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22 December 2016
The European Commission is consulting on procedural and jurisdictional changes to EU merger control. Among the procedural tidy-ups, the major proposed change is set to introduce a value-of-transaction threshold as a trigger for notification, which could potentially bring into the commission's net all deals where the global value of the transaction meets the commission's test – wherever in the world the parties are situated. As notification is burdensome and can involve substantial delays to a deal, many companies may object that this is extra-territorial overreach. It also threatens to upset the careful balance between national and supra-national EU-level merger control regimes in Europe, as the commission seeks to claw back high-value deals which would otherwise be subject only to national review.
The deadline for the submission of responses via the commission's consultation questionnaire is January 13 2017.
The consultation discusses in particular the following procedural and jurisdictional aspects of EU merger control:
The premise of the consultation is that EU merger control "works well" and needs "no fundamental overhaul of the system". However, even the best systems can be improved.
The commission's concern is that the existing thresholds do not capture certain transactions, principally because the relevant turnover-based thresholds are not met by one (or more) of the parties. Should the thresholds be extended to refer to the value of the transaction?(2)
Any extension of regulation should be viewed with caution. The commission has previously stated that it is seeking to reduce red tape, and this proposal would appear to go against that intention.
The value threshold could result in substantial territorial overreach. The proposed transaction value is purportedly based on global deal value. What if the focus of the deal is Asia or Latin America, which is why there are no appreciable EU revenues and none likely in the near future? It would seem invidious to delay deals and require burdensome filings and lengthy pre-notification on that basis.
Transaction value thresholds may make sense if the intention of the law is to capture transactions that are likely to have economic significance and an impact on the market structure within a single jurisdiction (eg, under the US Hart-Scott-Rodino Antitrust Improvements Act 1976) or within a national member state. However, the European system is different, with competence being shared at two levels. EU national merger control regimes continue to apply if the Merger Regulation is not triggered, and referral mechanisms remain in place to allow upward transfer to the commission in suitable cases.
The commission refers to Facebook/WhatsApp as a source of inspiration, but that case was in fact ultimately referred up to the commission by three undisclosed member states, arguably demonstrating to the best effect how the existing system can and should work.(3)
The introduction of a value-based threshold would raise significant practical issues and introduce more complexity to the (already complex) Merger Regulation thresholds:
The criteria for determining the EU dimension are clear-cut, well-established and provide for a bright-line test as to when the commission has jurisdiction. However, it appears that the commission is keen to use a value-based threshold and it seems likely that its introduction can be expected in some form. In that case, it will be in the interest of most businesses for the commission to define 'highly valued' at the very highest of levels.
Five different types of transaction may benefit from the simplified procedure.(4)(5) The consultation seeks to investigate whether more simplification could be achieved by, for example, excluding from the scope of the commission's merger review certain non-problematic transactions (eg, the creation of joint ventures that will operate outside the European Economic Area (EEA) and have no impact on EEA markets). The consultation also discusses further reducing the notification requirements for other non-problematic cases dealt with in the simplified procedure.
Overall, the simplified procedure has created much added value for companies, reducing the burden in terms of time, resources and legal fees. Companies will welcome any measures that cut costs and administrative burden, and wholesale exemption of certain categories of transaction from the notification requirement should be encouraged in some circumstances. Below are a number of comments and questions for companies to consider when responding to the consultation:
The simplification project has seen successful, but could go further where it is clear that the effect within the EEA is non-existent or de minimis. A lighter simplified procedure requirement would still involve a legal cost and burden for in-house legal teams, but is likely to be the most proportionate outcome in terms of legal cost, burden and certainty.
The commission is also seeking comment on whether the referrals mechanisms(6) under the Merger Regulation can be improved. It suggests the following amendments:
Many companies would welcome the majority of these proposals, given that they will simplify the notification requirements. The existing Form RS system is burdensome and duplicates much of the work required for the Form CO. The proposals made would contribute to reducing the burden and facilitating the better allocation of cases between competition authorities.
However, the proposal to expand the commission's jurisdiction to the entire EEA for Article 22 referrals may not be beneficial for companies. Experience shows that a reference up to the commission often leads to companies receiving numerous requests for information from national, EU and EEA levels, and sometimes broader levels. This is not an efficiency-enhancing reform.
The issues are important and merit debate. However, wholesale reform is not needed and neither is further complexity. Instead, companies and their advisers hope that the commission will focus on the areas where real change is required, making the process smoother, leaner, less burdensome and more predictable.
In terms of timing, the commission has indicated that its evaluation will take until the third quarter of 2017. Reform is in the air, but what change will come remains unclear. Any legislative amendment to the Merger Regulation before the end of 2018 is likely to be ambitious.
For further information on this topic please contact Gavin Bushell at Baker McKenzie by telephone (+32 2 639 36 11) or email (firstname.lastname@example.org). The Baker & McKenzie website can be accessed at www.bakermckenzie.com.
(3) The consultation does not mention the recent proposal to reform the German merger control thresholds to incorporate a €350 million value threshold (raised in a subsequent proposal to €400 million). While this has not prompted the commission's thinking, it has clearly encouraged it.
(5) See Articles 5 and 6 of the Commission Notice on a Simplified Procedure for Treatment of Certain Concentrations under EU Regulation 139/2004.
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