European Commission holds public consultation on EU merger control regime

The European Commission is holding a public consultation on the functioning of certain procedural and jurisdictional aspects of EU merger control, to end 13 January 2017. The consultation is part of its ongoing review of the EU merger control regime and builds further on the 2014 White Paper “Towards more effective EU merger control”.

In parallel with its public consultation, the European Commission published a Support study for impact assessment concerning the review of Merger regulation regarding minority shareholdings.

Public consultation on EU merger control

The public consultation focuses in particular on (i) the effectiveness of purely turnover-based thresholds in the EU merger regulation, (ii) the treatment of cases that typically do not raise competition concerns and (iii) the referral mechanisms between Member States and the Commission.

Functioning of the turnover-based merger control thresholds

Under the current EU merger control regime, concentrations have to be notified to the European Commission when the turnover of the undertakings concerned exceeds the relevant merger control thresholds. Consequently, concentrations concerning the acquisition of target companies that do not yet generate the required turnover but have a high market potential, do not have to be notified to the Commission.

This was, for example, the case in the acquisition of WhatsApp by Facebook. Although Facebook paid US$19bn for WhatsApp, the target company only generated a turnover of around €10m. Given WhatsApp’s limited turnover, Facebook’s acquisition of WhatsApp did not meet the turnover thresholds of the EU merger regulation and hence, did not need to be notified to the European Commission. Ultimately, the Commission did review the transaction subsequent to a pre-notification referral request by Facebook. The Facebook/WhatsApp transaction has made the Commission consider whether purely turnover-based thresholds continue to be the most appropriate way to identify mergers with an EU dimension.

The Facebook/WhatsApp transaction related to the digital sector, but similar questions have arisen in relation to transactions in the pharma sector. Transactions concerning an established pharma player purchasing a highly valued company that has products under development but which have not yet been marketed, are likely to escape the European Commission’s review.

The Commission is now seeking views to determine whether there is a possible enforcement gap. In that context, the consultation is soliciting opinion from stakeholders about competitively significant cross-border transactions which were not captured by the EU merger control thresholds. Further, it is asking them for their views on the introduction of a complementary jurisdictional “deal size threshold” which would be based on the value of the transaction.

This perceived enforcement gap has already prompted German legislators to propose a bill, which would introduce a new merger control notification threshold based on the value of the transaction. Pursuant to the bill, transactions would be notifiable if the second domestic turnover threshold of €5m was not met, but where the transaction value exceeded €400m. The transaction would be valued by taking into account all assets and payments in kind that the seller receives from the buyer in connection with the transaction, including the value of assumed liabilities. However, this size of transaction test would require the target undertaking to be active in Germany.

Simplification

Certain categories of transactions that generally do not raise competition concerns benefit from a simplified procedure. In 2013, the Commission widened the scope of the simplified merger review procedure. In the 2014 White Paper, the Commission proposed additional amendments to the EU merger regulation in order to further streamline and simplify the EU merger control procedures. These included a further reduction of the notification requirements and the exclusion of certain non-problematic transactions from the scope of the Commission’s merger review.

The consultation is looking for feedback on the functioning of the simplified procedure to see whether there is room for greater simplification of the treatment of certain categories of non-problematic cases beyond the proposals that were already made in the 2014 White Paper. In particular, it is looking into joint ventures that operate outside the EEA and have no effect on competition on markets within the EEA. Despite the lack of effect on competition in the EEA, such extra EEA-joint ventures currently still have to be notified to the European Commission if the parent companies exceed the relevant EU merger control thresholds.

Functioning of the referral mechanisms

The EU merger regulation provides mechanisms for the referral of cases by the Member States to the Commission and vice versa. However, the current referral procedures can be quite cumbersome and time-consuming.

The 2014 White Paper included proposals aimed at simplifying the procedure for referring cases both before and after notification, especially when made by Member States to the Commission. Pre-notification referrals would no longer require two separate submissions, generating savings for companies both in terms of time and costs. In case of a post-notification referral, the Commission would have EEA-wide competence to review the transaction, thereby avoiding parallel reviews by the European Commission and the national competition authorities.

The consultation is seeking further views on the 2014 White Paper’s proposals and asks whether there is scope to introduce even more business-friendly and effective proposals.

Study on minority shareholdings

Under the current EU merger control regulation, the European Commission only has jurisdiction to review transactions which result in the acquisition of control. In the 2014 White Paper, the European Commission proposed to extend its jurisdiction to acquisitions of non-controlling minority shareholdings. However, with the arrival of Commissioner Vestager the proposals regarding minority shareholdings were shelved.

At the same time as the launch of its public consultation, the Commission published a new study on minority shareholdings. The study provides DG competition with additional information on the topic of acquisitions of non-controlling minority shareholdings from the point of view of both competition and corporate law and practice in different jurisdictions. In addition to a detailed review of the existing national merger regimes for acquisitions of non-controlling minority shareholdings, the study examines the targeted transparency system as proposed by the Commission in the 2014 White Paper. Under such a system, an undertaking would be required to submit an information notice to the Commission if it proposes to acquire a minority shareholding that would qualify as a “competitively significant link”. According to the study, stakeholders expressed concerns over the amount of information undertakings would be required to provide, the length of the procedure and the lack of legal certainty due to the vagueness of the notion of “competitively significant link”.

It is not clear whether this study should be considered as proof of a renewed interest by the Commission into minority shareholdings. However, it shows that the Commission has not entirely dropped the idea of a merger control review for non-controlling minority shareholdings.