1. Background

The Commission has been considering changes to the EUMR for quite some time, aiming to adapt to the economic changes brought about by digitization and to ensure that materially critical cases are caught more systematically and reviewed more thoroughly. Already in September 2020, the Commissioner for Digital, Competition and Executive Vice President of the Commission, Margrethe Vestager, had outlined the key findings of the Commission’s respective evaluation (now published), saying that the three main points for revision concerned the evaluation of the substantive merger control assessment, the simplification of the merger filing process (specific consultation now ongoing) and the possibility for the Commission to review cases which were initially non-notifiable.

While there were no specific legal references in Commissioner Vestager’s initial speech, it became apparent fairly quickly that this latter point was about revamping the Commission’s approach to Article 22 EUMR. Specifically, the Commissioner proposed to let national competition authorities successfully initiate a merger control review in Brussels even for transactions which do not meet the review thresholds under their respective national laws. This raises several fundamental questions for companies and competition lawyers alike (which we set out in an earlier article) and sparked an intense debate not just over the need for such change in general but also over its viability and functioning in practice.

2. The previous role of article 22 EUMR

These uncertainties stem from the role of Article 22 EUMR within the European merger control framework. The provision allows Member States to trigger a merger control review in Brussels even though a transaction does not meet the turnover thresholds of the EUMR. The only substantive criteria for such request are that it (i) is a transaction within the meaning of the EUMR, i.e. a merger or an acquisition of control and that it (ii) affects trade between Member States and (iii) threatens “to significantly affect competition within the territory of the Member State or States making the request” based on prima facie evidence. If the Commission decides to examine the case, it assumes jurisdiction for each market area located in the territory of any Member State making the request or joining it.

The substantive bar for successfully applying for a referral is quite low. The reason that, to date, this instrument has nevertheless been used in just around 40 cases is that the administrative practice of the Commission so far provided for a clear limitation: the officials in Brussels would not accept initial referral requests submitted by Member States that did not themselves have merger control jurisdiction over the transaction according to their national laws. This was an important practical corrective, since the wording of Article 22 EUMR does not provide for any distinction between Member States with and Member States without merger review competence under their respective national laws.

It is precisely this corrective which the Commission now abandons. In fact, it wants not just to accept but even to “encourage” referrals in cases where the applying Member State does not have jurisdiction over the case. The Guidance sets out how and why.

3. The new role of article 22 EUMR

As to the “why”, the Commission states that in recent years, “market developments have resulted in a gradual increase of concentrations involving firms that play or may develop into playing a significant competitive role on the market(s) at stake despite generating little or no turnover at the moment of the concentration.” While the Guidance does not employ the term, this is an ill-concealed allusion to so-called “killer acquisitions”, a fighting word which has emerged in merger control reform discussions in several jurisdictions. It is therefore not surprising that the Guidance moves on to say that “[t]hese developments appear particularly significant in the digital economy, where services regularly launch with the aim of building up a significant user base and/or commercially valuable data inventories, before seeking to monetize the business.” But the Guidance also refers to “sectors such as pharmaceuticals and others where innovation is an important parameter of competition” and, generally, it stresses the importance of (target) companies which are conducting research and development projects and/or have otherwise strong competitive potential because of their access to or impact on competitively valuable assets, such as raw materials, intellectual property rights, data or infrastructure. Going forward, the Commission wants to catch these transactions.

4. What's in it and what's (not) to like

The Guidance is, unfortunately, much less clear on the “how” of the Commission’s new approach. While it does contain some helpful explanations around the relevant substantive criteria and the types of acquisitions targeted, none of these explanations are conclusive and important procedural aspects – which are crucial for deal timetables – appear to be (deliberately left) hanging in the balance.

4.1 Which deals are potentially relevant?

In terms of the deals that may generally be considered candidates for the new referral process, the Guidance makes it clear that these are not limited to any specific economic sector. Rather, it broadly refers to “transactions where the turnover of at least one of the undertakings concerned does not reflect its actual or future competitive potential”. Specifically, this would include cases where the target

• is a start-up or recent entrant with significant competitive potential;

• is an important innovator or is conducting potentially important research;

• is an actual or potential important competitive force; 

• has access to competitively significant assets (such as for instance raw materials, infrastructure, data or intellectual property rights); and/or

• provides products or services that are key inputs/components for other industries.

Importantly, and apparently without regard to the criteria above, the Commission may also consider whether the value of the consideration received by the seller is particularly high compared to the current turnover of the target.

Overall, this bears a rather strong resemblance to the notions underpinning the introduction of the “transaction value threshold”, which was introduced in Section 35(1a) of the German Act against Restraints of Competition and Section 9(4) of the Austrian Cartel Act in 2017 and the respective guidelines published by the German Federal Cartel Office and the Austrian Federal Competition Authority. However, the Guidance is eager to point out that none of this is to be construed as exhaustive. Instead, the list of features set out above is presented “for purely illustrative purposes” and “cannot be deemed in any way comprehensive”. This further limits predictability of the new approach, adding to the uncertainties caused by criteria like “access to competitively significant assets”, the distinctive substance of which is opaque to begin with (companies that do not have such access at all will likely become bankrupt).

4.2 Affecting trade between Member States?

With regards to the “Member States” criterion of Article 22 EUMR, the Guidance states that factors which could be relevant here “may include”

• the location of (potential) customers;

• the availability and offering of the products or services at stake;

• the collection of data in several Member States; or

• the development and implementation of R&D projects whose results, including intellectual property rights, may be commercialised in more than one Member State.

Again, this is non-exhaustive.

4.3 Significantly affecting competition

As to the criterion of prima facie evidence of a possible significant adverse impact on competition within the applying Member State, relevant considerations “may include”

• the creation or strengthening of a dominant position of either the target or the acquirer;

• the elimination of an important competitive force (e.g. by the elimination of a recent or future entrant or by the merger between two important innovators);

• the reduction of a competitors’ ability and/or incentive to compete (e.g. by making their entry or expansion more difficult or by hampering their access to supplies or markets); or

• the ability and incentive to leverage a strong market position from one market to another by means of tying or bundling or other exclusionary practices.

As you will have guessed by now: this list is not exhaustive.

4.4 What are the deadlines?

Within the overall framework, deadlines are crucial. For Article 22, there is a 15 working days deadline for Member States to make their request, usually triggered by the respective national competition authority receiving a notification. However, in the cases relevant here (where no notification at national level is required), the deadline instead starts on the date on which the concentration is “otherwise made known” to the Member State concerned. According to the Guidance, the notion of ‘made known’ should be interpreted as implying “sufficient information to make a preliminary assessment as to the existence of the criteria relevant for the assessment of the referral” – i.e. those mentioned above.

Unfortunately, the Guidance is completely silent on the concept of “sufficient”. When exactly does a national competition authority have enough information to assess the substantive criteria of Article 22 EUMR and those set out in the Guidance, e.g. whether turnover is reflective of a target company’s market position? This uncertainty effectively makes the referral deadline a moving target – an uncertainty exacerbated by the fact that even transactions which have already been closed may still be subject to a referral application by a Member State and subsequent review in Brussels.

The Guidance tries to alleviate this uncertainty by effectively introducing another deadline in addition to those mentioned in the EUMR and linked to the closing of the transaction. While post-closing referrals are legally possible, the Commission seems willing to acknowledge the time which has passed since the closing as a relevant factor. According to the Guidance, the Commission “would generally not consider a referral appropriate where more than six months has passed after the implementation of the concentration.”

However, this should, in our view, not be regarded as a safe-harbour:

• First, the six-month period is also made contingent on the information available to competition enforcers. The Guidance states that if “the implementation of the concentration was not in the public domain, this period of six months would run from the moment when material facts about the concentration have been made public in the EU”. While parties to a transaction might argue that this period is triggered, at the latest, by formal press releases which they issue for their transaction, it is not hard to foresee that enforcers may very well consider these releases lacking in “material” information and, thus, not suited to trigger any deadline.

• Second, the Guidance explicitly points out that “[i]n exceptional situations, […] a later referral may also be appropriate, based on, for example, the magnitude of the potential competition concerns and of the potential detrimental effect on consumers”. Since prima facie competition concerns are at the very heart of every Article 22 referral, it will be very much left to the discretion of the Commission how long merging parties will face the prospect of their (closed) transactions being subject to review – and perhaps even being unwound.

4.5 Interaction with Member States

The Commission will cooperate closely with the competition authorities of the Member States to identify concentrations that may constitute potential candidates for a referral. If it becomes aware of a concentration that it considers as meeting the criteria set out above, it may also inform the Member State(s) potentially concerned and encourage referral requests (albeit without being able to compel them to).

Importantly, and tying in with the review deadlines issue described above, the fact that a transaction has already been notified in one or several Member States does not necessarily preclude a referral under the new Guidance. While it states that national filing(s) “may constitute a factor against accepting the referral”, it is emphasised that the Commission will “make its decision based on all relevant circumstances, including, […] the extent of the potential harm, and also the geographic scope of the relevant markets.”

This approach of course goes against the rationale underpinning the new Guidance – which is to interfere because absent the referral, no European authority would look at the deal in question. Neglecting this purpose, the Guidance indicates that there is a risk of parallel, fragmented reviews of the same transaction in Brussels and one or more Member States – a result which clearly does not fit with the otherwise prevailing European doctrine that only the “best-placed” authority should review a deal. In that regard, it is particularly striking that the Guidance only refers to transactions notified but does not even mention situations in which one or more Member States have even cleared a deal. Considering that, according to the Guidance, the implementation of a transaction generally does not preclude a referral, one must expect the Commission to find that (early) national merger clearances will not preclude an Article 22 referral by Member States without jurisdiction either.

4.6 Interaction with merging parties and third parties

Once a referral request has been made, the Commission will, “without delay”, inform not just the national competition authorities, but also the parties. In addition, the Commission will also inform them “as soon as possible” if a referral request is (only) being considered.

Being made aware of such consideration does not oblige the parties to refrain from closing their transaction, since the standstill obligation under Article 7 EUMR does not apply before the actual referral request has been made. However, the Guidance emphasises that parties to a transaction nevertheless “may decide to take measures they consider appropriate, such as delaying the transaction’s implementation until it has been decided whether a referral request will be made”. Companies seem well advised to take this cordial phrase as a call to be heeded: “Better think twice before proceeding with a ‘killer acquisition’ – if things get messy, that’s your loss”. It is only fitting that the Commission also underscores that parties “may voluntarily come forward with information about their intended transactions” and that it is willing in such cases to “give them an early indication” as to whether or not there is a case for an Article 22 referral – provided, however, that “sufficient information to make such a preliminary assessment has been submitted”.

Moreover, the merging parties are not the only companies the Commission encourages to come forward. The Guidance states that third parties are also welcome to reach out and inform the competition authorities “of a concentration that, in their opinion, could be a candidate for a referral under Article 22 of the Merger Regulation”. Such third parties are then called upon to “include sufficient information to make a preliminary assessment as to whether the criteria for referral are met, to the extent such information is available to the third party”. While this would not impose any obligation on the authorities to take any action, i.e. to apply for or accept a referral, it is clear the Commission is keen to leave no venue for information gathering unexplored. This further adds to the complexity of the review process, as it gives disgruntled customers, suppliers and competitors a new tool to put a spanner in the works of unwelcome transactions.

5. What's next?

To create new roads to Brussels and avoid potentially problematic transactions flying under the radar of competition watchdogs’ purview, the Commission has introduced a profound change in European merger control. With its new Guidance, the legal certainty previously provided by clear-cut revenue thresholds is now, in many cases, a thing of the past. Even if none of the (national) merger control thresholds in the EU are met, a transaction could still be reviewed in Brussels as long as it is seen as potentially problematic for competition by any Member State – a prima facie substantive assessment replaces the definitive assessment based on formal quantitative thresholds.

As this is brought about not by a reform of the actual legal text of the EUMR, but by a mere revision of the Commission’s enforcement practice, these changes come with immediate effect on all companies worldwide. Starting now, companies whose transactions may at least potentially fit the criteria set out above, e.g. because they concern a target that could be seen as a particular innovator in its industry, are well advised to factor in the new Guidance when making their preliminary risk assessments and creating their transaction documentation and deal timetables – also taking into account that successful Article 22 referrals tend to end up in complex (in-depth) reviews particularly often.

Depending on the circumstances, merging parties should then heed the Commission’s call and engage with the relevant national competition authorities as well as the Commission proactively. The Commission is (presumably deliberately) vague as to when the referral deadlines for national enforcers are actually triggered and until when it would accept a referral. It does not even commit to abstain from accepting referrals in situations where national filings have already been made (or, indeed, national clearances have already been granted). Proactive engagement with the authorities will therefore often be the only means to regain legal certainty as to the (in-)contestability of a transaction under merger control laws.

All of this increases the complexity of European merger review processes and their preparation by companies – a set-back for the practicability of the European merger control system with otherwise clearly defined competences and referral mechanisms. In its eagerness to open new roads to Brussels, the Commission has, unfortunately, not put up enough road signs and it will be very much left to merging companies and their legal advisors to figure out the proper way forward. But there is a silver lining: The Commission’s Director-General for Competition, Olivier Guersent, has reportedly already stated that the Commission views the Guidance as an ongoing process and that it may “potentially pretty quickly revise it” in view of practical experience.

To keep it in the language of roadmaking: there may be more road works to come.