EU merger control: from long assessment to … (potential) slight change

On 26 March 2021, the European Commission (EC) published a Staff Working Document summarizing the findings of the evaluation of the procedural and jurisdictional aspects of EU merger control. Its objectives included assessing the effectiveness of the simplification measures introduced in 2013 and the turnover-based jurisdictional thresholds.

Turnover-based jurisdictional thresholds reaching their limits

The thresholds triggering a filing to the EC are set relatively high to capture only large transactions, which are the most likely to harm competition, leaving smaller transactions unchecked or for review by the competent national competition authorities. These thresholds have not been amended since 2004 despite inflation, the accession of numerous countries to the EU afterwards in 2004, 2007 and 2013 and, of course, the UK leaving the EU in 2020.

In recent years, there have been calls to amend these thresholds to allow the EC to review certain important transactions that fall below the radar because of the low target's turnover . This issue was highlighted by the EC not having (direct) competence to review certain billion dollar deals such as Facebook's acquisitions of Instagram and WhatsApp. According to the EC, this possible enforcement gap is particularly prevalent in the digital, pharmaceutical or biotechnology sectors, where innovation is extremely rapid and competition is fierce. The EC is particularly worried not to be able to stop problematic so-called killer acquisitions, i.e. transactions where a large market player buys a small but high-potential competing company or competing asset (such as IP) only for the purpose of removing that company or asset from the market or, alternatively, removing its own competing asset (or cease the development thereof).

It is in this context that the German (more on our website) and Austrian merger control thresholds have already been amended accordingly (while France rejected this option).

Reform of jurisdictional thresholds or expanding existing referral mechanism?

Following its assessment, the EC believes that there is no need to amend the merger control thresholds, because the current available system of referrals from and to national competition authorities (on request of the undertakings concerned or of the Member State concerned) should be sufficient to allow the EC to review high value transactions concerning low turnover targets, if necessary. A notable example in this respect concerned the Facebook/WhatsApp merger which the EC was able to review following a referral.

Nevertheless, the EC is willing from now on to apply the referral system less restrictively, accepting referrals from Member States at their request even if no Member State has competence to review the transaction under its national law. The EC has in this respect simultaneously released a guidance communication for Member States.

Towards more simplification

Finally, the EC has assessed in its Staff Working Document whether the current EU merger control procedure requires (further) simplification (reference can in this respect be made to similar recent reforms in for example France or Belgium). Such (further) simplification may concern the expansion of the scope of application of the current simplified procedure as well as simplifying the existing simplified procedure.

The concern is that too many transactions that are clearly unproblematic still cause unnecessary burdens to the parties to a transaction. This may be because the current scope of application of the simplified procedure is too limited and does not cover various other clearly unproblematic transactions.

It may also be because the simplified procedure is not simple enough as it is quite common that pre-notification discussions occur on whether the conditions for a simplified procedure apply. The EC suggests that such unnecessary burdens could be avoided if it would be able to apply the simplified procedure at its own discretion in clearly unproblematic cases that barely (not) meet the conditions for the simplified procedure.

Moreover, it is also envisaging reducing the information requirements (in particular but not exclusively in simplified cases).

As a result, the EC launched an impact assessment for a further simplification of merger control procedures. The EC also foresees to cement the practice of allowing parties to formally notify electronically, which became standard practice since 2020 because of COVID-19 (but also earlier when formal notification was not possible, for instance following the Brussels terrorist attacks in 2016).