Common Market: Economic Courtships

In Brussels last week, Eurocrats debated the merits of the largest international merger in the Common Market’s six-year history. The merger unites two firms whose trademark on roll film is familiar to the millions of camera-carrying tourists who have visited Europe. The two: Belgium’s Gevaert Photo-Producten, also the world’s biggest producer of X-ray film, and Germany’s Agfa, Europe’s biggest camera maker, which will join in a company that will control 12% of the world’s photo business, more than any other firm except Kodak.

Many Europeans, fearing a resurgence of the powerful prewar cartels, still strongly oppose any big concentration of economic power. But businessmen and economists recognize the need for more large companies with the financial strength and facilities necessary for low-cost mass production.

Says Gevaert’s President Henri Cappuyns: “I’m convinced that Common Market companies have to grow to Common Market size.” Seeking Footholds. President de Gaulle encourages French firms to join, and helped unite glassmaking Saint-Gobain with Pechiney, one of France’s largest chemical companies. Because of De Gaulle’s policy, many French businessmen expect the eventual linkup of the two big privately owned French automakers, Citroën and Peugeot.

Mergers are also increasing in Britain, Switzerland and the Benelux countries.

In West Germany, where the government is cartel-shy, there have been few big industrial mergers, and Italian businessmen usually shun them because of the heavy tax involved. More than half of the 300 mergers and joint ventures carried out by Common Market companies have been with companies that are outside the market and anxious to gain a foothold within it.

In general, the trend has been hampered by the lack of unified Common Market laws, by the fact that so many European companies are family-owned, and by restrictions on capital transfers. In order to get together and yet not violate national laws, Gevaert and Agfa had to set up separate jointly owned companies in both Belgium and West Germany.

Such difficulties have led to many relationships that stop a few steps short of outright merger. Common Market companies have entered into more than 30,000 marketing and manufacturing agreements. The Netherlands’ Philips and Germany’s Siemens jointly make and market phonograph records; Germany’s Bleyle and France’s Gillier sell their woolens in each other’s stores.

Renault and Alfa Romeo handle each other’s autos; French and German airframemakers are cooperating on the building of a new military transport. When a licensing agreement or a marketing arrangement works out, the companies may then move closer; as in a courtship, merger is the last, though usually intended step.

Tariff Cuts. A powerful force is at work to speed up the corporate romances.Though internal Common Market industrial tariffs have already been reduced by 60% , most Eurocrats believe that it is the final 40% cut that will really open up competition and threaten many industries that have long been inefficient and overprotected. As the final tariff reductions take place during the next three years, courting companies are bound to begin thinking that one can survive more economically than two.