On 18 and 21 August 2023, the European Commission announced the opening of its second and third investigations into concentrations that did not meet any statutory notification thresholds, either at EU or Member State level. The deals targeted by the European Commission are Qualcomm's acquisition of Autotalks, a manufacturer of dedicated chips used in the vehicle-to-everything (V2X) communications technology sector for manned and driverless vehicles and Deutsche Boerse's (EEX) acquisition of Nasdaq's European power trading and clearing business.
The European Commission's investigations have been announced one year after the legal basis used for it, Article 22 of the EU Merger Regulation ("EUMR") and its re-interpretation under the Guidance on the application of this provision to certain cases ("Article 22 Referral Guidance"), was used for the first time in Illumina/Grail, which led to the deal's prohibition. The Article 22 Referral Guidance, published in 2021, set out the new manner in which the European Commission and national competition authorities in the EU intended to interpret "upward" referrals. Under the Guidance, deals will be reviewed even when they are not notifiable at EU or national level, if national competition authorities believe that they can have a significant impact on competition. The Illumina/Grail case has led to EU Court litigation between both companies and the European Commission, and the Court of Justice is yet to decide on the validity and limitations of the new interpretation of Article 22 referrals.
Although all cases are independent from one another, certain elements in the Qualcomm/Autotalks deal, in particular, could have a bearing on the Court's review of the Illumina/Grail referral. Given the small size and limited revenue of Autotalks, the European Commission's announcement that it will review its acquisition by Qualcomm raises a number of important questions, for example: Is an "open" Article 22 referral tool, as advocated by the European Commission, compatible with the principle of legal certainty and the threshold-based merger control regimes that prevail across Europe? Can the European Commission "have its cake and eat it" by bringing a deal to the attention of national competition authorities, and inviting them to "refer" the case back to it? Shouldn't the EU Court of Justice weave into its future Illumina/Grail ruling some guidance on the functioning and application of this tool, in order to avoid its misuse by EU and national competition authorities? Do factors like the size of the target or its sales footprint in Europe have any role in defining the European Commission's competence and jurisdiction to assess a non-notifiable deal?
While EU Courts give answers to these and other questions, the Qualcomm/Autotalks and EEX/Nasdaq Power merger reviews serve as a reminder that the European Commission and national competition authorities are watching deal announcements closely, not only in the tech and health sectors, and will not hesitate to activate the Article 22 referral mechanism. Companies involved in non-notifiable transactions with competitors or other relevant market actors can however adopt certain measures to avoid the inconvenience of untimely Article 22 referrals, for example:
Conduct more detailed competition assessments of transactions suspected of raising an Article 22 referral risk.
Following such competition assessment, proactively reach out to the European Commission with a voluntary consultation under paragraph 24 of the Article 22 Referral Guidance if the risk of a referral seems high (taking into account the overall context of the deal, including how high-profile it is and possible complaints by third parties).
Draft appropriate clauses in the transaction documents that allow the buyer to postpone closing until a spontaneous review of the deal has finished, as opposed to having to choose between "hell or high water" closing obligations leading to "gun-jumping" or paying a walk-away penalty.
Should you need assistance or have any further questions regarding this client alert or merger control generally, please do not hesitate to contact any of the individuals listed or your usual contact at Simmons & Simmons.
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