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Trends and climate
How would you describe the current merger control climate, including any trends in particular industry sectors?
2015 was a year of active merger control enforcement for the European Commission: in total, it cleared 318 mergers, 20 of which were cleared with commitments. The commission also issued 11 decisions following Phase II proceedings in 2015 – the highest number since the pre-crisis period in 2007. Based on the latest statistics, 2016 may surpass those numbers (although there may be slightly less Phase II proceedings). However, in general, the intervention rate has not risen much compared with recent years – the increase in Phase II proceedings is more likely attributable to the commission's increasing caseload and ongoing consolidation in a number of sectors, in particular pharmaceuticals and telecoms. In 2015 90% of all transactions notified to the commission were cleared unconditionally in Phase I.
The majority of transactions approved subject to remedies still involve structural remedies (eg, divestments of businesses or development, manufacturing and marketing rights). However, behavioural remedies continue to play an important role, notably in the form of wholesale access remedies or temporary supply or licensing obligations. Unusually, the commission recently accepted a rebranding remedy in the DEMB/Mondelez merger. For divestment remedies, the commission increasingly favours up-front buyer solutions to mitigate the implementation risk in three-to-two mergers and in cases where the purchaser is not easily identifiable.
As consolidation in pharmaceuticals and telecoms continues, the commission continues to undertake active enforcement in these sectors.
In the pharmaceuticals industry in particular, the commission appears to be acting in a more interventionist manner and placing an increasing focus on competition in innovation and overlaps in pipeline products. For example, in the Novartis/GSK Oncology Business merger, the commission considered potential concerns in relation to late stage (Phase III) and earlier stage (Phase I and II) pipeline products. The commission identified concerns that Novartis would likely have stopped developing two innovative drugs with great promise for the treatment of skin and ovarian cancer (for which late stage clinical trials were being conducted) that had also been tested for treating several other types of cancer (for which early stage trials were ongoing). This was on the basis that Novartis would acquire drugs with the same mode of action from GSK, which would have resulted in duplicate clinical programmes. The transaction was cleared subject to remedies to address the commission's concerns.
Simultaneously, the commission appears to be taking an increasingly narrow approach to market definition in pharma cases. Where the commission previously typically defined markets in pharma cases based on Anatomical Therapeutic Chemical Level 3, it now frequently considers competitive overlaps at even narrower levels – for example, by looking at overlaps at a molecular level. If this trend continues, we can expect the commission to continue active enforcement in the pharma sector.
As regards telecoms, a number of recent mergers received a high level of scrutiny from the commission and showed that it takes a tough stance not only on mobile mergers, but also on four-to-three transactions in fixed telecoms. In 2016 the commission went so far as to block a mobile telecoms merger when it issued a prohibition decision in the Hutchison 3G UK/Telefónica UK merger over strong concerns that:
- UK mobile customers would have had less choice and paid higher prices as a result of the merger; and
- the deal would have harmed innovation in the mobile sector.
In other cases, the emphasis has been on strong structural remedies with large divestment packages.
Are there are any proposals to reform or amend the existing merger control regime?
In October 2016 the commission published another consultation on the EU Merger Regulation (139/2004), which seeks to build on the 2009 and 2013 consultations by evaluating the following procedural and jurisdictional aspects of EU merger control in more detail, particularly in the following areas:
- simplification (ie, the treatment of certain categories of cases that do not generally raise competitive concerns);
- the functioning of the turnover-based jurisdictional thresholds set out in the EU Merger Regulation in light of highly valued acquisitions of target companies that have not yet generated substantial turnover (as a result of concerns following the Facebook/WhatsApp merger and proposed amendments to the German merger control regime);
- the functioning of case referral mechanisms (by which jurisdiction to review mergers may be transferred between EU member states and the commission and vice versa); and
- technical aspects of the procedural and investigative framework for the assessment of mergers.
The consultation closes in January 2017.
Legislation, triggers and thresholds
Legislation and authority
What legislation applies to the control of mergers?
The main laws governing merger decisions are the EU Merger Regulation (139/2004) and the 2004 Implementing Regulation (802/2004), as amended by the 2013 Implementing Regulation (1269/2013). The EU Merger Regulation sets out the main rules for the assessment of concentrations, whereas the implementing regulations concern procedural issues (eg, notification, deadlines and the right to be heard). The commission has also published a series of notices and guidelines to help parties in transactions that potentially fall within the scope of the EU Merger Regulation. These include the Consolidated Jurisdictional Notice (2008) and the Notice on the Simplified Procedure (2013).
The laws and non-binding notices and guidelines are available on the European Commission’s Directorate General for Competition’s website.
What is the relevant authority?
The sole authority in charge of enforcing the EU Merger Regulation is the Directorate General for Competition, the European Union's executive body based in Brussels. The commission directly enforces the EU Merger Regulation in the European Economic Area (EEA) and European Free Trade Association (EFTA) member states (ie, Iceland, Liechtenstein and Norway).
The EU Merger Regulation operates on a one-stop shop basis, whereby a transaction that comes under the commission’s jurisdiction need not be notified to the national competition authority in EEA and EFTA member states which would otherwise have jurisdiction over the transaction. National competition authorities are precluded from applying their own rules to the transaction in this context, except in specific circumstances.
Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?
Only so-called 'concentrations' with an EU dimension fall within the scope of the EU Merger Regulation.
The concept of a 'concentration' covers transactions that result in a lasting change of control. ‘Control’ is defined as rights, contracts or other means which, separately or in combination, and in all factual and legal circumstances, confer on the acquirer of control the ability to exercise decisive influence over an undertaking. Control may be held by one party (sole control) or by several parties acting jointly (joint control). There is no strict percentage shareholding test, although control has been found to exist on the basis of as little as a 27% shareholding (eg, the Pirelli/Edizione/Olivetti/Telecom Italia merger), based on evidence of attendance rates of less than 27% of voting rights from shareholders' meetings during the three preceding years.
A concentration has an EU dimension only where it satisfies the turnover thresholds under the EU Merger Regulation. In the case of concentrations without an EU dimension, the national competition authorities in EU member states may review the merger.
Do thresholds apply to determine when a transaction is caught by the legislation?
Only concentrations with an EU dimension must be notified to the commission under the EU Merger Regulation. According to Article 1 of the regulation, a concentration has an EU dimension where the parties' combined worldwide turnover exceeds €5 billion and the EU-wide turnover of at least two parties exceeds €250 million, unless each party achieves more than two-thirds of its EU-wide turnover within one member state.
Unless each party achieves more than two-thirds of its EU-wide turnover within one member state, a concentration that does not meet the above thresholds has an EU dimension where:
- its combined worldwide turnover exceeds €2.5 billion;
- the combined turnover of all parties exceeds €100 million in at least three member states;
- the turnover of at least two parties exceeds €25 million in each of at least three member states included for the purpose of the previous point; and
- the EU-wide turnover of at least two parties exceeds €100 million.
Article 4(4) of the EU Merger Regulation allows notifying parties to request the referral of a concentration with an EU dimension, which would otherwise be within the commission’s jurisdiction, to the competent national competition commission.
Article 4(5) of the EU Merger Regulation allows notifying parties to request the referral to the commission of a concentration that has no EU dimension, but is notifiable to the national competition authorities of at least three EU member states.
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?
The commission may provide informal guidance on questions from parties directly relating to a planned transaction – for example, jurisdictional questions – where the parties provide sufficiently detailed background information to allow the commission to properly assess the question. Simultaneously, pre-notification contacts with the commission are standard, even for simplified procedure notifications. This usually involves email correspondence and conference calls with the case team and the submission of a draft version of the Form CO notification template. Pre-notification may involve discussions on the possibility of referrals to or from national competition authorities within the European Union or parallel proceedings in non-EU jurisdictions.
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?
The EU merger control regime applies regardless of whether the relevant thresholds are met.
What types of joint venture are caught by the legislation?
Where the joint venture performs on a lasting basis all the functions of an autonomous economic entity and is thus ‘full function’, a filing is required. Non-full function joint ventures are not caught by the legislation, but may trigger filing obligations in EU member states, such as Austria, Germany and Poland.
Process and timing
Is the notification process voluntary or mandatory?
For concentrations with an EU dimension, the notification process is mandatory.
What timing requirements apply when filing a notification?
There is no deadline for notifying, but a transaction cannot be implemented without approval.
Filing before signing is also possible. Notification may be made if the participating companies demonstrate to the European Commission that they have a good-faith intention to conclude an agreement (eg, on the basis of an agreement in principle, a letter of intent or a memorandum of understanding). The plans must be sufficiently concrete.
What form should the notification take? What content is required?
The 2013 Implementing Regulation (which implemented EU Merger Regulation (139/2004)) states that notifications must be submitted in the manner prescribed by the Form CO notification template, which requires the submission of information regarding:
- the parties’ activities;
- their views on how the relevant markets should be defined;
- horizontal overlaps; and
- any vertical relationships between the parties.
Copies of the transaction agreements and other supporting documents are also required, as well as detailed market data and contact details for customers, competitors and trade associations. Market dynamics, including the structure of supply and demand in affected markets, must also be discussed.
Transactions qualifying for the so-called 'simplified procedure' can be notified using the Short Form CO notification template. Transactions qualifying for the so-called 'super simplified procedure' can also be notified using the Short Form CO notification template and may be filed without the need to go through a pre-notification procedure.
The benefits of using a Short Form CO rather than a Form CO are that:
- the Short Form CO’s disclosure obligations are less burdensome on the parties (ie, less market data and fewer internal documents are required);
- there is an absence of market testing (and the burdensome requirement to provide contact details to facilitate the commission's market outreach); and
- it is easier to obtain prompt clearance from the commission.
The vast majority of cases notified to the commission use a simplified procedure (statistics released by the commission put the volume of such cases between 60% to 70% of all notifications under the EU Merger Regulation). However, the commission can revert to a full Form CO in certain circumstances and this inevitably impacts has a negative impact on overall timing.
Form CO and Short Form CO templates are found in the annexes to the 2013 Implementing Regulation.
Notification can be made in any official EU language.
Is there a pre-notification process before formal notification, and if so, what does this involve?
Pre-notification contacts are triggered with the submission of a case allocation request form to the merger registry of the European Commission’s Directorate General for Competition. The request form should provide:
- a brief background of the transaction;
- a brief description of the relevant sectors and markets involved;
- details of the transaction’s likely impact on competition in general terms; and
- an indication of the case language.
On the basis of the case allocation request form, the commission will allocate a case team to the transaction.
The commission strongly recommends pre-notification contacts in which draft versions of the formal notification are reviewed and possible questions answered. Notifications for simple 'no issues' transactions generally take between one to three weeks from the submission of a preliminary draft to the case team to be accepted by the commission. In complex cases, it may take up to four to six months or longer. In ‘super-simplified’ cases (ie, the establishment of a joint venture outside the European Economic Area or where there are no horizontal or vertical overlaps), the commission has indicated that it will accept notifications without a pre-notification period. However, a case allocation form must still be submitted. In practice, even in super-simplified cases, the parties typically go through pre-notification to ensure that the case team is comfortable that the transaction qualifies for the super- simplified procedure before formal notification.
During pre-notification, notifying parties are advised to disclose fully and frankly information relating to potentially affected markets and possible competition concerns, even if they may ultimately consider that they are not affected and, notwithstanding that, may take a particular view in relation to, for example, the issue of market definition. This will allow for early market testing of alternative market definitions and the notifying parties’ position on the markets in question.
Further, the European Commission’s Directorate General for Competition recommends that notifying parties should, as early as possible in pre-notification, submit internal documents such as board presentations, surveys, analyses, reports and studies discussing:
- the proposed concentration;
- the economic rationale for the concentration; and
- the competitive significance or market context in which it takes place.
Can a merger be implemented before clearance is obtained?
Pursuant to Article 7(1) of the EU Merger Regulation (139/2004), a concentration with an EU dimension cannot be implemented before it has been notified to the commission and been declared compatible with the regulation (the so-called 'standstill obligation').
The commission will grant exceptions to the standstill obligation only in exceptional cases, where it is satisfied that the harm to the notifying parties or a third party from complying with the standstill obligation is greater than the possible negative effects on competition as a result of the proposed transaction.
Guidance from authorities
What guidance is available from the authorities?
In addition to informal guidance available from the commission, it has also published on its website numerous best practice guidelines and notices and guidelines providing important guidance for mergers.
Regarding substance, the guidance covers:
- horizontal and non-horizontal mergers;
- relevant market definition;
- remedies; and
- ancillary restraints.
Regarding procedure, the guidance covers:
- jurisdiction (consolidated jurisdictional notice);
- simplified procedures; and
- case referrals.
Further, the best practice guidelines cover:
- the conduct of EU merger control proceedings;
- the submission of economic evidence;
- divestiture commitments; and
- the disclosure of information in data rooms.
What fees are payable to the authority for filing a notification?
No fees are payable for filing a notification.
Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?
Throughout its investigation, the commission will protect confidential information and business secrets contained in submissions provided by all parties involved in merger proceedings. Given the short deadlines of the merger review process under the EU Merger Regulation, parties are encouraged to clarify as soon as possible any queries relating to confidentiality claims with members of the case team. Where a transaction has not been publicly announced, the commission can engage only in pre-notification discussions. A formal notification can be submitted only once a transaction has been announced. A formal filing becomes public knowledge.
Only a brief summary of the transaction will be published on the commission's official website, not the notification itself. A notice will subsequently be published in the EU Official Journal summarising the transaction in question and inviting interested third parties to submit to the commission their possible observations on the proposed concentration.
Are there any penalties for failing to notify a merger?
Yes. The commission can impose a fine of up to 10% of the aggregate worldwide turnover of the parties on which the filing obligation rests for failure to notify a notifiable transaction.
The commission can also require a transaction to be unwound or take any other measure to ensure that effective competition conditions are restored.
Procedure and test
Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?
The procedures that the European Commission follows are set out in the EU Merger Regulation (139/2004), the 2004 Implementing Regulation (802/2004), as amended by the 2013 Implementing Regulation (1269/2013), and its notices and guidance.
The commission must make a decision within 25 working days in Phase I. This period can be extended to 35 working days where:
- an EU member state requests a downward referral of the case to its national competition authority for review pursuant to national law before the 15th working day of the review process; or
- the parties to the planned merger propose Phase I remedies to the commission to address possible competition concerns before 20th working day of the review process.
In 'no issues' cases, the commission will sometimes provide its Phase I decision as early as the 17th or 18th working day.
The deadline for Phase II cases is 90 working days from the date of the commission's decision to initiate Phase II proceedings.
This period is extended to 105 working days where the parties offer remedies to address competition concerns on or after the 55th working day (and before the 65th working day) following the initiation of Phase II proceedings. Further, the notifying parties may request that the Phase II period be extended by up to 20 working days or the commission may, with the parties’ agreement, extend the period by up to 20 working days to a maximum of 125 working days. However, the total duration of any such extension or extensions cannot exceed 20 working days.
Under Article 10(4) of the EU Merger Regulation, the commission also has the power to 'stop the clock':
"The periods [set by Article 10] shall be exceptionally suspended where, owing to circumstances for which one of the undertakings involved in the concentration is responsible, the Commission has had to request information by decision pursuant to Article 11 or to order an inspection pursuant to Article 13."
Further guidance on the mechanism for stopping the clock is set out in Article 9 of the 2004 Implementing Regulation. Article 9(1) provides that the EU Merger Regulation timetable is automatically suspended when the commission adopts:
- an Article 11(3) EU Merger Regulation decision seeking information from a party; or
- an Article 13(4) EU Merger Regulation decision ordering an inspection of a party's premises.
The 2004 Implementing Regulation specifies in particular that an Article 11(3) EU Merger Regulation decision will be adopted where:
- a party to the transaction has not provided information to the commission in compliance with an informal request for information within the specified time period;
- a third party has not provided information to the commission in compliance with an informal request for information within the specified time period owing to circumstances for which one of the parties is responsible; or
- the parties have failed to inform the commission of a material change in the facts contained in the Form CO of any new information that could have a significant impact on the transaction’s appraisal.
Article 9(3) of the 2004 Implementing Regulation sets out how the suspension is incorporated into the EU Merger Regulation timetable:
- For the first two points above, the clock stops between the date of the informal request for information and the date on which complete and correct information is received by the commission.
- For the third point above, the clock stops between the date on which the facts changed and the date on which complete and correct information is received by the commission.
In essence, the clock starts on the working day following complete compliance.
In theory, a suspension can take place at any time during the regulatory timetable under the EU Merger Regulation. However, the commission is extremely reluctant to stop the clock during Phase I and this has not happened recently.
What obligations are imposed on the parties during the process?
Parties must cooperate with the commission during the process. A fine may be imposed of up to 1% of the aggregate turnover of a company that intentionally or negligently, provides incorrect or misleading information in a notification. The same fine may also be imposed for providing misleading or incorrect information in response to an informal request for information or a formal request for information by decision (liability also attaches to the supply of incomplete information in such circumstances).
What role can third parties play in the process?
Third parties have a significant role in the commission's review. In carrying out its duties, the commission may obtain all necessary information from relevant persons, undertakings, associations of undertakings and competent EU member state authorities.
Under EU merger control law, third parties considered to have a sufficient interest in the commission's procedure include:
- members of the administration or management organs of the undertakings concerned; or
- recognised worker representatives of those undertakings.
Further, the commission also welcomes the views of any other interested third parties, including consumer organisations.
The primary way for third parties to contribute to a commission investigation is through replies to information requests. However, the European Commission’s Directorate General for Competition also welcomes individual submissions, apart from direct replies to questionnaires, where third parties provide information and comments that they consider to be relevant to the assessment of a given transaction. The Directorate General for Competition may also invite third parties to meetings to discuss and clarify specific issues raised.
Further, the Directorate General for Competition may, in appropriate cases, provide third parties that have shown a sufficient interest in the procedure with an edited version of the statement of objections from which business secrets have been removed, in order to allow them to give their opinion on the commission’s preliminary assessment. In such cases, the statement of objections is provided under strict confidentiality obligations and restrictions of use, which the third parties have to accept before receipt. Third parties may also apply to attend the oral hearing in Phase II and give their opinion orally if requested by the notifying parties.
If third parties wish to express competition concerns regarding the transaction in question or present views on key market data or characteristics that deviate from the notifying parties’ position, it is essential that they are communicated as early as possible to the Directorate General for Competition so that they can be properly considered and verified. Any point raised should be substantiated and supported by examples, documents and other factual evidence.
What is the substantive test applied by the authority?
The substantive test under Articles 2(2) and (3) of the EU Merger Regulation is whether a concentration is likely to impede effective competition significantly, particularly as a result of the establishment or strengthening of a dominant position in the common market or a substantial part of it.
The commission's guidelines on horizontal and non-horizontal mergers set out how the substantive test is applied in practice.
In horizontal and non-horizontal mergers, the commission will assess whether the merger is likely to result in non-coordinated and/or coordinated effects.
In horizontal mergers, the commission will examine whether the merger in question will result in:
- non-coordinated effects by increasing the market power of the merging parties by removing important competitive constraints on them or by creating single firm dominance; or
- coordinated effects by leaving the merged firm in a position where it would have the ability and incentive with its rivals in a concentrated market to coordinate their competitive behaviour at the expense of customers and without tacitly agreeing on cooperation (ie, engaging in cartel-like activity).
In vertical mergers, the commission looks for evidence of whether:
- the non-horizontal merger is likely to result in foreclosure – that is, any instances where actual or potential rivals' access to supplies or markets is hampered or eliminated as a result of the merger, thereby reducing their ability or incentive to compete (ie, non-coordinated effects); and
- the merger is likely to change the nature of competition in such a way that firms that previously did not coordinate their behaviour are now significantly more likely to do so to raise prices or otherwise harm effective competition (ie, coordinated effects).
The commission will also consider coordinated and non-coordinated effects in conglomerate mergers (ie, transactions between parties not active on the same horizontal or vertically related market, but on closely related markets).
Spill-over effects will not be assessed separately, but as part of the notification.
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?
No. The same penalties will be imposed on:
- parties that violate the EU Merger Regulation's standstill obligation; and
- parties that implement parts of an operation subject to notification outside the European Union before it has been notified to and a clearance has been obtained from the commission.
Even though the EU Merger Regulation mentions the possibility of obtaining derogations from the standstill obligation, case law shows that derogations have been granted in only a few cases.
Test for joint ventures
Is a special substantive test applied for joint ventures?
No. The same above-mentioned substantive test applies to full-function joint ventures (non-full function joint ventures are not caught by the EU Merger Regulation).
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.
Following the investigation, the European Commission may:
- unconditionally clear the merger in Phase I or Phase II;
- approve the merger subject to remedies in Phase I or Phase II; or
- prohibit the merger in Phase II if no adequate remedies to the competition concerns have been proposed by the merging parties.
If the commission has concerns that the merger may significantly affect competition, the merging companies may offer remedies (‘commitments’), by proposing certain modifications to the project that would guarantee continued competition on the market. Companies may offer commitments in Phase I or in Phase II. Commitments must be described in the Form RM template with detailed information on the object of the commitments offered and their implementation.
The commission analyses whether the proposed remedies are viable and eliminate competition concerns. It also considers the views of market participants in a market test. If the remedies are accepted, they become binding on the companies. An independent trustee is then appointed to oversee compliance with these commitments.
Right of appeal
Is there a right of appeal?
All European Commission decisions and procedural conduct are subject to review by the EU General Court and ultimately by the European Court of Justice (on points of law only).
Do third parties have a right of appeal?
Yes. Third parties (eg, customers, suppliers, competitors and members of the administration or management organs of the undertakings concerned) can appeal the commission's decisions provided that they can demonstrate that the decision in question concerns them directly and individually.
What is the time limit for any appeal?
The limitation period for filing an appeal to annul a merger decision is two months (and 10 days on account of distance).
Nonetheless, the start of the limitation period depends on who is bringing the appeal. For addressees of the decision (eg, the notifying parties), it starts from the date on which the parties are notified of the decision by the commission.
For non-addressees, the start of the limitation period varies depending on how the decision is published:
- If the decision is published in the Official Journal or on the commission's website, the limitation period starts from the date of publication.
- The time limit can also begin if the decision has not been published in the Official Journal or on the commission's website. In this case, the time limit will start from the date on which the non-addressee acquires actual knowledge of the decision and its content.
Law stated date
Correct as of
Please state the date as of which the law stated here is accurate.
November 17 2016.