Legal publications have all reported this week that the Netherlands is hoping to enact a law which will prevent takeovers of essential services such as telecoms networks, by overseas parties under some conditions. It seems to us that this is a consumer driven backlash for the excesses of the European Commission, allowing deals in the Netherlands which should have been blocked to sustain competition.
If the law goes ahead the Government could block mergers if the acquirer has any criminal convictions, but more importantly if the precise ownership is unclear or there are any issues around the transparency of its reporting. It’s tough to see how this law may be interpreted, in the case for instance of a company which has A voting Shares and B non-voting shares, which disguises control, or which only operates under the less stringent reporting requirements of a Latin American country, or if it is supported by an effective monopoly in another country.
If those instances were against the new legislation, there would be an argument to unravel the merger between Ziggo and UPC and there would have been a basis to block the purchase of KPN by America Movil, which foundered on its own anyway – although some suggested back door government involvement in blocking that deal anyway.
Part of all this is the sudden navel gazing that each European country has gone in for in the light of Brexit, the UK’s exit from the European Union voted for in a June referendum in the UK. That vote was seen as a surprise “populist” vote, in a similar vein to the election of US president Donald Trump, almost a revolt against how politics has been done in the past.
With the Netherlands due an election in March there is a chance that the right wing nationalist Party may make gains. To prevent that the existing government is trying to push some populist policies, seen as making them a bit more protectionist, and to some extent more nationalistic.
The Economic Affairs Ministry said the law would target telecommunications, and data hosting and other Internet infrastructure. Given that the majority of Netherlands broadband lines are now owned by a US public company with a staggered shareholding structure, the law may be targeted entirely at unravelling the purchase of Ziggo by Liberty Global.
The European Commission has consistently refused to allow the Netherlands to self-determine how mergers are regulated within its borders, and many consumer bodies are up in arms about this. Quite simply the Dutch are used to buying overseas companies, rather than having their infrastructure entities acquired from under their noses. There are thought to be loopholes in EU law which abhors this type of protectionism, relating to National Security, so this is what the merger law is supposed rely upon.
The truth is that when a multinational buys out a piece of national infrastructure, while income taxes of the people employed by it continue to be collected and paid to the Government treasury, it is often the case that taxation on profit just evaporates, with profits being exported through pricing controls, to an entity outside the country where corporation taxes are paid – typically the US. As both the US and China multinationals become more and more acquisitive, this can mean the disappearance of local jobs, with a reduction in income tax, and also the reduction in corporate taxation – all exporting tax to other richer and more powerful countries. This too must be part of the consideration, we feel.
The government is including a special resolution relating to the national postal firm PostNL which has been pushing away take-overtures from Belgian rival Bpost. Once again, the Dutch government was seen as being the shadow hand behind this rejection.
The European Commission is likely to oppose such legislation rigorously, but probably hopes that it simply will not be passed.