Market Reactions to European Merger Regulation: A Reexamination of the Protectionism Hypothesis

Abstract

In the 1990s, European merger regulation (EMR) was biased against foreign acquirers, especially if the deal harmed domestic rivals (i.e., protectionism). In 2002, the Court of First Instance overturned three prohibitions by the European Commission (EC) and criticized its economic analysis. These events hastened EMR reform, including amendments introduced in May 2004. With a sample of 474 merger proposals submitted to the EC during 1990–2007, we show that the EC’s protectionism from the 1990s did not extend into more recent periods. The change of policy toward foreign acquirers seems rooted in Court judgments of 2002 and subsequent regulatory reforms.

Keywords: mergers and acquistions, regulation, protectionism

JEL Classification: G34, G38