At the end of October, the European Commission (the “Commission”) launched a three-month public consultation on the functioning of the EC Merger Regulation (“the ECMR”), which sets out the rules for merger control in the European Economic Area (EEA, consisting of 27 EU Member States plus Norway, Iceland and Leichtenstein).  

When the ECMR came into effect May 1, 2004, it introduced referral mechanisms that gave the merging parties the right to request the Commission to examine a transaction that was notifiable in at least three Member States, even when the turnover thresholds for Commission review were not met. Conversely, the notifying parties can request a referral to a Member State when the transaction significantly affects competition in a distinct market in that Member State. The Commission’s consultation focuses on the effectiveness of these referral mechanisms.  

The Competition and EU Group at Reed Smith submitted comments to the Commission’s consultation at the beginning of December. Reed Smith noted that, at the European level, there is a need for a referral mechanism that allows the parties to request that the Commission reviews a transaction that triggers notification in a number of EU Member States. Such a mechanism allows parties to concentrate their resources on making one filing and managing one timetable, without incurring filing.  

However, Reed Smith noted that, while there are benefits to using the referral mechanism, parties will still tend to opt to make multiple filings in different Member States, especially when the transaction does not raise any competition concerns. Parties can be deterred from using the referral mechanism because the procedure lengthens the decision-making timetable and places an additional burden on the parties to provide detailed information to the Commission before formal notification is made.  

The referral mechanism requires a period of 15 working days to be added to the decision-making timetable, to allow for the referral request to be approved or vetoed by the Member States. Given that a notified transaction cannot be completed until it is approved by the Commission, this additional period can deter parties from requesting a referral. This is particularly the case where the transaction does not raise competition concerns and clearance can be expected without a detailed investigation being initiated. In such circumstances, parties will often prefer to coordinate notifications across a number of jurisdictions to ensure clearance as quickly as possible so as not to delay the transactional timetable.  

Reed Smith has therefore proposed the introduction of an expedited referral procedure under the ECMR in those circumstances where the transaction does not raise any competition concerns, and a “technical” notification requirement has only been triggered because turnover thresholds have been met.

Reed Smith also noted that the detailed information that has to be provided to the Commission when making a request acts as a deterrent from using the referral mechanism. This is especially the case where the transaction obviously does not raise competition concerns at either a Member State or Community level. Reed Smith suggested that this information, which includes details of customers, competitors, suppliers and changes to the market over a five-year period, is overly burdensome for parties to a transaction that manifestly do not raise any competition concerns. Reed Smith therefore suggested that a shortened request form be introduced for these types of transactions.  

The Commission is due to complete its consultation Jan. 30, 2009. It will then prepare a report to the EU Council of Minister setting out its views on how effectively the referral mechanism is working and whether any amendments to the ECMR are needed.