The Australian Competition and Consumer Commission (ACCC) announced on Monday that it would not intervene in Google’s proposed $3.1 billion acquisition of DoubleClick. With that decision, all eyes are now turned to the EU verdict, due November 13th, as the Brussels-based European Commission weighs anti-competitive concerns that may arise from the transaction.
Should the regulatory body see fit it can then open up a second phase investigation, resulting in further delays or potentially a complete prohibition of the deal. Contrary to some reports, the parties may not be able to complete the deal without EU and FTC approval.
“Given that Google dominates the business areas for search engines and search referrals, anything they do in the Internet advertising space will be closely examined by the European Commission,” Douglas Lahnborg, antitrust partner at Heller Ehrman, told ClickZ. “The transaction cannot be finalized while under investigation, and a potential second phase inquiry can take up to six months to complete.”
The ACCC arrived at the conclusion that Google and DoubleClick are not close competitors in ad serving, and as a result the merger would not result in a lessening of competition in the Australian market. It also concluded that the presence of other competitors in the market would constrain the company post-merger.
In an attempt to gratify European regulators still on the fence, Google has vowed to keep ‘certain aspects’ of DoubleClick’s business unchanged if the deal goes through. When asked, Google would not reveal which parts, due to the fact that the investigation is still underway.
Although suggestions such as these will be welcomed, Lahnborg explained, “I am not surprised that Google has offered remedies. However, the Commission will be reluctant to settle for behavioral solutions as they are difficult to monitor, and do not draw a conclusive line under the issue.” He added, “Traditionally, structural resolutions such as divesting assets would be more acceptable, although that might be difficult in this instance given the nature of the companies involved.”
Although Google and DoubleClick operate predominantly in the U.S., both generate significant revenue from within the EU. To clear up any confusion surrounding the EU’s jurisdiction in the matter, Pat Treacy, competition partner at Bristows, stated, “The EU has a right to review any merger where the companies involved have a certain amount of revenue from within Europe.”
The principal test for this is if the parties generate worldwide annual revenue of more than €5 billion ($7.2 billion) and EU revenue of at least €250 million each ($361 million), said Treacy. A secondary test requires the parties to have joint worldwide revenue of €2.5 billion ($3.6 billion), and each of the parties to generate in excess of €25 million ($36 million) in three EU states. In this case, each party must also generate total EU revenue in excess of €100 million ($144 million).
Although Google does not break out European numbers in its financial results, it reported worldwide revenues of $4.23 billion for the third quarter of 2007 alone. Revenues from outside the U.S. were $2.03 billion, and revenues from the United Kingdom alone made up 16 percent of the total, at $661 million. The numbers suggest the European Commission could well have full jurisdiction in the matter.
As a result, the transaction cannot be closed without clearance from the EU. The FTC can approve it irrespective of the EU verdict, but the parties cannot complete the deal unless both EU and FTC approve it.
In a scenario in which the FTC grants approval and the EU does not, Lahnborg said the transaction would likely not go through at all, “for practical as well as legal reasons.” He cited the example of the EU Commission’s move to prohibit GE’s acquisition of Honeywell, after which the deal collapsed globally, not only in the EU.
The European Commission will decide by November 13th whether or not to launch a full investigation into the takeover. At best, this would delay the takeover by four months. At worst, the Commission could block it altogether.
FTC and Congressional investigations of the deal are still underway in the U.S. A hearing was conducted by the Senate Judiciary’s Antitrust, Policy and Consumer Rights Subcommittee late last month, and additional Congressional hearings may be held.