MANY business people were astonished by the recommendation of the Competition Authority that the proposed takeover of the Jet stations by Statoil be prohibited. The recommendation brings into question the Competition Authority's policy on mergers and takeovers.

One reason why business was so surprised was that the authority appeared to take a different approach to this merger than it had in other cases.

For example, in an important policy outline in the Scully Tyrell case the authority stated that it believed that a merger per se between competitors would not prevent, restrict or distort competition unless the market is, or will, as a result of the merger, become highly concentrated.

If the market were highly concentrated following the merger, the authority believed that it would be unlikely to prevent, restrict or distort competition where there were no significant impediments preventing new competitors from entering the market, and/or, there was effective competition from overseas suppliers.

In the Barlo/Kingspan case, where the relevant market was highly concentrated, the authority allowed the takeover even though the combined market share of Barlo and Kingspan was reported to be 73 per cent and no other supplier accounted for more than 10 per cent of the market.

However, the authority emphasised that its decision was because there were no barriers to entry to the market.

The authority stated that it "believes, therefore, that the presence of other producers located within Ireland and in other European Union countries would be sufficient to maintain competition in spite of the fact that, following the acquisition, Barlo would have a preponderant share of the mark.... the authority does not believe that the acquisition will have the effect of preventing, restricting or distorting competition within the State".

The authority's view in the above two cases was an enlightened one and it might have been expected that a merger between Statoil and Jet, which had a combined market share of around 27 per cent, would have had no difficulty in obtaining approval.

It appears that the Competition Authority took the view that the proposal by Statoil did not meet the requirements it stated in the Scully Tyrell case. It judged that the market would become highly concentrated if the acquisition took place and that there were significant impediments preventing new competitors from entering the market, and/or that there was not effective competition from overseas suppliers.

Without considering the merits or otherwise of the Competition Authority decision, it is clear that the Irish motor fuels market contains a number of barriers to entry. These include:

. the perceived difficulty in obtaining planning permission for new filling stations,

. the arrangements whereby the independent retailers who operate the non company owned stations have entered sole supply contracts with their suppliers for up to 10 years.

This issue was considered by the Fair Trade Commission report of 1990 which identified a number of reasons why there had been no new entrants. However, a number of these are no longer applicable:

. The Restrictive Practices Order no longer applies. It limited a new entrant to 20 company owned stations.

. Price control has been removed with beneficial effects on prices.

. The requirement for an oil company to take 35 per cent of its supplies from Whitegate will be removed this year.

In spite of these changes, the authority took the view that the merger proposal presented to it did not meet the criteria which it had previously set out.

However, the European Union merger regulation states in Article 1 that it applies to all mergers which have a community dimension. It defines a community dimension as being where: (a) the combined aggregate worldwide turnover of all the undertakings concerned is more than ECU 5000 million. (b) the aggregate Community wide turnover of each of at least two of the undertakings concerned is more than 250 million ECU, unless each of the undertakings concerned achieves more than two thirds of its aggregate Community wide turnover within one and the same member state.

For mergers which meet the above criteria, the European Commission has exclusive competence.

The European Commission has recently published a discussion document where the suggestion is made that the above thresholds should be reduced to two billion and 100 million. If these changes were in force, it is possible that the Statoil/Jet merger would have come within the exclusive competence of the European Union regulation.

In considering the implications for Irish merger policy of the Competition Authority decision it is useful to examine the way in which the European Union Commission would have appraised the merger. This is set out in Article 2.

Article 2 (2) states: A concentration which does not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it shall he declared compatible with the common market.

As it is unlikely that the takeover would have created or strengthened a dominant position, it appears that the European Commission would have approved the takeover of Jet by Statoil, irrespective of whether or not there were barriers to entry.

It is apparent from all of this that there is a need to harmonise Irish merger policy with that of the European Union. This will be particularly important if the merger regulation thresholds are reduced as recently proposed by the Commission.

In November 1995, the Minister, Mr Bruton, announced that he was establishing a review group to examine all of the issues related to mergers and competition generally. The decision in the Statoil case may make this review even more important than was envisaged.

Until the review group reports, it is reasonable to assume that the Competition Authority policy set out in the Scully Tyrell case and applied in the Kingspan/Barlo radiator case, continues to apply.

The reason for the Competition Authority coming to its conclusion in the Statoil case was its perception of the barriers to entry to the market. The Statoil case is hopefully an exceptional one and may not establish any new policy.