Opinion & Analysis

Foreign takeovers need clarity from Europe by Mario Mariniello

The Issue: foreign takeovers are often a source of concern for national governments. Concerns might be of a strategic nature (for example in cases of deals in the defence sector) or of a more economic nature. In these cases, the public perception is often that a foreign investor, being less physically or psychologically attached to the host country, could more easily take decisions that would harm the economy, such as downgrading the acquired company’s brand or cutting jobs or research expenditure. However, the only consideration in merger assessment that matters for the European Commission, which is responsible for cross-border merger control in the EU, is whether the merger will harm consumers. Member states can intervene only in exceptional circumstances.

Policy Challenge: This policy brief raises two questions about foreign takeovers:(1) is the likelihood of domestic welfare loss greater when a foreign investor buys a national company? (2) are economic concerns legitimate reasons that could justify interference by member states in the European Commission’s current approach to cross-border mergers? A thorough analysis of the literature suggests that the answer to both questions is no. Granting leeway to member states is unnecessary and potentially harmful, given the increased uncertainty about outcomes. In order to increase transparency and stimulate foreign investment in Europe, the Commission should clarify the parameters of permissible intervention by member states.