First created in 1989, the supranational European Union (EU) merger control regime has been operational for a quarter of a century and is now an accepted fact of life for businesses involved in major M&A transactions. Since then, the European Commission (the Commission) has firmly secured for itself a place at the "top table" of leading merger control authorities around the world.
The Commission periodically reviews the EU Merger Regulation1 (EUMR) to ensure that it continues to enable effective intervention in relation to transactions that pose threats to competition in the EU. In this context, the Commission has, in recent years, been assessing the case for expanding its jurisdiction to include acquisitions of non-controlling, minority shareholdings. While the final decision in this respect ultimately rests with the EU Member States, some of which are increasingly strident in their opposition to ceding additional powers to "Brussels," the Commission's push to expand the scope of the EUMR to non- controlling shareholdings had – until very recently – acquired an air of inevitability about it (i.e. not whether but when).
The Commission's perceived predicament is that – in contrast to a small, but influential, minority of merger control regimes (including those of Germany, the United Kingdom and the United States) – the Commission's jurisdiction to review concentrations is currently limited to transactions resulting in the acquisition of control, or "decisive influence," by one or more companies over another company. With very few exceptions, the EUMR leaves the Commission powerless when it comes to acquisitions of non- controlling, minority shareholdings.
To U.S. antitrust counsel experienced in applying the Hart-Scott-Rodino (HSR) rules, which have always provided for reviews of certain minority acquisitions by the U.S. agencies, the proposed expansion of the Commission's jurisdiction might appear to be somewhat uncontroversial or, indeed, a long overdue plugging of an obvious enforcement gap.
In this context, it must, however, be borne in mind that "U.S.-style" merger control notifications differ significantly from their European counterparts. While the substantive analysis is very similar on both sides of the Atlantic, an HSR notification consists of filing a relatively simple, standard notification form to the Federal Trade Commission or the Department of Justice. Only if the reviewing agency has questions, are the parties required to provide detailed, data-heavy "narrative" submissions. In contrast, the EUMR filing form requires the merging parties to provide a fully articulated case up front – supported by a large amount of market data – "proving" why the proposed transaction does not adversely affect competition.
As a result, preparing an EUMR filing is considerably more time-consuming and costly than preparing an HSR notification – even for a non-problematic transactions. In light of the anticipated volume of paper- pushing involved, it is fair to say that the business community did not greet the Commission's proposals to pull minority acquisitions into the existing system with a great deal of enthusiasm. In an effort to minimize the regulatory burden placed on businesses, the Commission has already proposed a "targeted transparency system" pursuant to which only acquisitions of non-controlling shareholdings that create a "competitively significant link" would require a short, relatively data-light information notice with the
Commission prior to completion. Based on the information notice, the Commission would assess whether to "call in" the transaction for a full review.
To date, the Commission has carried out two rounds of public consultation and it had been expected that, following the conclusion of the latest round, the Commission would move to finalize its proposals and commence the process of seeking sign-off from the EU Member States. It appears, however, that the Commission significantly underestimated the strength of opposition to the mooted reforms. Many "stakeholders," particularly those in the business community, have vociferously protested against the extension of the EUMR on the basis that very few minority transactions raise competition issues and that, ultimately, the burden and legal uncertainty associated with notifications would have a negative impact on the "investment climate" in the EU. Further, many commentators have asserted that the concept of a ‘"competitively significant link" as a jurisdictional threshold test is potentially problematic in that it deviates from the "bright line" jurisdictional test used for outright acquisitions of control and, thereby, introduces considerable legal uncertainty at a key juncture of M&A transactions: the determination of whether a transaction must be reviewed by merger control authorities. Many also questioned the Commission's view that only a small number of transactions would need to be notified.
In response to the veritable barrage of criticism (by Brussels standards), the new Competition Commissioner Margrethe Vestager – who inherited the reform package having assumed office in November 2014 – has gone on record acknowledging that "there is widespread concern regarding the proportionality" of the Commission's proposals and concluding that "the balance between the [competition] concerns that this issue raises and the procedural burden of the proposal […] may not be the right one and that the issues need to be considered further."
In other words: the Commission is returning to its drawing board. While the proposals are unlikely to be shelved in their entirety, a fast-track expansion of the EUMR to minority shareholdings now looks dead in the water and a further round of refinement of the proposals by the Commission, followed by another round of public consultation, appears inevitable.
This news will provide at least a period of respite to those concerned by the impact on the proposed reforms on the still fragile EU "investment climate" and, in equal measure, cause consternation to those who worry about the continued unchecked harm to competition being caused by certain acquisitions of minority shareholdings.
Both camps must, however, admit that that EU's often maligned public consultation system ("why bother commenting if they do not listen?") has, in this instance at least, proved to be much more than a hollow exercise. In addition, the new Commissioner has taken an early opportunity to demonstrate her "pro- business" and "listening" credentials.