What are the Requirements to File a Concentration Under the European Merger Control Rules?
March 20, 2018
In the European Union, the European Commission (“EC”) in Brussels analyzes mergers and acquisitions, known as concentrations, with “EU dimension.” And the Directorate General for Competition (“DG COMP”) determines whether a concentration is compatible with EU competition law rules. The EC may prohibit a concentration with EU dimension when the transaction significantly impedes effective competition in all or a substantial part of the internal market, in particular as a result of the creation or strengthening of a dominant position.
Regulation (EC) 139/2004 of 20 January 2004 (“the Merger Regulation”) states the rules to notify and analyze concentrations in the European union. Commission Regulation (EC) 892/2004 of 21 April 2004, amended by Regulation EU 1269/2013, (“the Implementing Regulation”) further explains all the necessary procedural issues related to the notification of a concentration, such as official templates to be used (Form CO), time periods, access to the file, or the treatment of confidential information, among others.
Companies must notify the EC of any concentration with EU dimension before the transaction closes. Indeed, they should contact the EC early for guidance on how to best prepare their notification.
Below are some frequently asked questions and answers about merger filings in the European union.
How is a Concentration Defined for Antitrust Purposes Under EU Law?
Under EU antitrust law, a concentration arises when there is a change in the control of an entity engaged in economic activity, which the EC calls an undertaking, on a lasting basis. It either involves the merger of two or more previously independent undertakings; the acquisition of direct or indirect control of an undertaking; or the acquisition of joint control over a “full function joint venture”.
Control occurs as a result of either ownership or rights to use all or part of the undertaking’s assets. It is defined under the Merger Regulation as the possibility of exercising decisive influence over the whole or part of an undertaking. In other words, control occurs when a party acquires the ability to determine the commercial strategy of an undertaking.
Lastly, the concept of concentration also involves the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity, also known as “full function joint ventures”.
For more information, please see (here).
What are the Relevant Thresholds That Trigger EU Merger Filing Requirements?
The EC has jurisdiction to examine concentrations with EU dimension. A concentration has EU dimension when it triggers certain thresholds. There are two alternative ways to reach turnover thresholds for EU dimension.
The first alternative requires: (i) a combined worldwide turnover of all the merging firms over 5,000 million euros, and (ii) an EU-wide turnover for each of at least two of the firms over 250 million euros.
The second alternative requires: (i) a worldwide turnover of all the merging firms over 2,500 million euros, and (ii) in each of at least three Member States a combined aggregate turnover of all the merging firms over 100 million euros, (iii) in each of at least three of those Member States the aggregate turnover of each of at least two of the firms concerned must exceed 25 million euros, and (iv) the aggregate EU-wide turnover of each of at least two of the firms concerned must exceed 100 million euros.
In both alternatives, an EU dimension is not met if each of the firms achieve more than two thirds of its EU-wide turnover within just one Member State.
Importantly, concentrations with no EU dimension may fall under national merger control rules of Member States within the EU. Furthermore, there is a referral mechanism in place that allows Member States and the EC to transfer cases between themselves. In addition, under certain circumstances, even the notifying parties to a proposed concentration with EU dimension may also request the EC (using a Form RS) to refer a case to the relevant National Competition Authorities (“NCAs”), or in case of a transaction with non-EU dimension, to request the relevant NCAs to refer a case to the EC, if the transaction is subject to investigation in at least three Member States.
For more information, please see (here).
What are the Risks of not Filing?
When the merging parties intentionally or negligently fail to notify a concentration, the EC has the power to impose fines up to 10% of the aggregate worldwide turnover of each of the undertakings concerned.
In addition, and subject to very limited exceptions (such as the implementation of a public bid), completion of the transaction before clearance is prohibited. In such cases, the parties to the concentration must notify the authority without delay, and the buyer is not entitled to exercise any of its voting rights.
What are the EU Merger Filing Requirements?
Merging parties must submit filings according to a Form CO attached as Annex I to the Implementation Regulation, or alternatively, as a Short Form CO, attached as Annex II, if certain requirements are met.
The notifying parties should start pre-notification contacts with the EC to discuss a draft Form CO and the timing for the transaction. Once the EC has all the necessary information to initiate the investigation, the notifying parties may go ahead and submit a formal Form CO to officially initiate the review process. Compliance with this stage of the process is important because the EC could reject a merger filing for lack of completeness.
The timing of the review process varies depending on whether the proposed concentration is cleared during an initial Phase I investigation (25 working days), or it requires a more thorough analysis by the EC under a Phase II investigation (additional 90 working days). In addition, the EC may extend the review period under both Phase I and Phase II if the notifying parties need to propose remedies in order to remove any EC competition concerns.
Lastly, following an appropriate investigation, the EC may: (i) find that the proposed concentration falls outside the scope of the Merger Regulation, (ii) clear the concentration without conditions, either under Phase I or Phase II, (iii) clear the concentration but subject to conditions and remedies, or (iv) prohibit the concentration.
Can we do Anything to Speed it up?
Under EU merger control rules there is a simplified procedure in place for the review of concentrations that do not raise competition concerns.
This procedure is available only in the following circumstances: (i) the acquisition by two or more undertakings of joint control of an undertaking that has negligible activities in the European Economic Area (below 100 million euro); (ii) concentrations where there is neither a horizontal market overlap nor vertical relationship between the notifying parties, (iii) concentrations where there is a horizontal overlap with market shares below 20% or where there is a vertical relationship with market shares below 30%, and (iv) concentrations involving a change from joint to sole control of an existing JV.