Do thresholds apply to determine when a transaction is caught by the legislation?

Canada
McMillan LLP

While any transaction constituting a merger may be subject to substantive review, only specified transactions are subject to advance notification. The notification rules, found in Part IX of the Competition Act, are reasonably complex and should be consulted in specific cases. Acquisitions of assets or shares, or amalgamations, or combinations or acquisitions of interests in a combination may be notifiable if the relevant size thresholds are exceeded.

While the thresholds operate slightly differently in respect of different types of transaction (eg, acquisition of shares versus amalgamations versus combinations) there is a size-of-parties test that captures the parties on both the size of a transaction and their affiliates, and also a size-of-transaction test that focuses on the firm or assets to be acquired. Although each case needs to be examined on its facts, as a general rule transactions are notifiable when the size of parties exceeds C$400 million in assets in Canada or in sales to, in or from Canada, and when the size of transaction exceeds the annual prescribed amount – C$87 million for 2016 – in assets in Canada or sales in or from Canada.

European Union
Cadwalader Wickersham & Taft LLP

Whether a transaction is notifiable to the European Commission depends on whether it meets the turnover (ie, revenue) thresholds for EU dimension set out in Articles 1(2) and (3) of the EU Merger Regulation. There are two types of threshold:

Primary thresholds –a merger will require notification to the European Commission where:

  • the parties have a combined global turnover of more than €5 billion; and
  • the parties have individual EU-wide turnovers of more than €250 million.

Secondary thresholds – a merger that does not meet the primary thresholds may still require notification to the European Commission if:

  • the parties have a combined global turnover of more than €2.5 billion;
  • the combined aggregate turnover of all undertakings in each of at least three EU member states is more than €100 million;
  • the aggregate turnover of each of at least two of the undertakings in each of at least three EU member states is more than €25 million; and
  • the aggregate EU-wide turnover of each of at least two of the undertakings concerned is more than €100 million.

Only about 5% of all notifications to the European Commission result from the secondary thresholds being met.

Even if the primary or secondary turnover thresholds are met, the transaction will not be notifiable to the European Commission if two-thirds of each party's EU-wide turnover stems from the same member state. The two-thirds rule has the effect of allowing the competition authority of that country to review the case (reflecting an underlying assumption that it will have the most direct interest).

While the above rules are mathematical rather than discretionary, discretionary mechanisms also exist, allowing a national agency to review cases which trigger the EU Merger Regulation thresholds, but which may significantly affect competition in a market within a member state which presents all characteristics of a distinct market. In these rare cases, the notifying party can use the mechanism in Article 4(4) of the EU Merger Regulation to ask the European Commission to refer the case ab initio to one or more national authorities.

Where a case has national characteristics, a national competition authority may alternatively request that the case be transferred to it after a notification to the European Commission.

Where a transaction falls short of the EU Merger Regulation primary or secondary thresholds, but triggers a notification obligation in three or more European Economic Area countries under national merger control laws, the notifying party may choose to use the mechanism in Article 4(5) of the EU Merger Regulation to seek approval for ‘one-stop-shop’ review by a single authority – the European Commission – by means of a reasoned submission (Form RS), which, if successful, is then followed by a notification to the European Commission.

In addition, where a deal is first notified to one or more national competition authorities, the European Commission may accept referral of the case from one or more national agencies if the transaction “affects trade between Member States” and “threatens to significantly affect competition” within a specific member state (the 2014 white paper reform proposal would eliminate the ‘significantly affect’ requirement).

Turnover (‘revenue’ in US parlance) is calculated on the basis of the entire group of companies, not just the entity that is party to the transaction. Special rules for the calculation of turnover apply to private equity firms, financial institutions and insurers. The European Commission’s Consolidated Jurisdictional Notice contains extensive guidance on how to calculate turnover and allocate it geographically to member states, as well as information on when a change of control occurs for jurisdictional purposes. The notice is available on the Directorate-General for Competition’s website (http://ec.europa.eu/competition/mergers/legislation/draft_jn.html).

Germany
Beiten Burkhardt

Under Section 35 of the Act against Restraints of Competition, German merger control applies where:

  • the combined aggregate worldwide turnover of all participating undertakings exceeds €500 million;
  • at least one participating undertaking has a turnover in Germany exceeding €25 million; and
  • at least one further participating undertaking has a turnover in Germany exceeding €5 million.

In contrast, German merger control does not apply where:

  • one of these thresholds is not reached;
  • the transaction falls within the scope of the EU merger control regime; or
  • the transaction meets the conditions of the de minimis clause: a transaction is considered to be de minimis where one party to the transaction ­– which is not a controlled undertaking – has a worldwide turnover of less than €10 million.

Turnover is calculated by reference to the net consolidated group sales of the participating undertakings in the financial year before the transaction. Value added tax and intra-group sales are excluded. Special rules for turnover calculation apply for:

  • trading in goods – the turnover is multiplied by 0.75;
  • print media – the turnover is multiplied by eight;
  • radio and television broadcasting – the turnover is multiplied by 20;
  • financial institutions – the financial income is relevant; and
  • insurance companies – the premium income is relevant.

Japan
Nagashima Ohno & Tsunematsu

There are no de minimis rules (specific thresholds) for the application of the substantive law with regard to a prohibition of the specific concentration under the Anti-monopoly Law. However, the Merger Guidelines provide that the acquisition of a non-important business (ie, a business with a turnover of less than Y100 million and a turnover which represents 5% or less of the total turnover of the transferring company) is not usually subject to Japan Fair Trade Commission (JFTC) review. If a part of the business to be combined through a company split satisfies these criteria, such split is not usually subject to the JFTC review.

The substantive law applies to a specific concentration (ie, business combination), regardless of whether filing is required under the Anti-monopoly Law. If filing is not required under the Anti-monopoly Law because the filing requirements are not met, it is still possible that the business combination may still be prohibited if it would substantially restrain competition in the relevant market in Japan. In such cases the JFTC may issue a cease and desist order under the Anti-monopoly Law.

Malta
Camilleri Preziosi

Yes – in addition to the control criterion, the application of the regulations is determined based on the turnover of the parties concerned. A concentration is deemed to arise where, in the preceding financial year:

  • the aggregate turnover in Malta of the undertakings concerned exceeded €2,329,373.40; and
  • each of the undertakings concerned had a turnover in Malta equivalent to at least 10% of the combined aggregate turnover.

Netherlands
AKD

Authority for Consumers & Markets – general thresholds 
A merger notification to the Authority for Consumers & Markets (ACM) is required if, in the preceding calendar year:

  • the undertakings’ combined worldwide turnover exceeded €150 million; and
  • at least two of the undertakings concerned each have turnover in the Netherlands of €30 million or more.

Authority for Consumers & Markets – healthcare thresholds 
Lower ACM thresholds apply to mergers in the healthcare sector. These will continue to apply until at least January 1 2018. Mergers in the healthcare sector must be notified to the ACM if, in the preceding calendar year, the undertakings had a turnover of:

  • €5.5 million each in relation to the provision and supply of healthcare in the Netherlands;
  • €10 million each in the Netherlands (including turnover not related to the provision and supply of healthcare); and
  • €55 million combined worldwide (including turnover not related to the provision and supply of healthcare).

Dutch Healthcare Authority – healthcare thresholds
In the healthcare sector, transactions involving a healthcare provider that has 50 or more people providing healthcare services and another organisation requires prior clearance by the Dutch Healthcare Authority (NZa).

Calculation of turnover
The ACM generally requires the undertakings concerned to provide their net turnover. The ACM tends to follow the calculation methods set out in the European Commission’s Consolidated Jurisdictional Notice under Council Regulation (EC) 139/2004 on the Control of Concentrations between Undertakings. For banks and financial institutions, the ACM does not require the parties to provide their net turnover, but instead requires the sum of a number of their assets (ie, interest income and similar assets, proceeds from value instruments, commissions received, results from financial transactions and other business proceeds). Insurers need not provide their turnover, but must provide their gross premiums written. 

Switzerland
Bär & Karrer

There are two thresholds: a turnover threshold and a dominance threshold.

Under the turnover threshold, a concentration must be notified to the secretariat if, in the business year before signing, each of at least two of the undertakings concerned generated Sfr100 million turnover in Switzerland and all of the undertakings concerned combined generated a combined turnover of Sfr2 billion worldwide or Sfr500 million in Switzerland. The concept of ‘undertakings concerned’, as well as the rules governing the turnover calculation, are essentially the same as those under the EU Merger Control Regulation (139/2004). Foreign currencies are to be converted into Swiss francs at the annual average rate published by the Swiss National Bank.

Transactions that do not meet the turnover thresholds must be notified if:

  • one of the undertakings concerned has been held to be dominant in a market in Switzerland in in a final and non-appealable decision under the Act on Cartels; and
  • the concentration concerns that market, an adjacent market or an upstream or downstream market.

Such decision must have been issued by the Competition Commission (ComCo). Arguably, a civil court judgment does not trigger the dominance threshold. A considerable part of the notifications made to the secretariat are filed based on the dominance threshold (particularly in the media and telecoms sectors). In one case, ComCo and the parties to a transaction agreed a remedy that included a duty to notify transactions for a limited period of time after closing.

While on its own, the fact that an undertaking is dominant does not trigger a filing duty when there is no formal and enforceable dominance ComCo decision, ComCo and the secretariat have indicated that they have the power to investigate a non-reportable transaction based on the abuse of dominance provisions (based on the Continental Candoctrine). However, to date, ComCo and the secretariat have not used this possibility. In addition, it is highly questionable whether ComCo and its secretariat have in fact the power to investigate non-reportable concentrations.

Turkey
ELIG, Attorneys-at-Law

Under Article 7 of Communiqué 2010/4, a transaction is notifiable if one of the following turnover thresholds is met:

  • the aggregate Turkish turnover of the transaction parties exceeds TRY100 million (approximately €33 million or $37 million) and the Turkish turnover of at least two of the transaction parties each exceeds TRY30 million (approximately €10 million or $11 million); or
  • either:
    • the Turkish turnover of the transferred assets or businesses in acquisitions exceeds TRY30 million (approximately €10 million or $11 million) and the worldwide turnover of at least one of the other parties to the transaction exceeds TRY500 million (approximately €166 million or $184 million); or
    • the Turkish turnover of any of the parties exceeds TRY30 million (approximately €10 million or $11 million) and the worldwide turnover of at least one of the other parties to the transaction exceeds TRY500 million (approximately €166 million or $184 million).

Article 7(b)(ii) of Communique 2010/4 applies only to a merger transaction within the meaning of Article 5(1)(a) of Communique 2010/4.

The thresholds are reviewed by the Competition Board every two years. The next deadline for the board to confirm or revise the thresholds is January/February 2017. 

United Kingdom
Jones Day

The Competition and Markets Authority (CMA) has the jurisdiction to investigate a merger if either of the following tests is met:

Turnover test – the target business has turnover in the United Kingdom of £70 million or more.
Share of supply test – as a result of the merger, the combined enterprise will supply or acquire 25% or more of any goods or services in the United Kingdom or a substantial part of the United Kingdom.

The share of supply test is not a market share test based on an economic definition of a relevant product or geographic market. The test can be applied to any reasonable description of goods or services and in very narrow geographical areas. Therefore, the test is easily met and the CMA has a wide margin of appreciation in relation thereto. However, it is necessary to show some overlap between the activities of the purchaser in the United Kingdom and the target which results in some increment in the combined share of supply as a result of the merger. As a result, many – even small – mergers in the United Kingdom are caught by this test, although there is a carve-out for de minimis mergers where the aggregate annual value of the market in the United Kingdom is less than £10 million.

USA
Cadwalader Wickersham & Taft LLP

Transactions that meet each of the following criteria (as applicable) are reportable under the Hart-Scott-Rodino ActAntitrust Improvements Act of 1976, as amended, unless a specific exemption under the Hart-Scott-Rodino Act or Hart-Scott-Rodino Rules applies:

Commerce test
  • Either party is engaged in commerce or an activity affecting commerce; and
  • The size of transaction and size of person (if applicable) tests are met.
Size of transaction test
  • As a result of the transaction, the acquiring person will hold an aggregate total amount of voting securities, unincorporated interests or assets of the acquired person valued in excess of $305.1 million (as adjusted); or
  • As a result of the transaction, the acquiring person will hold an aggregate total amount of voting securities, unicorporated interests or assets of the acquired person valued in excess of $76.3 million (as adjusted); and the size of person test thresholds are met.
Size of person test
  • Either the acquiring or the acquired person has at least $15.3 million (as adjusted) in total assets or net annual sales; and
  • The other party has at least $152.5 million (as adjusted) in total assets or net annual sales.

The Federal Trade Commission (FTC) revises all monetary thresholds, including the applicable reporting thresholds, annually to account for changes in gross national product. The adjusted thresholds are typically indicated by ‘as adjusted’ language. The thresholds stated above became effective on February 20 2015.

Some transactions qualify for an exemption under the Hart-Scott-Rodino Act or Hart-Scott-Rodino Rules. Parties to these transactions need not report the transaction, even if the jurisdictional thresholds are met. For example, the following transactions are exempt from filing under the Hart-Scott-Rodino Act:

  • stock splits and dividends that do not increase the percentage of stock owned by any person;
  • certain acquisitions of voting securities solely for investment purposes;
  • intraperson acquisitions;
  • certain acquisitions of goods or realty in the ordinary course of business;
  • acquisitions of certain real property;
  • acquisitions of non-voting securities and obligations that are not voting securities (eg, mortgages, bonds and deeds of trust); and
  • certain acquisitions involving foreign governments and entities.

The Hart-Scott-Rodino Rules and corresponding guidance from the agencies can be nuanced with regards to whether a filing is necessary; experienced antitrust counsel can offer advice in determining whether a transaction is exempt. Further, regulators may still investigate and seek to enjoin or unwind any transaction that they believe is harmful to competition, even if the transaction does not meet the jurisdictional thresholds of the Hart-Scott-Rodino Act or an exemption renders a filing unnecessary.

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