On 7 September 2017 the EU Court of Justice ruled that the creation of a joint venture is subject to merger control only where the target company is 'full-function' - i.e. an autonomous economic entity. The Court clarified this also applies to the situation where a new controlling shareholder acquires joint control over an entity that was previously controlled solely by a single shareholder, which is not considered full function because it continues to cater only to its parent(s).
The question arose in a transaction between Austria Asphalt and Teerag-Asdag, road-building companies based in Vienna. The two companies formed a Joint Venture to which Teerag-Asdag contributed an asphalt mixing plant (before and after the merger it supplied only its parents and was therefore not a full-function Joint Venture). In line with Advocate General Kokott's opinion, the Court of Justice ruled that full-functionality is always required, because only such operations bring change in the market structure. Demanding notification of joint ventures without an independent presence in the market would create an "unjustified difference in treatment" between companies newly created and those that already existed before.
Previously, in cases where a joint venture acquires control over an existing undertaking from one parent, it could be viewed as both acquisition of control and creation of a joint venture - a scenario on which the Jurisdictional Notice provides no guidance. It was thus possible to argue that the acquisition might lead to a structural change in the market (deeming full-functionality irrelevant) or that a joint venture was created (where full-functionality is required). The European Commission´s practice has been inconsistent.
Call to action
The ruling clarified that EU merger rules only catch the creation of joint ventures which perform on a lasting basis all the functions of an autonomous economic activity i.e. full-function joint ventures. The creation of a non-full-function Joint Venture, however, may still be notifiable in Member States which do not require full-functionality (e.g. Germany, Austria, Poland and UK), provided the respective filing thresholds (turnover, market shares) are met. The non-filing of a non-full-function joint venture in these Member States includes significant fining and other regulatory or non-regulatory risks.
Equally one should always be aware that the creation of joint venture or partnership that are not full function will require an assessment under Article 101 TFEU and the Commission's Horizontal Agreements Guidelines.
DLA Piper has extensive experience in filing concentrations and other competition law investigations and is able to assist at any stage of the transaction, especially in advising on risk mitigation from potential violating filing (and/or gun jumping) requirements. Should you have any questions in relation to this client alert, please contact one of the authors listed below or the DLA Piper lawyer with whom you normally consult.