On 5 December 2013, the European Commission (the “Commission”) announced that it has adopted a package of legislative measures to simplify its procedures for reviewing mergers.
The new rules are intended to streamline the procedure for notification of mergers; they have been designed to meet the objectives of the Commission’s Regulatory Fitness and Performance (REFIT) programme and to lessen the ‘red tape’ around EU regulation. Fundamentally, though, the law governing merger control has not changed.
The new rules will be applicable as of 1 January 2014.
The outcome of the Commission consultation which ran earlier this year consulting on changes to the acquisition of non-controlling minority shareholders and reforms to the referral system, is still awaited. It is not covered by this new legislative package.
There are two procedures for notifying mergers to the Commission: (i) the normal review procedure, for which a Form CO is used; and (ii) the simplified review procedure. For mergers that do not give rise to material competitive overlaps or substantive competition concerns a Short Form CO is used.
Currently, these two procedures are governed by (i) the Commission Notice on a simplified procedure for treatment of certain concentrations (the “Simplified Procedure Notice”) (OJ 2005 C56/32); and (ii) Regulation 802/2004 (the “Merger Implementing Regulation”). The Simplified Procedure Notice sets out which mergers are eligible for review under the simplified review procedure; the Merger Implementing Regulation sets out the formalities for each procedure, including at Annex I and Annex II respectively guidance on and a template Form CO and Short Form CO.
The new regime will follow the same legislative structure (i.e. a Simplified Procedure Notice and the Merger Implementing Regulation with Annexes). Amendments have been made to each, including to the Form CO and Short Form CO.
Under the new rules more mergers will be eligible for review under the Commission’s simplified merger procedure and the amount of information required to be provided for each merger review procedure has been reduced.
Simplified Procedure Notice
The new Simplified Procedure Notice has increased the scope of mergers eligible for review under the simplified review procedure as follows:
Certain market share thresholds have been increased – mergers and acquisitions are now eligible for review:
- where the activities of the parties overlap horizontally but the parties have a combined market share of less than 20% – increased from 15%; and/or
- where the activities of the parties overlap vertically but the parties have a combined market share of less than 30% – increased from 25%.
A new ground has been added – mergers and acquisitions are now eligible for review:
- where the activities of the parties overlap horizontally and the combined market share of all the parties to the concentration is between 20% and 50%; and
- the increment ( delta ) of the Herfindahl-Hirschman Index (HHI) – an economic measure of the size of a company in relation to the industry and an indicator of the amount of competition among its competitors – resulting from the concentration is below 150.
(The Commission will decide on a case-by-case basis whether the increase in market concentration level indicated by the HHI delta is such that the case should be examined under the normal merger review procedure).
The Commission estimates that the total ratio of cases treated under the simplified procedure will increase by 10% to 60-70%.
Changes to Merger Implementation Regulation and Annexes
The revised Merger Implementation Regulation and Annexes (i.e. the new Form CO and Short Form CO) are designed primarily to reduce the volume of information required to be provided by the parties. Additionally, the Commission now asks for certain information upfront, so as to reduce the number of questions it has to ask the parties later on in the review process.
In particular, in relation to the Form CO, parties will now be able to request waivers in relation to the requirement to provide certain information, for example (i) acquisitions made during the last three years by group undertakings active in affected markets; (ii) estimates of the total size of the market in terms of sales value and volume; and (iii) details of the most important co-operative agreements engaged in by the parties to the concentration in affected markets.
Additionally, parties are expressly encouraged to assist the Commission in facilitating international co-operation between the Commission and other competition authorities reviewing the same transaction. Parties are now required to submit a list of jurisdictions outside the EEA where the merger is subject to clearance under merger control regimes.
Consistent changes have also been made to the Short Form CO.
Minor changes have also been made to (i) the Form RS; and (ii) the Best Practice Guidelines and the model texts for remedies (divestiture commitments and trustee mandates). These changes largely reflect the changes made to the rest of the package.
These changes are to be welcomed. Submitting merger notifications to the Commission has involved the submission of detailed information, which is often unnecessary in the context of a merger that gives rise to no substantive competition issues. These changes should reduce the time and costs involved in making notifications and we hope will lead to a more streamlined process.