This article is an extract from GTDT Market Intelligence Merger Control 2022. Click here for the full guide.

The lawyers in the White & Case EU competition law practice assist clients with all aspects of mergers and acquisitions involving a European element. Our team has taken the lead in devising creative deal structures, designing acquisition and divestiture programmes, and planning and implementing strategies for acquirers, sellers and potential acquisition targets in domestic and cross-border transactions. We provide our clients with support in safely negotiating their way through all stages of merger control procedures.

Our direct, regular contact with the antitrust authorities and our thorough knowledge of antitrust law and national requirements throughout Europe enable us to overcome potential hurdles swiftly and efficiently and obtain European and national approvals for major worldwide deals.

We work hard to win clearance (even for potentially controversial transactions) in Phase I of the procedure, but if that is not possible then we put our litigation expertise to use in Phase II.

1 What are the key developments in the past year in merger control in your jurisdiction?

Broadly, the regulatory environment for mergers in Europe has been getting increasingly more difficult. We have seen an unprecedented expansion of merger control in Europe: the changed approach to the referral process under article 22 of the European Union Merger Regulation (EUMR), the obligation under the Digital Markets Act (DMA) on gatekeepers to inform the European Commission (EC) of any transaction they do and specific case law have undermined the EU’s one-stop-shop principle. In addition, both the EC and national competition authorities have become more hawkish in enforcing merger control rules.

The change in the referral policy under article 22 of the EUMR remained at the centre of attention in 2022. The change aims to address a perceived enforcement loophole and to ensure that the EC can review transactions in which the target’s turnover ‘does not reflect its actual or future competitive potential’, typically in innovative markets such as pharma and digital.

The EC applied its new referral policy for the first time to establish jurisdiction over Illumina’s acquisition of GRAIL in early 2021. Illumina appealed the EC’s decision before the General Court (GC), asserting that there was no legal basis for the EC’s intervention and that it was, in any event, time-barred. On 13 July 2022, the GC upheld the EC’s decision and confirmed the EC’s powers to expand merger control to transactions below the relevant merger control thresholds.

According to the GC, four cumulative conditions must be met for an article 22 referral, namely (1) one or more member states must make a referral request, (2) the transaction must qualify as a ‘concentration’ under the definition provided in the EUMR without meeting the EUMR revenue thresholds, (3) the transaction must affect trade between member states and (4) the transaction must ‘threaten to significantly affect competition’ within the territory of the member states that made the referral request.

The GC reasoned that the term ‘any concentration’ used in article 22 must be interpreted as meaning that a member state may refer to the EC any transaction that satisfies the cumulative conditions, even if the thresholds are not met. The GC rejected the argument that use of the referral mechanism under article 22 should be limited to member states that do not have their own merger control systems, and sided with the EC’s view that article 22 EUMR should be seen as an ‘effective corrective mechanism’ that supplements the inefficiencies of rigid turnover thresholds.

The GC also rejected Illumina’s argument that the EC breached the principles of protection of legitimate expectations and legal certainty. Although there was a policy change, Illumina failed to prove that the EC had provided ‘precise, unconditional and consistent assurances’ that it would not change its policy on article 22 referral requests. Further, although the GC criticised the EC for the significant delay in initiating the referral process, it held that the 15-working-day deadline to refer a request was met. In line with the EC’s approach set out in its article 22 guidelines, the GC confirmed that the deadline starts running only when the transaction is ‘made known’ to the member states concerned (ie, after the active transmission of information that enables the member state to preliminarily assess whether it fulfils the conditions for referral). This approach in itself puts into question the one-stop-shop principle of the EUMR: in order to have legal certainty, companies may have to make mini-notifications to each member state and then wait 15 working days if one of them refers the deal to the EC. Illumina has appealed the GC’s judgment, challenging effectively all aspects of GC’s reasoning, so there will be uncertainty until the European Court of Justice (ECJ) renders the final judgment.

Nevertheless, in the meantime, the EC could be expected to continue to actively monitor cases below the relevant turnover thresholds and enforce the new referral policy. Indeed, since Illumina/GRAIL, the EC has already accepted article 22 referral requests in two cases (Meta/Kustomer and Viasat/Inmarsat).

In Meta/Kustomer, notably, the EU referral under article 22 has not prevented the German Federal Cartel Office (FCO) from reviewing the transaction separately under the German merger control rules. The FCO opened its own merger control investigation after the EC accepted an article 22 referral request made by Austria. Although the EC indicated that article 22 referral candidates would be transactions that are not caught under the national merger control rules, the Meta/Kustomer case suggests that the fact that the EC accepted an article 22 referral request does not mean that national competition authorities that did not refer the case are precluded from reviewing it in parallel to the EC. Ultimately, the EC cleared the transaction, subject to conditions, and shortly thereafter the FCO agreed with that conclusion, noting that it took account of the EC’s findings in its assessment and that adopting a conflicting decision would have raised significant issues. All that undermines the one-stop-shop principle and creates additional uncertainty for the merging parties.

The one-stop-shop principle is also coming under attack from another angle, as national authorities in one member state (Hungary) questioned that the EC has exclusive jurisdiction to review transactions with an EU dimension. In October 2021, the EC opened an investigation relating to the Hungarian government’s veto against the acquisition of the Hungarian subsidiaries of the AEGON Group (AEGON) by Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG), a transaction cleared unconditionally by the EC in August 2021. Hungary justified its veto based on emergency legislation on foreign direct investment by arguing that the transaction threatened its national legitimate interests. In February 2022, the EC concluded that Hungary’s veto breached article 21 EUMR because there were reasonable doubts as to whether ‘the veto genuinely aimed to protect Hungary’s legitimate interests’ and because Hungary should have communicated the intended veto to the EC prior to its implementation. Furthermore, the EC found that the Hungarian veto restricted VIG’s right to engage in a cross-border transaction without a ‘justified, suitable and proportionate’ explanation. The Hungarian government ultimately withdrew its veto, as ordered by the EC. Although the EC swiftly intervened in this case and successfully enforced the one-stop-shop principle, the VIG/AEGON case shows that merger review is increasingly politicised and that parties may have to be prepared to deal with the related delays and complications.

2 Have there been any developments that impact how you advise clients about merger clearance?

Certainly, the Illumina/GRAIL case and the policy of reviewing mergers that are not caught by national merger control rules will significantly decrease legal certainty for dealmakers.

Article 22 could potentially apply to a broad range of transactions. There are no safe harbours: the EC may review any transaction that ‘threatens to significantly affect competition’, even where there is no clear nexus to Europe (as was the case in Illumina/GRAIL, where GRAIL had no assets or sales in Europe). This creates significant new risks for merger control reviews’ outcome and timing, which companies need to be aware of and take into consideration in deal planning, including long-stop dates, condition precedents and break fees, etc.

Advocate General Kokott’s (AG) opinion in Towercast (C-449/21) has been another notable development in the merger control space. The AG has proposed that competition authorities should have the power to apply article 102 of the Treaty on Functioning of the EU to completed non-reportable transactions and test under that provision whether the acquisition as such constitutes an abuse of a dominant position (at least the AG accepts that a competition authority cannot apply the abuse of dominance rules to transactions that were already approved under a merger control regime). Assuming that the ECJ follows the opinion, we do not expect to see many such reviews, because the bar for a non-reportable transaction to fall within the scope of article 102 seems to be relatively high. In particular, the acquiring company must be dominant at the time of signing a share purchase agreement and, arguably, the transaction must also lead to strengthening of that dominance (it is far from obvious how one could apply article 102 to, for example, vertical or conglomerate mergers). As such, a potentially problematic non-reportable transaction is much more likely to be reviewed under article 22, as discussed above.

Another factor that complicates merger review in Europe is the need to coordinate the EU and the Competition and Markets Authority (CMA) processes, which increases risks for complex cross-border deals, in particular where remedies are required. The recent Cargotec/Konecranes merger exemplifies these risks. At the time of the transaction, the two companies were the largest European manufacturers of container and cargo handling equipment and providers of terminal automation solutions. The concentration was notified in May 2021 to both the EC and the CMA. During the review process, both authorities expressed concern over the merger’s negative effects on competition in the markets for the supply of straddle carriers, mobile equipment (in particular reach stackers) and rubber-tyred gantry cranes. In response, the companies offered to divest a number of assets. The EC’s assessment, supported by the feedback received from stakeholders, found that the proposed remedies sufficiently addressed the identified competition concerns. As a result, the EC conditionally cleared the transaction by concluding that the divested assets constituted a viable business that would enable suitable buyers to effectively compete in the market. By contrast, the CMA found that the parties’ proposed remedies ‘would not enable whoever bought them to compete as strongly as the merging businesses do at present’, and that the proposed carve-out ‘would be complex and risky’. Consequently, the CMA blocked the merger. This demonstrates an emerging divergence in the approaches of the two competition authorities when it comes to remedies. Although it is too early to predict to what extent the EC’s and the CMA’s approaches will differentiate from each other, it is certain that it will be necessary to take these differences into account when advising clients on remedies packages relevant to secure merger clearance in both jurisdictions.

Another important development concerns the proposed revision of EU merger control procedures. In May 2022, the EC published the draft revised Implementing Regulation and the draft revised Notice on Simplified Procedure, based on which the EC plans to expand and clarify the categories of cases that can be reviewed under the simplified procedure. This involves the introduction of a flexibility clause, which would allow the EC to treat under the simplified procedure certain concentrations that do not fall under any established simplified treatment category. Furthermore, the EC proposes a revision of the Short Form CO, which would focus primarily on multiple choice and table-formatted questions. Additionally, the EC suggests introducing a ‘super-simplified’ treatment for new categories of unproblematic cases, reducing the amount of required information and giving the merging parties a possibility to avoid pre-notification contacts. The EC also intends to streamline the review of non-simplified cases by revising certain elements of the Form CO. Lastly, the EC suggests making the electronic notification system a permanent element of EU merger control. The EC will finalise the revision and introduce these new rules in 2023.

Finally, the recent case law confirms the EC’s approach to warehousing. On 18 May 2022, the GC confirmed the EC’s 2019 decision to fine Canon €28 million for gun-jumping. In 2016, Canon acquired Toshiba Medical Systems Corporation (TMSC). In June 2019, the EC considered that Canon breached the standstill obligation by implementing a warehousing structure, whereby 95 per cent of TMSC’s shares were transferred to an interim buyer, with Canon acquiring the remaining 5 per cent of shares and a call option for the interim buyer’s share. The GC ruled that Canon had partially implemented the acquisition as the warehousing structure contributed to a lasting change of control in TMSC. The judgment reaffirms that the implementation of a concentration can result not only from the actual acquisition of control but also from other operations that contribute to a lasting change of control over the target.

3 Do recent cases or settlements suggest any changes in merger enforcement priorities in your jurisdiction?

The EC made clear that it will intervene in particular where it sees the need to protect innovation and nascent competitors in these markets. The DMA, which entered into force on 1 November 2022 and will start applying six months after entry into force, will guarantee that no acquisitions entered into by the DMA ‘gatekeepers’ (ie, large digital platforms that meet certain qualitative and quantitative criteria) will fly under the radar screens. The DMA will oblige all companies designated as gatekeepers to inform the EC about any proposed acquisition in the digital sector or an acquisition enabling collection of data, regardless of whether such an acquisition meets national or EU notification thresholds. In addition, the DMA will empower the EC to impose a temporary ban on any merger activity on a gatekeeper that is found to be systematically non-compliant with its obligations under the DMA. The implications of the DMA on EU merger control are therefore twofold.

Broadly, large acquisitions in the digital and tech industry will remain subject to scrutiny and are likely to be reviewed by several competition authorities in parallel. The EC is also increasingly relying on theories of harm based on vertical and portfolio effects to challenge mergers in this space, and has proven to be increasingly sceptical that such effects could be addressed by behavioural (access) remedies. For example, in February 2022, NVIDIA, which develops and supplies processor products for various applications, abandoned its proposed acquisition of Arm, a UK-based chip designer, due to regulatory hurdles. The main concern related to the fact that NVIDIA, itself a customer of Arm, would have both the ability and the incentive to restrict its rivals from accessing Arm’s intellectual property. Whereas the EC could possibly have considered the proposed behavioural remedies as sufficient to outweigh competition concerns, following the recent acquisition of Fitbit by Google, other competition authorities reviewing the transaction, in particular the CMA and the US Federal Trade Commission, were unlikely to accept them. Similarly, the EC prohibited the Illumina/GRAIL transaction largely because of vertical concerns: the EC found that the vertical integration of Illumina (the supplier of next-generation sequencing (NGS) systems for genetic and genomic analysis) with GRAIL (a customer of Illumina using NGS systems to develop cancer detection tests) would allow Illumina to foreclose GRAIL’s rivals, who are dependent on Illumina’s technology, from access to an essential input they need to develop and market their own tests. Despite a broad range of access remedies offered by Illumina to address these concerns, the EC blocked the deal.

4 Are there any trends in merger challenges, settlements or remedies that have emerged over the past year? Any notable deals that have been blocked or cleared subject to conditions?

The EC blocked several deals in the past year, notably in cases where the concerns were mostly related to vertical links between the parties. However, this does not mean that deals in the more ‘traditional’ industries are subject to less intensive scrutiny.

Following a Phase II investigation, on 13 January 2022, the EC blocked the proposed acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) by Hyundai Heavy Industries Holdings (HHIH). Both companies are leading shipbuilders with a particular strength in the construction of large carriers for liquefied natural gas (LNGCs). The EC took into account several considerations, including the large (and increasing) market shares of merging parties, the limited amount of alternative suppliers and the limited capacity in the market, as well as high barriers to entry and the lack of countervailing buyer power. It also recognised the essential role that LNGCs play in the supply chain of LNG, as well as the fact that LNG improves energy security by diversifying Europe’s energy sources. These considerations, supplemented by stakeholder feedback, led the EC to conclude that the proposed transaction would create a dominant position and limit competition on the worldwide market for the construction of LNGCs. The decision has been appealed. The parties challenged, in particular, the EC’s finding that the transaction would create a dominant position, arguing that the EC relied on market shares as a prima facie indication of dominance, ignoring the market realities that indicated that the parties had no market power.

In 2022, the GC also issued judgments upholding prohibition decisions in the Wieland/Aurubis (18 May 2022) and Tata Steel/ThyssenKrupp (22 June 2022) mergers. Whereas the theories of harm were different in these two cases, they both gave the GC an opportunity to revisit some of the fundamental merger control questions.

First, in Tata Steel/ThyssenKrupp, the GC found that the EC needs to show with a ‘sufficient degree of probability’ that the transaction significantly impedes effective competition (SIEC). This appears to be a deviation from the CK Telecoms judgment, where, in the GC’s view, the EC needed to meet a higher threshold by proving the existence of an SIEC with a ‘strong probability’. CK Telecoms has been appealed, and the opinion of AG Kokott, which has just been published, suggests that the lower standard may prevail. The ECJ is expected to rule on this case next year and this will certainly be one of the key merger control judgments of 2023. The GC also clarified that the concepts of the reinforcement of a dominant position and the elimination of significant competitive constraints in oligopolistic markets are two theories of harm that are not mutually exclusive. As a result, the EC can deploy them together in its assessments.

Second, in Wieland/Aurubis, the GC ruled that the EC could prohibit a merger based on the anticompetitive effects that the merger would have on a particular segment of the market and not its entirety.

In both cases, the GC underlined that proving that merging parties are ‘close competitors’ (and not necessarily the closest) is ‘legally sufficient’. This again seems to ease the standard of proof for the EC as it departs from the CK Telecoms judgment, which demanded merging parties to be ‘particularly close competitors’. The different approach is arguably justified by the fact that the two cases discussed here relate to markets with highly differentiated products, whereas CK Telecoms concerned a market characterised by a high degree of product homogeneity where, as the EC admitted, all players were ‘close’. In CK Telecoms, however, AG Kokott took the view that this lower standard should apply also in markets characterised by a high degree of product homogeneity.

In addition to upholding the two prohibition decisions, the GC also recently discouraged parties from seeking compensation in cases of overruled merger vetoes. In February 2022, the GC rejected UPS’s damages lawsuit against the EC and set the ‘causality’ standard between procedural errors, which resulted in annulling the prohibition decision and the losses resulting from blocking the deal at a very high level. The GC held that parties claiming damages need to show that the breach of procedural rights would eventually affect the substance and subsequently the outcome of the case (ie, the parties have to prove that the transaction would have been approved had there been no procedural errors). The GC also made it effectively impossible to claim compensation for any break fees. The GC found that the payment of the break-up fee did not result from the EC’s breach of UPS’s procedural rights. According to the GC, the payment of the break-up fee to TNT stemmed from a contractual obligation arising from the agreement between UPS and TNT and reflected the parties’ willingness to divide among themselves the risk that the EC would not approve the proposed transaction. Thus, the EC’s breach of UPS’s procedural rights could not ‘constitute the determining cause’ of the damages sought.

Last but not least, the EC is also increasingly sceptical of behavioural remedies and generally remedies that are not clear-cut. In her March 2022 speech, Commissioner Vestager highlighted that the topic of remedies design is increasingly being debated within the EC. Especially in horizontal mergers, the EC has a strong preference towards structural remedies. However, as Commissioner Vestager noted, even in cases where divestment remedies are offered, the EC often needs to rely on additional measures that ensure that divestitures are effective. For example, in the above-mentioned Cargotec/Konecranes merger, where horizontal concerns were identified for various types of port equipment, the EC mitigated risks in the divestment process by requiring an ‘upfront buyer’ (ie, a suitable purchaser for the divestment business to be approved by the EC before the parties can close their transaction). Commissioner Vestager recognised, however, that in some non-horizontal mergers, structural remedies might not be an optimal solution. This, in particular, relates to digital markets where commitments such as stand-alone divestitures may not be appropriate to solve concerns about interoperability or access to a service or product. For example, in the recent Meta/Kustomer merger, the EC deemed Meta’s long-term commitment to keeping its messaging channels open to Kustomer’s competitors on free and comparable terms to be satisfactory.

5 Have the authorities released any key studies or guidelines or announced other significant changes that impact merger control in your jurisdiction in the past year?

As part of the ongoing revision of the Market Definition Notice, on 19 January 2022, the EC published a call inviting various stakeholders to submit their feedback on the EC’s understanding of the identified problems and possible solutions. The first draft of the Notice for public consultation should be published this year. Ultimately, the EC plans to adopt the revised Notice within the first half of 2023. The proposed revision is welcomed, as it is expected to bring the Notice up to date with the latest developments and include clarifications stemming from EU court judgments.

6 Do you expect any significant changes to merger control rules? How could that change your client advocacy before the authorities? What changes would you like to see implemented in your jurisdiction?

As approximately 93 per cent of the transactions notified to the EC do not raise any competition concerns, the revised simplified procedure is also expected to affect the timing and complexity of a significant amount of notifications before the EC. As previously mentioned, the EC proposed changes to the Implementing Regulation and the Notice on Simplified Procedure to simplify merger procedures. However, some of the initial proposal could have the opposite effect and further increase the burden on the notifying parties. We hope that the proposal will be amended and the final text of the package will indeed streamline EU merger control review in transactions involving ‘technical’ filings.

The expected adoption by the end of 2022 and enforcement by the end of 2023 of the regulation on foreign subsidies distorting the internal market will likely complicate the regulatory process for deals in Europe. We expect that the regulation will apply to a broad range of players, introducing yet another regulatory hurdle for cross-border deals.

The Inside Track

What should a prospective client consider when contemplating a complex, multi-jurisdictional transaction?

The EC’s changed interpretation of the referral mechanism under article 22 results in less predictability for the merging parties. This means that a careful consideration of potential competition concerns is required even in deals that do not meet the relevant turnover thresholds. Dealmakers should also consider inserting in their transaction agreements appropriate conditions precedent, long-stop dates and break fees, etc, to address the risk of review by the EC.

In your experience, what makes a difference in obtaining clearance quickly?

A proactive approach in the preparation of the notification and close cooperation with the EC can significantly affect the outcome and the timing of the review process. Merging parties should aim to provide complete and clearly drafted notifications, covering all potential relevant markets from the outset, and engage actively with case handlers early on in the process. This will increase the chances of a smooth review process and minimise follow-up requests and unexpected delays.

What merger control issues did you observe in the past year that surprised you?

Above all else, the referral of the Illumina/GRAIL transaction (ie, of a transaction that, in principle, was not even notifiable to the EC) under article 22 EUMR and its subsequent prohibition, despite the offer of remedies, has been by far the most striking merger control issue in the past year.