Review of below-threshold mergers creates uncertainty

Allen & Overy LLP

Allen & Overy LLP

Antitrust authorities continue to use powers to review deals that fall below merger control filing thresholds. For merging parties this means uncertainty. It is crucial that the possibility of review – including a post-closing investigation – is assessed and provided for in transaction documents and deal timetables.

As predicted in last year’s report, the greatest attention has been on mergers in the digital and pharmaceuticals sectors. Authorities are keen to ensure that potentially anti-competitive killer acquisitions do not escape review.

But these are not the only sectors in focus. Below-threshold PE acquisitions have been in the spotlight. Transport and energy deals have also attracted scrutiny.

Going one step further, some authorities have even reached for non-merger control toolkits to enable them to review below-threshold transactions.

European Commission reviews more M&A under revised referrals policy

The European Commission (EC)'s revised Article 22 referral policy received a green light in 2022 after the General Court endorsed the authority’s decision to review Illumina/GRAIL. The policy encourages EU Member States to refer transactions (including completed deals) to the EC for review even where EU and national filing thresholds are not met. The EC ultimately blocked that deal.

Notwithstanding pending appeals by Illumina, last year the EC accepted two further Article 22 referral requests in cases where neither EU nor national merger control thresholds were met: a semiconductor merger (Qualcomm/Autotalks) and a transaction in the energy trading sector (EEX/Nasdaq Power). Both deals remain in pre-notification but will be watched closely once formally notified to the EC.

These cases are significant. However, they are far from the flood of referrals that some expected.

We know from EC officials that the authority has assessed a number of cases for possible referral. But so far it appears to be taking a selective approach to reviews. While this does not remove the need for merging parties to assess Article 22 referral risk, it does give some comfort.

Other authorities use new and existing powers

Elsewhere, antitrust authorities also exercised their ability to scrutinise transactions falling below merger control thresholds:

  • China: State Administration for Market Regulation conditionally cleared Simcere/Beijing Tobishi, a pharma deal relating to an API and injections to treat hearing loss – the first time it has imposed remedies on a below-threshold transaction following merger control reforms in 2022.
  • South Korea: for the first time (based on publicly disclosed transactions) the Korea Fair Trade Commission requested the voluntary filing of a below-threshold deal in the tech sector, asking Adobe to notify its acquisition of Figma over concerns that the merger could stifle innovation.
  • Brazil: the Administrative Council for Economic Defense (CADE) ordered two resellers of air miles to notify their completed transaction for review, marking only the sixth time it has used its below-threshold powers since the current Brazilian antitrust rules were enacted in 2012.

Some authorities have required firms to notify all future transactions, including below-threshold deals, as part of a merger remedy package. In the U.S., the Federal Trade Commission (FTC) routinely imposes such obligations. We also saw this happen in Brazil.

In Germany, following a sector inquiry the Federal Cartel Office found that Rethmann Group holds a strong market position in certain waste disposal markets. The authority is now considering whether to exercise on Rethmann Group its recently expanded ability to require a company to notify all deals in areas covered by the sector inquiry, including below-threshold mergers.

More examples are likely in the coming year as authorities continue to strengthen and make use of their powers. The Irish Competition and Consumer Protection Commission has recently gained the ability to call in below-threshold mergers. Dutch and Czech authorities are seeking it. In Canada, there are proposals to extend the period during which the Competition Bureau can challenge non-notifiable deals from one to three years.

Beyond merger control

Generating even greater uncertainty for merging parties, some authorities are looking to non-merger toolkits to scrutinise transactions that fall outside the reach of merger control rules.

In the U.S., the FTC’s lawsuit against PE fund Welsh Carson shows the agency’s willingness to use behavioural antitrust rules – the U.S. prohibitions on monopolies and unfair methods of competition – alongside merger control tools to challenge serial acquisitions.

Across the Atlantic, the European Court of Justice confirmed that behavioural antitrust provisions can similarly be used to scrutinise M&A in the EU. It held that Member State antitrust authorities can apply abuse of dominance rules to assess acquisitions by dominant companies that fall below national merger control thresholds. On the back of the ruling, the Belgian Competition Authority opened an abuse of dominance probe into Proximus’ completed acquisition of edpnet. This action ultimately prompted Proximus to sell off edpnet’s Belgian operations.

In the digital sector, reporting obligations introduced by the new EU Digital Markets Act and forthcoming UK digital markets regime will give the EC and CMA greater visibility over below-threshold deals. We expect the authorities to proactively use this information when prioritising enforcement action.

Similar powers are creeping into other new regulatory regimes. The EU Foreign Subsidies Regulation (FSR), for example, gives the EC the ability to require notification of M&A falling below FSR filing thresholds and, separately, to investigate suspected distortive foreign subsidies on its own initiative.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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