Posted by Chantal Lavoie on 10 October 2016
The European Commission launched on 7 October 2016 another public consultation aimed at receiving feedback on whether further changes to the EU merger control framework are needed. The consultation is a follow-up exercise to the previous consultation which took place in 2014 following the adoption of the European Commission’s 2014 White Paper.
The key impetus for this consultation appears to be the recent debate regarding acquisitions with high acquisition values which do not meet EU merger control turnover thresholds. The digital economy has been at the centre of this debate following a number of deals with high transaction values but where the target (or both parties) do not yet generate sufficient turnover to trigger EU filing thresholds.
The public consultation focuses on three issues:
- Whether to introduce an alternative merger control threshold to capture deals with high acquisition values, such as mergers involving commercially valuable data;
- Whether to exclude certain non-problematic transactions currently dealt with under the simplified merger procedure, such as non-EEA joint ventures, from the scope of the EU Merger Regulation; and
- Whether to amend the referral procedure to make it more business-friendly and effective.
The public consultation is open until 13 January 2017.
Introducing an alternative EU merger control threshold
Following on the footsteps of Germany (which had proposed in July 2016 in a draft bill adding a transaction-based merger filing threshold of EUR 350 million as part of its wider reform of the German Competition Act), the European Commission is seeking feedback on whether to also amend the EU Merger Control Regulation to capture those deals with high acquisition values that escape EU merger filing obligations. This issue has been a focus of attention following Facebook’s 2014 acquisition of WhatsApp. The deal did not meet EU merger filing thresholds because the turnover taken into account was not high enough, notwithstanding a transaction value of USD 19 billion.[1]
The European Commission is considering whether to complement existing turnover-based thresholds by adding a threshold based on transaction value. The purpose of the measure would be to fill a perceived enforcement gap, not only in the digital economy but also in other industries such as pharma where the value of an asset, data sets or innovation may be the key driver for a deal. The significance of the transaction value would therefore act as a trigger to determine whether an EU merger review would be desirable, even though the turnover of the parties may be minimal.
The consultation document is seeking feedback on the existence and impact of such high value transactions in the digital economy, pharma sector and other sectors. Whilst no precise alternative threshold is proposed at this stage, respondents are asked to consider different scenarios based on a transaction value threshold, to which would be added additional criteria to ensure the deal has sufficient local nexus to the EU to warrant a review by the European Commission.
Since its public consultation in 2014, the European Commission has abandoned its proposal to assert jurisdiction over problematic non-controlling minority shareholding acquisitions. The proposal was prompted by Ryanair’s minority acquisitions of shares in Aer Lingus which had escaped EU merger scrutiny. Commissioner Verstager has since announced earlier this year that it was not convinced that changes to the system were necessary, taking into account the handful only of cases likely to be affected and the complexities involved in introducing an effective business-friendly framework.
The European Commission is now visibly turning to another perceived enforcement gap scenario. Significant challenges however lie ahead, none the least the risk of introducing a greater regulatory burden on typically start-up companies where the justification for a merger review is not based on the parties’ market strength, as reflected from its sales, but instead is extrapolated from a transaction value which may or may not be based on prospects of future market success.
Simplification Package
The European Commission is considering whether to further simplify the merger control process for certain non-problematic transactions. More precisely, as regards the creation of joint ventures operating outside the EEA, the European Commission’s proposal is to exclude such transactions from the scope of the EU merger regulation, such that no merger filing would be required in the future. As regards other non-problematic transactions currently dealt with under the simplified procedure (e.g. mergers without any horizontal and vertical overlaps within the EEA), the suggested options for further simplification consist in exempting such cases from the filing obligation or introducing lighter information requirements or introducing a self-assessment system. These options are similar to those envisaged by the European Commission for the review of non-controlling minority shareholdings (which has since been abandoned). The latter two options raise a number of potential risks for businesses with respect to legal certainty.
The European Commission is also seeking feedback on whether other cases should benefit from the simplified procedure.
Referral system
The consultation paper makes no new proposal regarding the referral system which allows for the re-allocation of jurisdiction over a transaction to either the European Commission or member states where certain conditions are met. The European Commission is seeking comments however on existing proposals contained in the White Paper. One of the more politically sensitive proposals consists in the European Commission being granted EEA-wide jurisdiction in the event of a request by one or more member states for the European Commission to assess a transaction which falls below EU filing thresholds, even if all member states do not join in the referral request.
Other technical aspects: time limits
The European Commission is also seeking feedback on whether any technical aspects for improvement, such as those previously identified in its 2014 Staff Working Document, should be addressed at this stage. In particular the European Commission is considering whether there is any need to introduce more flexibility to the merger review time limits, notably in Phase II and in the context of remedy discussions.
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[1] Ultimately the transaction was reviewed by the European Commission following a request for referral made under Article 4(5) of the EU Merger Regulation.