On 1 January 2014, “the most comprehensive reform of [the EU] merger procedures to date”1 came into force. The European Commission (“EC”) hopes that the “Simplification Package”2 will make it easier for companies to obtain EU antitrust approval for mergers under the EU Merger Regulation (“EUMR”3 ). This development reflects the EC’s desire to cut red tape. Whether the Simplification Package will achieve this goal, however, remains to be seen.
The Simplification Package amends the information requirements for EU notifications, and more transactions will benefit from the “simplified” merger review procedure (using a “Short Form” notification, rather than the longer “Form CO”4). However, some changes may prove more burdensome for companies. Importantly, the scope of internal documents that need to be provided to the EC has been expanded - this now also includes some documents that were not prepared for the transaction itself (a change that goes beyond even the US approach for so-called Item 4 Documents).
Wider scope for simplified procedure
Under the amended rules, a simplified review will apply to the following transactions:
- First, two merging companies, who together remain below a combined market share of 20% now qualify for simplified review (raised from 15%).
- Second, where a merger involves two vertically related companies (e.g., where one of the merging parties supplies inputs to a market in which the other merging party is active), the market share threshold to qualify for simplified review now stands at 30% (raised from 25%).
- Third, for joint ventures the EC will apply aforementioned thresholds for horizontal and/or vertical links (so-called “affected markets”) only with respect to links between the JV parents and the JV, but (no longer) between the JV parents themselves.
- Fourth, a new category of mergers has been established for possible Short Form review. Mergers may now also qualify where the combined market shares of the companies involved in the deal are between 20% and 50%, and where the share increase would remain limited. These are cases where the merger would change the concentration in the market, the so-called Herfindahl-Hirschman Index (“HHI”) delta, by less than 150 points.5 However, whether a given merger qualifies for simplified review under this category will be determined on a case-by-case basis at the discretion of the EC.
The EC estimates that the Simplification Package will allow for 60-70% of all notified mergers to qualify for a simplified merger review, approximately 10% more than previously. While the raising of the thresholds for the affected markets will no doubt increase the number of mergers that benefit from a simplified merger review process, the benefits of the new discretionary category remain to be seen.
Equally, while more concentrations will benefit from the simplified review, the EC has changed the scope of information required to be submitted under both the Short Form CO and Form CO.
Amended information requirements
In addition to allowing more transactions to benefit from a simplified review, the Simplification Package contains several further positive changes:
- First, the increase of the threshold for what constitutes an affected market will also reduce the information requirements in cases which are subject to a standard review (where there is at least one affected market). Further still, the EC has also raised by 5%-points the threshold (now 30%) at which parties are required to submit information on non-affected markets in which the concentration will have a significant impact.
- Second, the Simplification Package introduces a “Super-Simplified Procedure” in the case of a joint venture with no activities within the European Economic Area (“EEA”). In such a case, it is now sufficient to explain what products or services are provided by the joint venture and why the joint venture would not have any effect, directly or indirectly, on markets within the EEA.
- Third, the Simplification Package removes some other categories of information requirements, for instance, omitting HHI calculations, interlocking directorates, a list of subsidiaries, and supplier information.
- Fourth, changes have been made to the EC’s standard commitment texts (aligning them with the 2008 notice on remedies), and a new template has been introduced for turnover data to be submitted with a notification.
While these changes are welcome, other amendments create new risks or potentially increase the filing burden.
- First, the scope of internal documents that need to be submitted to the EC (so-called “5.4 Documents”) (i) has been extended and (ii) certain 5.4 Documents now also need to be provided for a simplified review, where the parties’ activities overlap or create a vertical link. Previously, 5.4 Documents were limited to documents prepared specifically for the transaction, but now any documents falling under the below categories and assessing any of the affected markets prepared within a two-year window prior to the deal must be submitted.
- Second, the new forms require the notifying parties to consider “all plausible alternative product and geographic market definitions”.6 This new requirement may lead to more burdensome notification requirements. As a result, the notifying parties will need to scope out which plausible alternative product and geographic market definitions the EC would be expecting.
- Third, the new forms also introduce a focus on economic data and a section on closeness of competition between the merging parties. This requirement will likely increase the number of notifications that require the input of an economist.
- Fourth, for deals being notified to the EC and one or more foreign competition authorities, the EC now universally “encourages” parties to submit waivers of confidentiality to the EC, together with their submission. While international cooperation is useful in relation to certain deals, e.g., where remedies need to be designed on a global scale, there may well be scenarios where cooperation between authorities results in little or no efficiencies and, indeed, may actually delay clearances.
- Finally, it is now likely that most Phase 2 investigations will be subject to the extended 105- working-day review by the EC, rather than the 90-working-day review. This is because the EC has amended the Implementing Regulation to clarify that it will consider any modifications to commitments offered in Phase 2 made by the parties 55 working days after the date on which the Phase 2 review has started, as constituting a new commitment. (extending the review period by 15 working days).
Conclusion: Extent of simplification and cost reduction remains to be seen
Competition Commissioner Joaquin Almunia considers that the changes "will reduce the administrative burden and cost for business at a time when it needs it most”.7 In fact, the EC believes that the reform package will lead to a significant reduction of lawyers' fees and reduce the in-house work that companies undertake before they notify a merger.8
Whether the reforms will have such positive effect remains to be seen. Indeed, as set out above, in some areas, the changes may actually increase the filing burden. Most importantly, companies should be aware that more internal documents will need to be provided (even if they were not prepared for the specific transaction under review).
Due to the immediate effect of the Simplification Package, companies should be mindful that the amendments may require them to review ongoing transactions to confirm whether a Short Form notification may be available and to verify the extent of information that needs to be provided to the EC.