Transactions involving parties with sales in the EU (even if they are not EU-based companies) may need to be the subject of a merger notification in Europe.
Pre-completion clearance from the European Commission (following the submission of what is referred to as an ECMR notification) may be required for transactions involving large companies with significant EU revenue. Notification will generally not be required unless the parties have combined worldwide revenue of at least € 2,500m and at least two of the parties involved have revenue in the EU of more than € 100m (other thresholds also apply, but these represent a minimum requirement to trigger notification). If a single ECMR notification is not required, it may still be the case that notifications to the national competition authorities of one or more Member States will be triggered.
Notifications to national competition authorities
In the vast majority of EU countries, pre-completion clearance of mergers and joint ventures will be required where the statutory jurisdictional filing thresholds are satisfied. In the UK, notification is not mandatory even if the thresholds are satisfied. The majority of national filing thresholds are based simply on the turnover (i.e., revenue) achieved by both parties in the country in question, together with, in some cases, a world-wide turnover threshold.
Some jurisdictions also have alternative market share tests. These are: Greece, Latvia, Spain, Slovenia, Portugal and the UK (note that in the UK this does not necessarily equate to an economic market test and is simply a jurisdictional test).
In some jurisdictions, notifications/filings may be triggered on the basis of the sales/ market share of just one party, i.e., you may still have to notify even if there is no overlap between the parties in that country.
If notifications are required in at least three different Member States, then the parties may make a request that the transaction is instead dealt with in a single ECMR notification to the European Commission. Vice versa, if an ECMR notification is triggered, the parties may in some circumstances request that a national notification be made rather than an ECMR notification.
The purchaser typically takes the lead in drafting the necessary notifications, although contracts usually provide that both parties will cooperate in obtaining necessary clearance. Fees are payable in some jurisdictions (but not to the European Commission) for the filing and clearance process. These differ considerably.
Most countries’ merger review processes are structured such that those mergers that qualify for investigation are subject to a preliminary review (Phase I), which may then lead to an in-depth review (Phase II) where there is a risk of a significant impact on competition (review of ECMR notifications involves a similar two phase process). Typically, Phase I lasts around one month and the Phase II may last anywhere between two and six months.
In most jurisdictions, the substantive test is whether the merger would lead to a significant adverse effect on competition or lead to the creation of a dominant market position. In all cases, this necessarily requires an assessment of the strength of competition in the relevant market or markets; the market power that the merged entity would have relative to its competitors, customers and suppliers; and the market constraints that would deter it from increasing prices, limiting output or foreclosing competition in other ways.
Making an ECMR notification or filings in any individual EU country will necessarily impact on the timing of deals, since in the vast majority of cases, a deal can only be closed/completed once clearance has been granted. It is therefore vitally important to carry out an analysis as early as possible in order to work out if and where any filings may be required and how that is likely to impact the deal’s timetable.
Merger notifications in Europe are much more detailed than the equivalent HSR filings in the United States, and consequently the drafting process is more time consuming. For example, they will require full analysis of the markets and the likely effects of the transaction.