In the past couple of years, the European Commission has decided to review and evaluate the functioning of different aspects of the EU merger control regime regulated by EU Regulation No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EU Merger Regulation), its implementing regulation and related notices and guidelines.
The process started in 2014 when the Commission adopted a White Paper titled “Towards More Effective EU Merger Control” (the White Paper), which presented the Commission’s view that EU merger control worked well and that no fundamental overhaul of the system was needed. The Commission did, however, identify specific amendments to the EU Merger Regulation to make it more effective.
In the wake of the positive feedback it received during the consultation it organised following the publication of the White Paper, the Commission launched another public consultation in October 2016 on the “Evaluation of procedural and jurisdictional aspects of EU merger control”, through which it is seeking feedback from stakeholders on the effectiveness of certain additional procedural and jurisdictional aspects of EU merger control. Stakeholders have until 13 January 2017 to respond.
Key Proposals in the White Paper
Introducing a Light and Tailor Made Review of Acquisitions of Non-Controlling Minority Shareholdings That Could Harm Competition
The Commission recognised that, in some instances, acquisitions of minority shareholdings could be detrimental to competition, particularly those of competitors or vertically related companies. Competitive harm may arise, for example, from the influence acquired over a competitor’s strategic decisions or access to a competitor’s confidential business information.
Unlike the merger control rules in some EU Member States and countries such as Canada, Japan and the United States, the EU Merger Regulation does not allow the Commission to address competition concerns that may arise from minority shareholdings, which could, according to the Commission, constitute an enforcement gap.
For example, the Commission has prohibited the merger of Ryanair and Aer Lingus twice since 2007, as it found that the dominant position created by the merger would be harmful to the 11 million EU consumers flying annually to and from Ireland. Conversely, the Commission lacked jurisdiction to review Ryanair’s near 30 per cent minority shareholding in Aer Lingus, which was subsequently reviewed by the UK Competition and Markets Authority. The UK Authority only had jurisdiction over flight routes from Ireland to the United Kingdom, and could not have reviewed the transaction in the context of the entire European Union.
As a result of this analysis, the Commission proposed in the White Paper a tailor made review system limited to certain categories of minority shareholdings. The Commission highlighted that these changes would specifically be targeted at EU-impacting transactions that give a certain degree of influence in a competitor or a vertically related company and could therefore be problematic from a competition point of view. According to the Commission, this would apply to between 20 and 30 cases per year and would leave benign transactions, notably companies’ restructuring efforts or the private equity market, completely unaffected.
Making Case Referrals Between EU Member States and the European Commission More Business-Friendly and Effective
The White Paper stated the Commission’s aims to reduce the administrative burden on businesses and on itself, to enhance the one-stop-shop approach, and to streamline allocation of cases to the most appropriate authority.
For pre-notification referrals to the Commission, the requirement for two separate submissions (a referral request and a subsequent notification) would be abandoned to make the process quicker and less burdensome. The Commission would have European Economic Area (EEA)-wide competence to review a transaction received via post-notification referral, with the aim of avoiding parallel reviews by the Commission and national competition authorities (NCAs).
Fostering Coherence and Convergence Between EU Member States
The White Paper showed an intention from the Commission to promote enhanced cooperation between itself and NCAs, as well as amongst NCAs when reviewing a merger that does not fall under the Commission’s jurisdiction, in order to avoid contradictory or divergent decisions.
The Commission acknowledged the high degree of convergence already achieved, and the White Paper supported, in principle, the idea of moving towards a system where the Commission and all NCAs would apply the same substantive EU law.
Streamline and Simplify Procedures
The White Paper suggested excluding certain, non-problematic transactions from the Commission’s review, such as the creation of joint ventures operating outside the EEA and those with no impact on European markets.
In addition, consideration was given to further extend the light review system based on a simple information notice to some categories of non-problematic cases currently dealt with under a simplified procedure. This would further reduce costs and administrative burdens on businesses.
The 2014 Public Consultation
Respondents to the 2014 consultation mostly agreed that the EU merger control system worked well overall and viewed favourably the White Paper’s proposals in relation to the streamlining of the case referral system and the simplification of procedures.
Stakeholders were, however, more critical as regards the necessity of introducing a review of minority shareholdings, considering that
- The enforcement gap was not sufficient to call for new regulation.
- The most potentially problematic cases of minority shareholding acquisitions could be dealt with by existing rules.
- Theories of harm in relation to minority shareholdings only apply in very limited circumstances and there is not enough empirical evidence of these existing in practice.
- The proposed system would capture many more than the Commission’s estimate of 20 to 30 cases per year.
The 2016 Public Consultation
According to the Commission, the 2016 consultation aims in particular to establish the effectiveness, relevance, efficiency and coherence of
- The jurisdictional thresholds set out in the EU Merger Regulation
- The simplified procedure applying to certain categories of concentrations as set out in the EU Merger Regulation, its implementing Regulation and the Commission Notice on simplified procedure
- Certain technical aspects of the procedural and investigative framework for the assessment of mergers
- The referral system as set out in the EU Merger Regulation, related provisions of its implementing regulation and the Commission notice on case referral
Of these topics, the issue of the jurisdictional thresholds set out in the EU Merger Regulation is the most interesting as, at present, it only applies to concentrations with an EU dimension, i.e., those where the undertakings concerned meet the different relevant turnover thresholds.
In the aftermath of the 2014 public consultation, a debate emerged on the effectiveness of these purely turnover-based jurisdictional thresholds. The question centred specifically on whether or not they allow the capture of all transactions that can potentially have an impact in the internal market.
This may be particularly significant for the digital economy, where services are regularly launched to build up a significant user base before a business model is determined that would result in significant revenues. Relevant business models may involve the formation of commercially valuable data inventories without generating corresponding turnover, at least in an initial period. Players in the digital economy may therefore have considerable market potential, but generate only a small turnover at the moment when jurisdiction needs to be established for EU merger control purposes. This perceived legal gap may not only concern the digital industry, but also other industry sectors, such as pharmaceuticals.
The acquisition of companies with a low turnover is likely not to be captured under the current notification requirements of the EU Merger Regulation, even in cases where the acquired company already plays a competitive role, holds commercially valuable data, or has a considerable market potential for other reasons. It has therefore been suggested that the existing turnover-based jurisdictional thresholds of the EU Merger Regulation should be complemented by additional notification requirements based on alternative criteria, such as the transaction value.
The Commission expects to publish the responses to the 2016 public consultation in early 2017. Depending on the results of the consultation, the Commission will assess whether or not any policy and/or legislative measures are warranted.