European Commission Pushes Boundaries of EU Merger Control
In a nutshell
On 26 March 2021, the European Commission adopted a new merger control policy to accept and review certain transactions that do not meet any merger control thresholds (EU or national) if requested by an EU Member State. This novel policy shift will require parties engaged in M&A with a European footprint to modify their approach to deal documentation and structuring. We explain the key takeaways below.
How did we get here?
Since 1989, the EU Merger Regulation has enabled the Commission to accept and review deals at the request of an EU Member State. The Commission’s long-standing practice shows it has generally only accepted referral requests if the transaction falls within the jurisdiction of the referring EU Member State. Though referrals where an EU Member State has no jurisdiction were theoretically possible, such practice was limited to situations where such EU Member State had no merger control regime at all (in 1995, in RTL/Endemol, the Commission accepted a referral from the Netherlands where there was no national merger control regime in the Netherlands at the time).
Since modernisation in 2004, it appears a national competition authority has had original jurisdiction in each of the 34 referral requests made to the Commission. This approach makes sense as it ensures legal certainty for parties that do not need to file. By definition, deals below national merger control thresholds are typically less likely to raise any competition concerns.
However, in recent years, it is alleged that some important deals that merit scrutiny are not being reviewed. The perceived wisdom for this gap is that some competitively significant target businesses do not yet generate multi-million sales (or indeed any revenue) to meet EU or national merger thresholds – and this allows “killer acquisitions” to snuff out nascent competitive threats. So, the Commission announced that it will now accept referrals in limited situations, even if national merger control thresholds are not met.
How will this apply?
The new approach is likely to see a small number of cases, which are not currently notifiable, being referred to the Commission. Primarily, such deals are said to occur in the digital and pharmaceutical sectors – but the guidance is clear that any deal in any sector may be subject to referral and review. According to the published guidance, the Commission will accept referrals in future where:
- The deal is a “concentration” (i.e., in simple terms, it results in a change of control of a business with turnover or the creation of a full-function joint venture).
- The deal has an effect on trade between EU Member States.
- The deal threatens to have a significant effect on competition in the referring Member State.
The request must be made within 15 days of “gaining knowledge” by a national competition authority. The Commission is somewhat ambiguous on the details of what is meant by “knowledge”. A referral request is still possible after closing, although the guidance states that the Commission will generally reject requests if they are made six months after closing or publication of the transaction.
What does this mean in practice?
Corporate deal-makers will need to adapt to the new merger policy. It is advisable for merging parties to systematically undertake greater upfront risk assessment of whether a deal would be subject to referral to the Commission. Absolute certainty will be difficult to achieve – so, the transactional agreements will need to allocate risk and ensure contingency arrangements are in place, at least until a decision-making practice has been established. We outline some of the key practical implications for M&A deals:
- Parties will need to weigh up inclusion of a merger control undertaking in the transactional agreements even if no mandatory filing obligation is needed.
- Sellers may wish to negotiate inclusion of a hell-or-high-water clause even if no filing obligation is identified.
- Parties may feel the need to set an extended long stop date.
- Parties may wish to strategically withhold press coverage to avoid notice or, conversely, actively notify antitrust authorities to start the 15-day period.
- Parties will also need to assess the risk of third party complaints to a national competition authority to refer a non-notifiable transaction to the Commission.
DLA Piper is the world’s leading M&A firm by volume. We offer all our clients globally-benchmarked, market leading M&A advice on all aspects of dealing with the new risks associated with the Commission’s policy shift.