The Determinants of Merger Litigation Strategies: An Empirical Analysis of EC Mergers

Abstract

Mergers with anticompetitive effects can gain regulatory approval if they prove that the benefits of the merger outweigh the negative effects (efficiency defence), and/or if they offer to modify the merger transaction in a way that eliminates these adverse effects (merger remedy). Although these two merger control instruments have been analysed separately, little work has been dedicated to modelling merger litigation where both the provision of efficiency-related evidence and remedy-offers are at the merging firms discretion, which is the case for example in the EC. This paper is an attempt to fill the empirical part of this gap. Its novelty lies not only in empirically modelling the system of decisions that firms face in merger litigation but in using data from company reports on the merger-generated synergy expectations signalled to shareholders, which allows the direct empirical testing of some of the assumptions and findings from previous works. Evidence is presented that firms' own efficiency expectations do not have an impact on the probability of applying for efficiency defence; that pre-merger synergy expectations enhance the willingness to offer remedies; false efficiency claims can be distinguished by looking at the timing of the remedy-offer; and finally, the cost of delay plays a central role in designing firms' litigation strategy, especially when these costs exceed the cost of the remedy.

Keywords: merger litigation, merger remedies, synergies, e¢ ciency defence

JEL Classification: K21, K41, L40, L41