The Commission has adopted a merger control simplification package that aims to cut the red tape associated with merger control procedures under the EU Merger Regulation.
On 20 April 2023, the European Commission adopted a merger control simplification package consisting of a revised Merger Implementing Regulation, a new Simplified Procedure Notice, and a Communication on the transmission of documents. These new rules will come into force on 1 September 2023 and will cut some of the current “red tape” in merger control procedures under the EU Merger Regulation (“EUMR”) by bringing more transactions within the scope of the simplified merger procedure and introducing additional simplifications to the notification process.
Streamlining the simplified merger control procedure
Each year, a large number of unproblematic mergers, acquisitions, and joint ventures (“JVs”) are caught by the EUMR turnover thresholds and must be notified to the Commission. The simplified merger procedure was introduced in 2000 to expedite the treatment of such cases by reducing the amount of information that has to be provided to the Commission and enabling notifying parties to secure merger clearance more quickly. However, the scope of the simplified procedure remains limited, despite having already been extended in 2013. There are still too many cases that raise no prima facie competition concerns, but are not eligible for treatment under the simplified procedure and where notifying parties must go through the normal merger control procedure and submit a full merger notification (Form CO) to the Commission.
Against this background, the Commission has decided to revise and expand the scope of application of the simplified procedure to additional categories mergers, which feature limited horizontal or vertical relationships between the parties. As result, more cases should benefit from the simplified procedure, which will generally be available for a broader range of transactions:
- Acquisitions by one party of sole control over an undertaking over which it already has joint control.
- Acquisitions of joint control of a JV, whose current and expected annual EEA turnover (including the turnover of any activities contributed to the JV) is less than EUR 100m (to the extent there are plans to transfer assets to JV in the EEA, the total value of those assets must also be less than EUR 100m).
- Acquisitions that involve no horizontal overlaps or vertical relationships.
- Acquisitions that, under all plausible market definitions, fulfil the following conditions:
- the combined market shares created by any horizontal overlap are lower than 20% or under 50% provided the increment of the Herfindahl-Hirschman Index (HHI) arising from the transaction is below 150; and
- the market shares of undertakings in a vertical relationship are lower than:
- 30% on the upstream and downstream markets;
- 30% on the upstream market, provided the parties active in the downstream market hold a purchasing share of less than 30% of upstream inputs; or
- 50% on both the upstream and downstream markets, provided the HHI increment created by the transaction is below 150 on both markets and the undertaking with the smallest market share is the same in the upstream and downstream markets.
The Commission will also have discretion to apply the simplified procedure to transactions that do not fall within these categories if (i) any horizontal overlap results in a combined market share of below 25%, and (ii) insofar as there are vertical relationships, the upstream and downstream market shares of the parties remains below 35%. The Commission’s discretion to apply the simplified procedure will also extend to JVs with turnover and assets below 150m in the EEA, and to cases that feature vertical relationships where the parties’ market share does not exceed 50% in one market and 10% in the other vertically related market.
The Commission always retains the power to deprive a transaction of the benefits of the simplified procedure. Previous experience has shown that this can cause issues since it is not always possible to accurately predict when the Commission will revert to the normal procedure. Accordingly, in an attempt to reduce uncertainty in this area, the Simplified Procedure Notice has been expanded and now includes a more detailed list of the circumstances in which the simplified procedure is likely to be abandoned. This includes situations where: (i) the relevant market(s) are difficult to define; (ii) one of the parties has a significant user base or holds what is considered to be commercially valuable data; (iii) one of the parties has significant non-controlling shareholdings in companies active in the market(s) where another party is active; and/or (iv) the parties are active in closely related neighbouring markets.
In addition, to reduce the cost and administrative burden associated with simplified procedure cases, the new rules introduce a simplified Short Form CO with tables and a "tick-the-box" format based on a series of multiple-choice questions. Notifying parties will also be able to submit all merger notifications in electronic form (which will become the default position in the future), which may also facilitate the use by the Commission of digital tools to accelerate its review of simplified filings.
Finally, the new rules emphasise the ability of parties to make use of a “super simplified procedure” that enables notification without prior pre-notification discussions for: (i) mergers with no horizontal or vertical overlaps between the parties; and (ii) acquisitions of joint control over a JV that has no activity and assets in the EEA. The basis for this treatment is that prenotification discussions are (rightly) deemed to be superfluous in such cases. This further aligns EU merger control with the merger control regimes in several Member States which do not require, or indeed expect, pre-notification discussions in non-problematic cases.
Streamlining the standard merger control procedure
The Implementing Regulation has also been revised to streamline the standard merger control procedure by reducing and clarifying the information requirements imposed on notifying parties. For example, the standard Form CO template has been updated to include tables for information on affected markets, and to exclude certain types of information that will no longer need to be systematically provided to the Commission (e.g. information relating to cooperative agreements, trade between Member States and/or ex EEA imports, and trade associations). The Commission will also be able to make greater use of waivers to dispense notifying parties from the need to provide certain types of information as part of their Form CO.
The new rules are a step in the right direction and should improve the EU’s merger control procedures, allowing the Commission to better focus its resources on difficult cases whilst lessening the burdens and costs imposed on notifying parties. However, more types of transactions could arguably have been brought within the scope of the simplified procedure and the Commission could also have committed itself to dispense with pre-notification discussions for the vast majority of transactions reviewed under the simplified procedure.
It remains to be seen how well the newly designed Short Form CO, with its “tick the box” and table format, will work in practice since information may not always be amenable to be presented in a way that neatly dovetails into the new template. It is also unclear how the Commission will assess whether potential market segment permutations amount to plausible relevant markets when determining whether a transaction is eligible for the simplified procedure, and how often it will make use of its power to revert to the normal procedure. The Commission will hopefully remain pragmatic and focussed in its approach, but it has significant discretion and the way in which it will exercise that discretion is likely to determine the extent to which the simplification package achieves its intended objectives.
Regardless of whether the new rules succeed in simplifying and delivering tangible improvements to the Commission’s merger control procedure, they will not alter the basic fact that the EUMR will continue to capture many unproblematic transactions, an underlying problem which can only be addressed through a more radical overhaul of the EUMR, something which is (perhaps unfortunately) currently not on the agenda and would require buy in from EU Member States.