Simplifying EU merger control procedures for simple cases

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Highlights
  • Higher market share thresholds are expected to increase the number of cases benefiting from the simplified procedure by approximately 10%.
  • Joint ventures with no activities in the EEA qualify for a new “super-simplified” procedure.
  • Non-problematic transactions that give rise to neither horizontal overlaps nor vertical links do not require pre-notification.
  • Higher market share thresholds for “affected markets” are expected to reduce significantly the amount of market data required for the Form CO.
  • The opportunity to request waivers from providing certain categories of information may further streamline merger filing preparation.
  • Expanded requirements to submit internal business documents under the simplified and ordinary merger filing procedures.

Executive summary. In an effort to cut red tape for business, the European Commission adopted on 5 December 2013 a legislative package that aims at simplifying the procedure for notifying mergers and acquisitions under the EU Merger Regulation. The most important element of this package is the broadening scope of non-problematic transactions that qualify for the simplified procedure. Under the simplified procedure, companies need to provide much less detailed information in their merger filing than under the ordinary procedure while the Commission can clear the transaction without conducting a market investigation on the competitive effects of the notified transaction. The European Commission expects that 60-70% of notified transactions will be treated under the new simplified procedure, i.e., 10% more than under the current system. The new legislative package will enter into force on 1 January 2014.

Background. In December 2012, the European Commission launched the Regulatory Fitness and Performance Programme (REFIT). REFIT was used to map the entire EU legislative landscape in order to identify burdens, gaps and inefficient or ineffective measures, including possibilities for simplification or repeal. Within that framework, the European Commission adopted on 5 December 2013 a legislative package that aims at making merger control rules and procedures less burdensome for business (Simplification Package). The adoption of the Simplification Package follows a public consultation that was launched in the course of 2013 and in which a large number of stakeholders participated. The Simplification Package will apply as of 1 January 2014.

Broadening the scope of the simplified procedure. The most important red tape cutting measure of the Simplification Package is the broadening of the scope of the simplified procedure that applies to the review of non-problematic transactions. This procedure allows companies to use a shorter notification form (Short Form CO) for transactions that are unlikely to raise competition concerns. In contrast, the Form CO that applies to ordinary merger control procedures is a lengthy form that requires a significant amount of corporate and market data, imposing substantially greater burdens than the more business-friendly HSR form used in the U.S. A further advantage of the simplified procedure is that it authorizes the European Commission to clear a transaction without investigating its effects amongst customers, competitors and other parties.

The Simplification Package broadens the scope of the simplified procedure by raising the market share thresholds, below which cases qualify for the simplified merger review:

(i) for markets in which two merging companies compete (horizontal overlap markets), the combined market share threshold is raised from 15% to 20%;

(ii) for markets in which one of the merging companies sells an input to a market in which the other company is active (vertically related markets), the individual or combined market share threshold is raised from 25% to 30%;

(iii) mergers can also qualify for a simplified review when the companies’ combined market shares are between 20% and 50%, but when the increase in market share after the combination of their activities is negligible and does not meet certain market concentration thresholds.

Introducing a “super-simplified” procedure for joint ventures with no activities in the EEA1. The Simplification Package introduces a “super-simplified” procedure for joint ventures that fall under EU jurisdiction but are active only outside the EEA. For such cases, a shorter version of the Short Form CO is used in which companies only need to describe the transaction and their business activities, and provide the turnover figures that the European Commission needs in order to establish jurisdiction.

Elimination of the pre-notification phase for certain non-problematic transactions. The Simplification Package identifies transactions that fall within the scope of the simplified procedure and can be notified without any pre-notification contacts. Companies that are preparing a merger filing typically need to engage in pre-notification contacts with the European Commission. Such contacts aim at providing comfort to the European Commission that it will have all the information it will need in order to assess the competitive effects of the transaction when the merger filing is formally submitted and the regulatory enforcement clock starts ticking. This process may take up to several weeks depending on the complexity of the case. The Simplification Package eliminates the pre-notification process for transactions that do not give rise to horizontal overlaps and vertical links between the merging companies in the EEA, i.e., cases where there are no markets for which further information needs to be reported.

New definition of “affected markets” reduces Form CO information requirements. For cases subject to the ordinary procedure, the Simplification Package raises the threshold of what constitutes an “affected market”, i.e., a market for which an extensive amount of market data and information needs to be submitted. More specifically, the threshold has been raised to 20% (from 15%) for horizontally affected markets and to 30% (from 25%) for vertically affected markets.

Waivers. The Simplification Package grants companies the opportunity to request waivers from the European Commission from the obligation to submit certain categories of information required in the Form CO and the Short Form CO. Such a possibility existed in the past as well, though on an informal case-by-case basis. The Form CO and Short Form CO now clearly identify categories of information that may be good candidates for such waiver requests. The Simplification Package encourages companies to request these waivers during pre-notification contacts with the European Commission.

Expanding the scope of the obligation to submit internal business documents. Although the Simplification Package generally reduces the information that needs to be supplied in connection with merger filings, this trend does not, however, apply to internal business documents. On the contrary, the new Short Form CO introduces an obligation for companies to submit presentations prepared for or received by members of the board management, board of directors, supervisory board and/or the shareholders meeting analyzing the notified transaction if the transaction gives rise to horizontal overlaps or vertical links. Under the current simplified procedure no internal business documents need to be submitted.

In addition, the new Form CO expands on the current Form CO’s requirements for the submission of internal business documents. The expanded version covers the following additional categories of documents: (i) minutes of meetings of the board management, board of directors, supervisory board and/or shareholders meeting discussing the transaction; (ii) documents that analyze the notified transaction in relation to alternative transaction scenarios; and (iii) documents dating up to two years back that discuss the affected markets even if such documents are not specific to the notified transaction. For documents falling under the second and third categories, however, the new Form CO offers the possibility for a waiver request.

Expected benefits for business. The European Commission expects that 60-70% of all notified transactions will qualify for the new simplified procedure. This is approximately 10% more than under the current system. Moreover, the European Commission estimates that approximately 25% of the transactions that qualify for a simplified procedure do not give rise to horizontal overlaps and vertical links and may thus be notified without pre-notification contacts. This could save companies the one or two weeks of pre-notification contacts that such cases usually require.

As a result of the raised thresholds for affected markets, companies will have to provide market data and information for fewer markets in the case of transactions that do not qualify for the simplified procedure, thus making the Form CO preparation less burdensome.

Finally, the possibility to request waivers to submit certain categories of information will provide additional information discounts under both the simplified and the ordinary procedures.

The European Commission thus estimates that the Simplification Package will reduce the in-house work that companies undertake in preparation of an EU merger filing as well as costs.

Comment. While the Simplification Package introduces important information discounts, it also emphasizes the increasing importance that the European Commission gives to internal business documents. The new Short Form CO and Form CO require companies to submit far more internal business documents than under the current system. The amendments introduced by the Simplification Package in some instances apparently demand more internal documents than are required under items 4(c) and 4(d) of the HSR form, for example in relation to documents that are not specific to the notified transaction but discuss the competitive conditions in the affected markets.

In any event, the Simplification Package constitutes a commendable effort by the European Commission to reduce business costs and resources for all filings. A lot will of course depend on how the European Commission responds in practice to various types of waiver requests. While the Simplification Package officially encourages companies to take advantage of this possibility, it is up to the Commission whether to grant requested waivers.

Finally, the Simplification Package does not affect the standard waiting period of 25 working days for straightforward cases nor does it indicate any change in the European Commission’s practice to issue its decisions on the last or almost last day of the waiting period. The European Commission rather expects the time efficiencies to result from the elimination of the pre-notification period for transactions qualifying for the simplified procedure that do not give rise to horizontal overlaps or vertical links and from shorter filing preparation and pre-notification periods due to the reduction of information requirements for all other non-problematic transactions.

Footnotes

1. EU plus Iceland, Liechtenstein and Norway.