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What just happened?

The European Union has accepted a €13 billion merger between France’s two largest environmental services companies, Veolia and Suez.

What does this mean?

The € 13 billion ($ 14.7 billion) operation was completed in the spring after months of battles between two historic rivals. This decision by the European Commission, which guarantees fair competition in the European Union, opens up the opportunity for Veolia to complete the Suez takeover in the coming weeks. To get the green light, Veolia, the global leader in the sector, had to agree to sell assets, including Suez shares, in the municipal water markets in France. "Thanks to the extensive commitments offered by Veolia, the Commission was able to approve the merger of Veolia and Suez," said E.U. Competition Commissioner Margrethe Vestager.

The company wants to become a global leader in helping businesses and cities reduce their environmental impact, including recycling waste and reducing resource use. According to the merger plan, Veolia's staff will increase from 180,000 to 230,000 people, and turnover will grow from 26 to 37 billion euros. The new, more compact version of the Suez Canal will be decoupled from the deal, leaving it less than half its current size and being taken off the stock exchange.

Veolia, which owns 30 per cent of Suez, filed a bid to take over the remaining 70 per cent in July 2020 for about € 9 billion. After eight months of violent disputes between the two groups, rivals for 150 years, in April, Suez finally agreed to a takeover. The acquisition price for Suez has been raised to € 20.50 per share and is estimated at around €13 billion.   

How does this impact the legal sector?

With two large international waste management organisations merging into one single entity, a titan is heading towards the United Kingdom. With extensive financial leverage, this new organisation can dominate the market from outset, and this raises questions from a competition perspective of how the UK waste management sector will cope from this merger. Subsequently, this has led the UK Competition Authority to launch a full-scale investigation into Britain’s rubbish waste management sector amid fears of a French takeover of the bin clearance industry.

Earlier this month, the Competition and Markets Authority (CMA) stated that the transaction might reduce competition and increase the cost of the British Parliament and required the company to commit to avoid a "second phase" investigation by December 14.

Veolia and Suez secured E.U. antitrust legislation for their bonds last week, and the European Commission said a large package of asset sales had allayed its concerns about the deal. The deal closed in April, sparked a fierce controversy that lasted months before the companies reached an agreement.    

The U.K. has the right to order the sale or divestiture of a portion of the entire business if it ultimately concludes that there are problems with competition. To dwell deeper into this discuss,  the merger allows Veolia to arrive in the UK as a monopoly in the sector. Potential anti-competitive conduct that Veolia could carry out in the UK could come in the form of organising a cartel with other major waste management businesses which will allow each organisation in the cartel to secure a sizeable market share in the UK waste management sector. They can achieve this by setting prices on waste bids in the U.K. To clarify, pricing occurs when firms agree to set the same prices for their goods and services. This allows the company to secure a market share in the waste sector.

Potentially Veolia can collude with it’s rival competitor in the UK, an organisation like Biffa to split customers and suppliers between them rather than compete for them. Likewise, they can work together to leverage deliberately implicated procurement manoeuvres to ensure that one of them wins important tenders such as a landfill contract. To hide bid manipulation, collaborating firms may submit less competitive bids than a predetermined winner.    

It's safe to say why the CMA is concerned about this sector. Preliminary figures for 2020 show that 67.2% of U.K. packaging waste has been recycled or recovered, just like in 2019. The U.K. generated an estimated 43.9 million tonnes of commercial and industrial waste (C&I). In 2018, 37.2 million tonnes. (85%) were produced in England.   The figures demonstrated in these statistics show testament of how lucrative the UK waste sector is which if monopolised by a few organisations like Veolia will significantly impact the business of UK SMEs operating in this sector who are already suffering from financial hardship due to the pandemic.

Interested in reading more about this merger? Click here to find out why CMA warns UK taxpayers could face bigger bills after this waste management merger!

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Written by Jason Connolly