow Jones +0.4% YTD
- S&P 500 +0.4% YTD
Technip/FMC Technologies synergies hurdle to rival offer
FMC Technologies’ [NYSE:FTI] proposed merger with Technip [EPA:TEC] is unlikely to be an appealing opportunity for an interloper, a source familiar with the matter and two industry bankers said. They cited the deal's expected synergies and ongoing challenges in the energy industry as among the reasons.
The US and French energy engineering service providers have announced plans to merge into a company valued at USD13bn in equity value. The deal is billed as a merger of equals that awards scant premium to either party based on recent trading averages.
The two companies had been contemplating the possibility of a merger for over a year after announcing a Forsys subsea JV, the source familiar and the first banker said. News reports indicated talks as early as December, though Technip denied “ongoing” negotiations at the time. Deal conversations picked up in earnest in January, said a person familiar with the matter.
Otherwise-logical FMC interloper Schlumberger [NYSE:SLB] is unlikely to be interested in a deal following the close of its April acquisition of Cameron International, the source and the first banker said. The USD 14.8bn transaction could keep the Houston-based oil field services major busy with integration and creates antitrust issues for an FMC bid. Halliburton (NYSE: HAL) too is unlikely to join the fray after its recent failed attempt to acquire Baker Hughes (NYSE: BHI), they said.
Industrial services companies Siemens [ETR:SIE] and General Electric [NYSE:GE] are also less likely to pursue either FMC or Technip, the source familiar and the bankers said.
Despite the small premium, the parties’ USD 400m synergy estimate could be a deterrent to a rival, said the second banker and a second person familiar with the matter. The companies serve E&P companies hit by low commodity prices that could make it difficult for rivals to offer even a modest premium, he said, reasoning that few companies would accept debt for a deal.
It could be difficult for other rivals to match synergy estimates, the second person said. The merger is expected to deliver cost synergies in the form of additional capacity, technological innovation, and customer workflow as customers continue to prefer suppliers of integrated projects. The companies are still assessing potential revenue synergies, executives said on a call with investors.
Technip has already vetted the possibility of a different suitor, the second banker said. The French company was reportedly in deal talks with FMC in December as part of a wider market check. The oil services business has not recovered enough since then to justify reconsideration by parties that expressed initial interest, he said.
InterXion next on Digital Realty’s shopping list, sector advisors say
Digital Realty [NYSE:DLR] may pursue InterXion [NYSE:INXN] following the acquisition of European data centers from Equinix [NASDAQ:EQIX], several sector advisers said.
Earlier this month the San Francisco, California-based data center operator announced plans to purchase eight data centers from Equinix for USD 874m. Equinix divested the portfolio to comply with regulatory conditions on its acquisition of European operator Telecity.
Digital Realty declined to comment. InterXion did not respond to requests for comment.
As this news service previously reported, Digital Realty faces the question on whether to chase after Equinix and continue to be a dominant global player or to solidify its position as a smaller provider. The Telecity deal makes Equinix the largest global scale data center provider.
Three sector advisers said it appears that Digital Realty will continue to expand aggressively, and that it intends to pursue Netherlands-based InterXion. A source familiar with the matter agreed that the stage is now set for the companies to engage each other. It could not be learned if talks are taking place.
InterXion competed with Digital Realty to purchase the Telecity assets with the help of Guggenheim Partners, the source familiar said. Guggenheim did not respond to request for comment.
Ever since Equinix broke a merger agreement between InterXion and Telecity by coming in with an offer for the latter, InterXion has been a natural target for a larger player, this news service previously reported.
However, Digital Realty is not necessarily under great pressure to get a deal done immediately. A fourth adviser said that by securing the Equinix divests, the company could conceivably ratchet down its aggressiveness, since it now has a meaningful platform on the European continent.
A fifth adviser also pointed out that, on a granular level, there may be issues with the InterXion portfolio. For instance, Digital Realty’s newly expanded European presence might cause more overlaps between its footprint and InterXion’s, potentially creating antitrust issues.
This adviser pointed to the fact that InterXion did not win any data centers from the divest process – despite the fact that, as this news service reported, Equinix would have preferred not to sell to Digital Realty – as an indication that there could be some issues with integrating the portfolios.
The Goldman Sachs VIP List: Facebook, Starwood And The Other Stocks That Matter Most To Hedge Funds
If hedge fund managers were hoping for redemption following their less-than-stellar returns in 2015, the first half of 2016 has proven rather disappointing: a new Goldman Sachs analysis of more than 800 funds with $1.9 trillion in equity positions shows that the average hedge fund has lost 2% year-to-date. The S&P 500, meanwhile, has achieved a 1% gain over that same period. But amidst these choppy waters, there are some bright spots – including long positions inFacebook FB +0.87% and Starwood and shorts on Disney and Netflix NFLX +3.37%.
Goldman Sachs released its latest “Hedge Fund Trend Monitor” Friday morning, and alongside the monitor — which analyzed 841 hedge funds with $1.9 trillion of gross equity positions — came a list of hedge fund VIPs: very important positions. The list, which is comprised of the 50 stocks that appear most frequently among the top 10 holdings within hedge fund portfolios, has historically outperformed the broader market, beating the S&P 500 by an average of 0.5% for roughly 36 out of the past 58 quarters. But like hedge funds themselves, the basket of 50 lagged the broader market in 2015 and is off to a rocky start in 2016, down 6.4% compared to the market’s 1% gain.
The most popular stock across all funds analyzed was Facebook: it appears in the top-10 holdings of 75 funds and falls within the top 200 holdings of another 113 funds. Fortunately for these funds, the social media behemoth has outpaced the broader market, posting a 13% year-to-date return (through May 16).
Unsurprisingly, tech names dominate the top of the VIP list, with Apple, Alphabet, Amazon, Microsoft and Yahoo all appearing in the top 10:
Source: Goldman Sachs.
Though the VIP list’s has lagged the broader market in the first half of the year, Goldman believes that the list is nonetheless an “efficient vehicle for investors seeking to ‘follow the smart money’ based on 13-F filings,” especially when it comes to the new members of the VIP list. Of the 50 names, 14 are new this quarter — and they replace a group of 14 that had been carrying a median 9% year-to-date loss. The new 14, meanwhile, has posted a median year-to-date return of 2%.
The best of the bunch is Starwood Hotels & Resorts, which has recorded a 17% year-to-date return and can be found in the top-1o holdings of 28 hedge funds. The second-best is Baxalta; the biotech company has seen a 10% year-to-date return and appears in the top-10 holdings of 32 hedge funds.
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Here’s a look at the other VIP newcomers — alongside the names (and plummeting performances) they replaced:
Source: Goldman Sachs
Goldman also compiled a “very important short position” list, something the bank describes as a sort of short hedge for a long-position portfolio. This basket of 50 names is not based on 13-F holdings; Goldman’s analysts calculated the list by using the total dollar value of short interest outstanding as an estimate of short portfolio holdings. And the top five names that came up using this metric? Disney, Exxon Mobil, General Electric, Boeing and Netflix.
With the exception of Exxon Mobil — which was up 17% year-to-date as of May 16 — the short money appears to be the smart money: Disney is down 4% year-to-date; GE, down 3%; Boeing, down 6%. Netflix, meanwhile, has dropped a whopping 22% this year.
For investors looking for broader takeaways from hedgie holdings, Goldman noted that the funds it analyzed raised allocations to the energy and materials sectors while lowering their allocations in health care, industrials and defensive/high-yield sectors. As a whole, hedge funds have the largest net exposure to information technology.
But of course, with hedge funds lagging the broader market so far this year, the usual stock market warning carries even greater weight: caveat emptor
EC could revamp use of 'fix it first' merger remedies - DG Comp official
‘Fix it first’ solutions very common in US
FTC preparing report in study on merger remedies
'Too early' for impact assessment of EC mobile cases in Austria, Germany, Ireland
The European Commission (EC) could revamp its use of 'fix it first' remedies in merger review following their recent use in BASE/Liberty Global, said Michele Piergiovanni, who heads the EC's telecoms mergers unit at DG Comp.
The official was speaking today (20 May) at a conference in Brussels hosted by King's College London and Crowell Moring.
Little has changed in the use of remedies in EC merger reviews in recent years, Piergiovanni said. Structural remedies continue to be the preferred option, with 70% of merger remedies between 2011 and 2015 having a structural component, he said. The EC also prefers the divestment of an existing business rather than piecemeal solutions, he added.
But after a long period of time in which 'fix it first' was not used, in the last year alone the remedy has been applied in two cases, the EC official noted.
In Europe, a 'fix it first' is when the EC signs off on a deal with an approved divestment buyer already in place. In an 'upfront buyer' solution, the EC gives a conditional greenlight but parties cannot complete their deal until they find a buyer which is then approved by the authority.
Recent cases in which a 'fix it first' remedy was used in Europe were GE/Alstom and BASE/Liberty. While in GE/Alstom the buyer was named with the decision and technically approved later on, BASE/Liberty stood out as the first occasion in years in which the EC’s clearance decision named the approved buyer of divestments.
"We are looking carefully at the remedy implementation in BASE to see whether to use this type of commitment more often,” Piergiovanni said.
Terminology - but not substance - varies on the two sides of the Atlantic. A 'fix it first' remedy would be named 'upfront buyer' in the US, noted Terrell McSweeny, commissioner at the US Federal Trade Commission (FTC), also speaking on the panel. Upfront buyer remedies - divestments with an identified buyer - are extremely common in deals reviewed by the US authority, the official said.
The preliminary findings of an ongoing FTC study on past merger remedies show that the choice of the buyer really matters to ensure the remedy is successful, the US official said.
The report, which follows a previous similar exercise carried out in 1999, should be ready by the end of this year, McSweeny said.
The EC has not performed such an exercise so far, Piergiovanni said. But it has published an ex post assessment of two telecoms merger cases, T-Mobile/tele.ring and T-Mobile/Orange in the Netherlands.
As for more recent "four to three" mobile telecoms cases in Austria (2012), Germany and Ireland (both 2014) - it is still early to see how the remedies played out, Piergiovanni said, adding he did not think that what happened in previous cases had any impact on more recent EC decisions.
Earlier this month, the EC blocked Hutchison's proposed takeover of O2 in the UK and was ready to prohibit Telenor and Teliasonera's tie-up in Denmark last year, before the companies abandoned the deal.
Cooperation between the EU and US agencies goes as far as the remedy stage, the two agency representatives said. Agencies have cooperated in detail on remedy design and approval of the purchaser, Piergiovanni said. This includes holding joint calls and meetings with the potential buyer, he added.
This is what happened, for example, in NXP/Freescale, where the FTC and EC synchronised not only in timing but also on remedies, with common interviews with the potential purchaser. The result was that one global divestiture was agreed, and at the end the Chinese authority MOFCOM was also on the same page, they said.
Both officials were speaking in a personal capacity.