Building on a mature merger control system and a rich body of case-law of more than 20 years, the European Commission (EC) adopted a revised simplified merger procedure notice earlier this month, which is purported to expand the number of cases that should benefit from the lower information requirements and the shorter and cursory review process. The simplified procedure is reserved for cases that are unlikely to raise competition concerns, as currently, the majority of merger filings are made under this procedure. With the revised notice, the EC intends to shift up to 70% of merger cases to the simplified review process.
At the same time, the EC has reconsidered the kind and amount of information that merging parties have to provide as part of any notification (so-called “Form CO” and “Short Form CO”) with a view to lightening the burden on businesses.
While these reforms are obviously welcome, they signal the EC’s ambition to make a better and more targeted use of its enforcement resources. Since more mergers will benefit from a cursory or quick-look review, it can be expected that the EC will better staff mergers that prima facie raise significant competition concerns. As a result, industrial and strategic mergers that are capable of affecting competition in Europe are likely to undergo more in-depth scrutiny on the part of the EC.
Broader scope for the simplified merger procedure
In order to increase the number of mergers that should benefit from the simplified procedure, the EC has revised the market shares tests for horizontal overlaps and vertical relationships by applying an uplift of 5% to the current thresholds:
- When the merger gives rise to horizontal overlaps, the simplified procedure is available as long as the combined market shares of the parties do not exceed 20% in any of the relevant markets (under the previous notice the threshold was 15%).
- When the merger gives rise to vertical integration (the relationship of purchase and supply between the merging parties), the simplified procedure is available if neither the individual nor combined share of the parties exceeds 30% in the upstream or downstream market (an uplift of 5% from the current 25% ceiling).
It is worth noting that the 5% uplift puts the simplified procedure in alignment with the EC’s safe harbors in relation to horizontal cooperation agreements among competing companies (e.g. joint production and joint distribution agreements) and wholesale and distribution agreements between non-competitors.
However, in verifying that the thresholds are not exceeded, the EC requires that the parties examine the above thresholds under all “plausible” market definitions. During the market consultation, stakeholders voiced concerns about the identification of all “plausible” alternative relevant product and geographic markets. While, arguably, this reflects existing practice, such a requirement might be particularly daunting in relation to dynamic and innovative markets, where it is often difficult to delineate bright lines of substitutes among a myriad of differentiated products and services.
The EC has also introduced a minimal increment exception according to which the simplified procedure is available where, despite the merger giving rise to a horizontal overlap with a combined market share between 20% and 50%, the increment resulting from the merger is negligible. In particular, the EC considers that when the delta of the Herfindahl-Hirschman Index (HHI) remains below 150 post-merger, the merger is unlikely to affect competition and, hence, should benefit from a simplified review.
It is worth noting that by retaining an HHI increment below 150, the EC remains consistent with the horizontal merger guidelines, which recognize that any increment below 150 is incapable of raising significant competition concerns.
However, the EC has not taken the opportunity to revise the horizontal merger guidelines as part of this simplification exercise. Under the guidelines, the EC has set out a presumption that a combined share below 25% is unlikely to impede effective competition. In practice, this has usually meant that, despite the parties having to provide detailed market information for markets giving rise to combined shares situated between 15% and 25%, the officials have not spent much time reviewing those affected markets. The now applicable simplified procedure uplift of 5% (from 15% to 20%) to identify horizontally affected markets begs the question of whether the EC might consider revising the 25% presumption upward.
Finally, in addition to the 5% uplift and the minimal share increment exception, the simplified procedure is also available where the parties are setting up a joint venture which, despite meeting the EU Merger Regulation filing thresholds, does not have any significant impact in the EU.
Reduced information requirements
The increased availability of the simplified procedure has the key advantage of enabling parties to benefit from the lower information requirements of the so-called “Short-Form CO.” The latter asks for much less market data than the “Form CO” under the normal procedure.
Even if parties do not benefit from the simplified procedure, e.g. because on some market configurations their combined activities result in shares in excess of 20%, they will nevertheless benefit from the reform. While previously, the definition of “affected” markets applied for horizontal overlaps of 15% or more or vertical relationships of 25% or more, the 5% uplift has the corresponding effect of limiting the burdensome information requirements to the markets exceeding the new thresholds of 20% and 30%, respectively, for horizontal overlaps and vertical relationships.
Additionally, the EC seems to acknowledge that requesting extensive information for joint-ventures (JVs), which are mainly active outside the EEA, but nonetheless caught by the EC merger control because of the EEA turnover of their parent companies, was too cumbersome. Therefore, the EC has set up a “super-simplified” procedure according to which companies would briefly explain the planned activity of the JV and the reasons why the joint venture would not have any effect EEA markets.
No pre-notification for straight forward cases
The pre-notification phase enables parties to engage in a dialogue with the EC in order to better identify, among other things, the scope of the information to be submitted in the notification. The EC simplification package suggests that certain types of merger cases may not require the parties to engage in pre-notification discussions with the case handlers. In particular, no pre-notification is required where the merger does not give rise to any overlaps or vertical relationships. However, directly going in with a formal notification is not without the risk that the EC officials will find in the course of the review that the notification is incomplete. Careful review will be necessary before engaging in a filing without pre-notification talks.
Without making significant changes to the framework, the EC seems to have heard calls for a more streamlined and less expensive process for the vast majority mergers that do not raise significant concerns. However, simplification often comes with a redirection of enforcement priorities. Merging parties should expect more scrutiny for combinations giving rise to significant overlaps or vertical integrations capable of generating substantial foreclosure effects.
In the months to come, the EC will continue work on the EU Merger Regulation, in particular on closing the gap relating to minority shareholdings. This aspect is clearly on the EC’s good resolution list for 2014.
Co-authored with Jean-François Guillardeau