On 20 April 2023, the European Commission (EC) adopted a package of measures to “simplify” its merger control procedures. The reform expands the scope of the EU’s simplified merger control procedure, introduces a new “tick-the-box” notification form for such cases (where the merging parties make a Short Form notification), makes substantial changes to the Form CO notification for regular cases, and introduces a framework for electronically submitting documents in merger proceedings. The reform should make EC merger review faster and easier for transactions that clearly do not raise competition issues and are notified using the Short Form, while its effect on other transactions that are notified with a regular Form CO remains to be seen. The measures take effect on 1 September 2023.
Background
More than 90% of transactions that the EC reviews do not raise competition concerns and are unconditionally cleared. Nonetheless, EU merger notifications typically impose significant burdens on notifying parties and often involve lengthy pre-notification discussions with the EC. The major reform package adopted on 20 April 2023 is intended to make the process easier and faster for transactions that do not raise competition issues and to enable the EC to focus its resources on those transactions that may raise competition concerns.
Expanding the scope of the EU's simplified procedure
Most significantly, the reform expands the scope of transactions that are eligible for the simplified procedure and can be notified using the EC’s Short Form template.
First, the reform adds new categories of vertical transactions that by default qualify for a simplified treatment. A vertical transaction will qualify where
- the parties’ individual or combined shares are below 30% on all relevant upstream markets and their combined share of purchases for upstream products is below 30%; or
- the parties have individual or combined upstream and downstream market shares below 50% and the transaction does not substantially add to the concentration levels of both the upstream and downstream market (i.e., the increment of the Herfindahl-Hirschman Index (HHI) is below 150 provided the smaller party is the same party at the upstream and downstream levels).
Second, the reform gives the EC discretion to treat additional horizontal and vertical cases under the simplified procedure by introducing flexibility clauses. This applies to
- horizontal transactions if the parties’ combined market shares remain below 25% on all relevant overlapping markets;
- vertical transactions if (i) the parties’ individual or combined market shares on all relevant upstream and downstream markets are below 35% or (ii) the parties’ individual or combined market shares are below 50% in one market and less than 10% in the vertically related market(s); and
- joint ventures with turnover and assets below EUR 150 million in the European Economic Area (EEA) (which is an increase from the current EUR 100 million).
As under the current regime, the parties must substantiate why the transaction qualifies for the simplified procedure under the general rules or the flexibility clause during the pre-notification process. The EC will then decide on the applicable procedure but may switch to a regular procedure at a later stage in pre-notification if new facts emerge.
Third, the reform provides for a non-exhaustive list of circumstances (“safeguards and exclusions”) in which the EC can decide to conduct a regular – non-simplified – review for transactions that meet the general requirements for simplified review or are subject to the flexibility clause. Similarly, if one or more of these circumstances are present, the EC will usually not apply the flexibility clause. These circumstances include difficulties in defining the relevant markets, the presence of factors that could make competitive concerns plausible despite a lack of substantial horizontal or vertical relations between the parties, the existence of a substantiated third-party complaint, or the expression of concerns by an
EU Member State or if an EU Member State has requested referral of the deal to the EC.It will be seen whether the flexibility mechanism will actually reduce the notifying parties’ burden. Because the parties must substantiate and demonstrate that the transaction qualifies for the simplified procedure under all “plausible market definitions,” opting for a regular procedure and using the regular Form CO notification form (while requesting waivers from providing certain information) may sometimes lead to a faster notification compared with engaging in detailed discussions with the EC about the simplified procedure.
Streamlining notifications under the simplified procedure
The reform also makes the simplified procedure faster and easier than before.
Specifically, it introduces a “super-simplified” procedure for certain categories of transactions. In practice, notifying parties are generally required to engage in pre-notification discussions with the EC before formally submitting a notification. Even if a transaction qualifies for the simplified procedure, these discussions can take several weeks. The new regime, however, explicitly identifies two categories of transactions where the parties may submit a notification under the simplified procedure without any pre-notification discussions, namely
- transactions with no horizontal overlaps or vertical relationships between the parties; and
- formations of joint ventures with no current or expected turnover or assets in the EEA.
Additionally, the reform further simplifies the Short Form template for notifying transactions under the simplified procedure. The Short Form will use a “tick-the-box” format with multiple-choice questions and standardized tables for the jurisdictional and competitive assessment. Given that describing the relevant aspects of a transaction often involves nuances, however, parties may in practice need to go beyond ticking boxes and use textboxes to provide more detailed information.
Streamlining notifications of regular cases
The reform also aims to streamline reviews of cases that do not qualify for the simplified procedure by introducing an amended notification form (Form CO). There are four main changes to the Form CO:
- The updated Form CO includes standardized tables for providing information regarding horizontal overlaps, vertical relationships, and market shares.
- For transactions that are reviewed under the regular procedure, but involve some markets that benefit from the flexibility clause, information for qualifying markets can generally be provided in a “tick-the-box” format (similar to that for a Short Form).
- The revised Form CO includes an introductory section with more general definitions and instructions, including regarding the process for requesting waivers to avoid providing certain information that the Form CO requires. Whether this may suggest that the EC will be more amenable to granting waivers (or the opposite) remains to be seen.
- There are changes regarding the information to be provided in the Form CO.
- Certain general market and industry information is no longer required (e.g., information concerning cooperative agreements, intra-EU trade, imports from outside the EEA, and trade associations).
- The new Form CO, however, requires certain information/data that was not previously required, including regarding capacity shares and pipeline products. The parties will also be required to provide a description of the “data that each of the parties […] collects and stores in the ordinary course of its business operations and which could be useful for a quantitative economic analysis” and how it uses that data in the normal course of business.
Time will tell whether the reform will actually reduce the burden and time required to notify in regular cases. The EC explicitly stated in the Q&A document accompanying the reform package that the reform does not alter the requirement to provide internal documents, which have become a crucial component of EC merger reviews.
Electronic submission of documents
The reform introduces a framework for the electronic submission of documents in merger control proceedings. Most importantly, notifications must be submitted electronically by default in the future, which the EC had already preliminarily accepted in response to the pandemic in 2020.
Moreover, the reform provides detailed standards for submitting documents. These standards may increase the burden for notifying parties in certain circumstances and could make it more difficult for parties to exclude information unrelated to the notified transaction from submitted documents (such as data on unrelated markets and information on other transactions).
Practical implications
Overall, we expect the reform will make EU merger review easier and faster for transactions that qualify for the simplified procedure. It is unclear, however, whether the reform will provide much relief to parties notifying under the regular procedure. This will depend in part on how the EC administers the new regime in practice.
The reform will take effect on 1 September 2023. As of that date, parties will be required to notify using the new forms, even if pre-notification discussions with the EC began before that date. Accordingly, parties should begin preparing drafts of their notification based on the new forms if they expect pre-notification discussions to extend beyond 1 September 2023.
