The creation of a joint venture between two or more companies, using a company which was previously controlled solely by one parent, is not subject to EU merger control where the joint venture itself is not an independent player on the market. So ruled the European Court of Justice (ECJ) in Austria Asphalt v Bundeskartellanwalt, published on 7 September 2017.
The creation of a joint venture (JV) can only be subject to the EU Merger Regulation (EUMR) where the JV is a "full-function" JV. However, until now it has not been clear whether a change in control of a non "full-function" JV would also be subject to the EUMR.
Under the EUMR, a JV is "full-function" if it performs on a lasting basis all the functions of an autonomous economic entity, i.e. it is active on the market as an independent entity. A JV must, in particular, have sufficient assets, personnel and financial resources to perform its business independently of its parents. A JV will not be full-function if it only takes over a specific aspect of a parent company's business, such as production or distribution.
Merger guidance issued by the European Commission (EC) does not expressly state that a joint venture resulting from a change in control must be full-function to be subject to the EUMR. The EC has not always assessed whether the full-function criteria were met in previous merger decisions involving such joint ventures.
In Austria Asphalt, an asphalt plant in Austria belonged exclusively to one large construction company. The intention is to convert the plant into a joint venture, so that it will be operated jointly by the company and another construction company. The plant is not "full-function" because its business is limited to supplying goods to its current parent company - and, in future, to its two parent companies - and it does not otherwise have any significant presence on the market.
The Austrian Supreme Court had to decide whether the acquisition of joint control over the asphalt plant required notification to the EC. It referred the matter to the ECJ for a preliminary ruling on this point.
The ECJ has now clarified that the EUMR only applies if the JV resulting from the change in control is full-function (as defined above). This is because only full-function JVs bring about genuine changes in the structure of the market. This is consistent with the meaning of the EUMR.
A change in control of a company which creates a non full-function JV will therefore fall outside the EUMR, although it may be caught by Member States' national merger control rules or by EU/national competition laws prohibiting anti-competitive agreements.
The ECJ's clarification is welcome, particularly for sectors where non full-function joint ventures are common, such as energy. The ECJ has recognised that the formation of a JV should be subject to the same merger control rules, whether it is formed as a new entity or from an existing subsidiary.