The Federal Antimonopoly Service (FAS) of Russia intends to tackle the takeover of startups, with a new initiative aimed at better regulation of the digital technology market.
The Federal Antimonopoly Service intends to monitor and prevent the takeover of start-ups implemented to terminate their activities, as part of a comprehensive project to introduce the fifth antitrust package amendments to Russian law. This was announced at the two-day session of the Organization for Economic Co-operation and Development (OECD) on the conglomerate effects of mergers and startups.
FAS Russia Deputy Head Andrei Tsyganov has gone on record to say”
The amendments will allow introducing into the field of anti-trust control transactions that are very significant from the point of view of developing competition, including the acquisition of startups by large corporations.
Participants in the OECD session noted the role of innovative development of startups in the ability to change market conditions in the short term. These changes pose a potential threat to large businesses, who practice the “killer” takeover of startups in order to stop their activities or integrate them into their business processes, most often in such sectors of the economy as information technology, pharmaceuticals, bioengineering, and agricultural technology.
Tsyganov further said:
Preventing increased concentration of markets and stimulating their innovative development by tracking and blocking“ killer ”takeovers, as well as setting effective requirements and conditions is the most important task of any competition agency.
At the beginning of June 2020, CNews spoke about the FAS’s refusal to satisfy the application for approval of the transaction for the purchase of Yandex.Taxi of the Lucky Group of companies. The Ministry said that according to the analysis of competition in the market of taxi aggregators, the combined share of Yandex.Taxi aggregators and the Luck group in case of their merger will reach 70% within the geographical borders of Russia, over 80% within 19 entities, and over 50% within the boundaries of 32 subjects of the federation.
Features of the “fifth antitrust”
The possible negative effects of conglomerate mergers, acquisitions, or other forms of acquisitions for the sake of control strengthen the market power of large companies, as well as have direct or indirect consequences for companies from unrelated industries. These consequences can include the elimination of potential competitors, without reference to the geography of the market.
The history of most of the largest modern companies in IT, pharmaceuticals, bioengineering, and agricultural technologies is a continuous process of acquisitions of smaller enterprises, participants in the OECD session noted, emphasizing the anticompetitive nature of such transactions. As a result, the development of industries as a whole is hindered and large companies are building up their positions and increasing economic concentration in their sector, hindering the entry of new independent players, including into related markets.
Along with the traditional negative from “killer” mergers and acquisitions, the OECD session also noted some of their modern features, such as “cross-subsidization” of some conglomerate units at the expense of other, more profitable or financially stable companies, as well as the growing interest of banks in the merger of diversified companies for the sake of creating conglomerate ecosystems based on big data technologies, including personal ones.
Fine-tuning Antitrust Standards
According to Andrei Tsyganov, the adoption of the fifth antitrust package of amendments to Russian legislation on introducing instruments and mechanisms for fine-tuning high-tech digital markets will provide an analysis of tracking cases of economic concentration, including transactions involving absorption of startups by large corporations, as well as leading to better application rights in such cases.
Today, monitoring “murderous” acquisitions is difficult due to the fact that such transactions often do not meet the threshold criteria for state control over economic concentration, as a result of which they simply “do not fall into the scope of the antitrust authorities”. Improving legal standards and law enforcement will allow changing approaches to the consideration of such transactions, according to the FAS.
In a number of jurisdictions, analysis tools based on the use of big data and artificial intelligence are already being developed and applied, and a post-analysis of completed transactions is being conducted to assess implicit and positive consequences.
The FAS emphasized that the complexity of the economic analysis of mergers and acquisitions requires a “balanced approach to decisions”, which avoids the “freezing” of investment activity and innovation processes.