The Merger Regulation 2003 became law on 1 May 2004. This coincided with the accession of 10 new Members States. The Merger Regulation is directly applicable throughout the entire European Union. A Mergers Task Force was established within the Directorate General for Competition to deal with the new law.
The Regulation reformed the pre-existing legislation under which notification might be required at both EU and national levels. The Merger Regulation provides a single point of contact and regulator.
The Regulation deals with the control of concentrations. A concentration includes a
- the merger of two or more previously independent undertakings or parts of undertakings;
- the acquisition by one or more persons or undertaking already controlling at least one undertaking or one or more undertakings, whether by way of purchase of securities or assets by contract or other means of direct or indirect control over the whole or part of any one or more other undertakings.
Accordingly, the Regulation extends both to asset purchases and share purchases.
The EU Commission has published a note on the application of the definition.
Definition of Merger
A merger/concentration may occur but where previously independent undertakings cease to exist. Concentrations may also occur where there is a change in control in the undertaking arising from a transaction if the rights give the acquirer the possibility of exercising the requisite degree of influence, there may be a concentration.
Influence may be acquired by the acquisition of shares which carry voting rights or the right to appoint the directors of a company. Accordingly, a decisive influence may arise even if economic ownership is not taken.
Control may be exercised as a practical matter. There need not necessarily be an acquisition of more than half the shareholding. It may occur if a shareholding is widely spread and a lower than 50% holding gives a de facto control.
Undertakings collectively may obtain control of a third undertaking. It may arise through a joint venture or other alliance. It is possible for more than one undertaking to have control over another. One may exercise a majority of voting shares while the other may have rights, negative or positive, to exercise control.
Where parties are required to cooperate in order to avoid a third party’s veto, they may be deemed to have control. Joint control may arise under a shareholders’ agreement.
In order for EU jurisdiction to arise, there must be a Community dimension. The EU Regulation provides for EU thresholds where the EU dimension applies; national laws do not apply.
Entities must have a sufficient threshold for a Community dimension, which requires that the combined world aggregate turnover worldwide of the undertakings is more than €5 billion and the aggregate Communitywide turnover is at least €250 million unless each of the undertakings derives more than two-thirds of its Community turnover is within one State.
In practice, it may not be readily apparent whether the relevant turnover is applicable. The requisite accounts may not be available. They may not relate to the entities collectively.
There may be a Community dimension where the aggregate worldwide turnover of all undertakings is more than €2.5 billion and in at least three Members States, the combined aggregate turnover is in excess of €100 million in at least three Members States above, the aggregate turnover of at least two of the undertakings is more than €25 million and the aggregate community EU wide turnover for each of at least two of the undertakings is more than €100 million and if each of the undertakings has more than two-thirds of its aggregate EU turnover within one State. Each of the above conditions must be satisfied.
The second test is a compromise between a proposal to extend Commission jurisdiction and the desire of States to maintain national jurisdiction in accordance with the principle of subsidiarity.
Where an undertaking’s concentration is subject to regulation by three Member States, they may, before notifying the Member States inform the Commission in a reasoned request that the matter should be dealt with by the Commission.
The States are informed of the submission and if the Member States do not disagree, it is deemed to have a Community dimension. This is seen as desirable in aid of the single market to avoid multiple filings in sub-Community dimension cases. Member States have 15 days in which to object.
There are case allocation mechanisms by which cases may be referred to various authorities within the network of National competition authorities. The Commission’s notice on the matter indicates that the intention is to create a flexible system. Cases are to be allocated to the most appropriate Authority with the relevant expertise and knowledge of the circumstances. Cases below the normal threshold may be referred back to States.
A state or states may refer a concentration short of a community dimension to the Commission. The Competition Authority may make the reference where the concentration affects trade between Member States or threatens to significantly affect competition within that territory of the State or the States who make the request. The request must be made within 15 days of the concentration being notified to the State authorities of their becoming aware of it.
The Commission may decide within 10 working days whether the criteria apply for it to take over the case. The relevant notice contemplates that this mechanism will be used only where there are serious concerns regarding multinational markets or issues in a number of sub-national markets through the EU.
Referral by State
There is a procedure whereby concentrations which have a Community dimension may be referred to National competition authorities for consideration under the relevant domestic law.
The State may request remission of the matter if the concentration threatens to significantly affect competition in a market within that State which has all the characteristics of a distinct market or if the concentration affects competition in a market within the State which presents the characteristics of a distinct market and which does not constitute a substantial part of the EU.
The referral must be made within 15 working days of the States receiving notice from the Commission. The Commission may request the State to request a referral. The Commission decides within 25 working day period where proceedings are not commenced or 65 working days where they are commenced, but preparatory steps to adopt measures have not been taken in default of the decision, it is deemed referred back.
On a reference back, the National Authority must report within 45 working days. State’s measures /restriction is limited to measures which are necessary to protect or restore effective competition in the relevant market.
The parties to the concentration itself may themselves request referral back to the State. This is commenced by a reasoned request made to the Commission based on the above criteria that it might significantly affect competition in a distinct market such that it is appropriate to be heard in the relevant State to which the referral back is requested.
The Commission refers the matter to the State which must agree or disagree with the proposal. In the absence of disagreement, the Commission has 25 days in which to consider referral back. States may invoke the legitimate interest principle where the public interest, prudential rules or media concentration are impacted.
States may give notice to the Commission of an intention to adopt the measure and the Commission will consider it under EU law before adaptation. The Commission must consider the matter within 25 working days.
States may take steps based on national law other than on competition grounds. The measures must be compliant with general principles of law, including proportionality and non-discrimination under the provision. States may place restrictions on a concentration, which is approved by the Commission.
States may take measures to protect national security. This may be applicable in the defence sector.
Article 101 / 102 Basis
The Merger Regulation does not remove the possibility that the particular transaction will be subject to Article 101 (anti-competitive agreements) or 102 abuse of a dominant position. However, although formerly, jurisdiction was formerly exercised on this basis, it would appear unlikely, given the independent standalone mechanisms, that the Commission would seek to take action on this basis. There may, however, be rights which are directly enforceable by private parties and courts in that regard.
The Commission has published guidance on mergers cooperation between the Competition Authorities. It seeks to promote cooperation and information sharing between National competition authorities in relation to cases which themselves do not require Commission approval but require clearance from several States.
Where the concentration has a Community dimension, it must be notified to the Commission before implementation and following the conclusion of the agreement or acquisition of the controlling interest. An agreement may be notified if there is a good faith intention to conclude an agreement. Where a notifiable concentration is not notified, a fine of up to 10% of aggregate turnover may be imposed.
The Commission publishes the notification together with the details of the parties. It seeks third-party observation. They must be submitted within a timeframe. In practice, parties may informally approach the Commission in advance in order to discuss the position.
The notification must contain sufficient information to identify the markets and undertakings involved to consider whether there is a Community dimension.
The concentration must not be undertaken until it has been declared, agreed, and accepted as compatible with EU law by the Commission. Agreements will generally be subject to a precondition in this regard.
The Commission has the power to permit the transaction to proceed pending its decision. The initial decision must be taken by the Commission within 25 working days commencing the date after notification. The Commission may request further information and provide a time limit for a response. Penalties may be imposed for noncompliance. The national competition authorities may be furnished with the details of the request.
The Commission may formally require further information. Fine of up to 1% of turnover and up to 5% of daily turnover may be imposed for delays or non-response.
Persons may be interviewed in connection with the application. The Commission may exercise its full investigatory powers, including powers to enter premises, look at books and records etc.
The Commission is to cooperate with the national competition authorities. They may be called upon to furnish relevant information and assist. The Commission has published guidance on its practices in considering applications.
Following an initial examination, the case may be closed. If it falls within the Regulations, but the Commission is satisfied it does not raise serious doubts as to compatibility with the Common Market, it may be permitted to proceed.
The Commission may negotiate changes with the participants so as to enable it to declare the proposal to be compatible with the Common Market. Undertakings may be given by modifying the proposal so as to ensure and procure compatibility and compliance.
The Commission may initiate proceedings if there are serious doubts regarding whether the transaction will be compatible with the Common Market. During this phase, a more detailed examination is undertaken with longer time periods. The undertakers must be notified as must any relevant Member States.
Certain types of uncontroversial concentrations may proceed under an expedited procedure. This may be available in a number of types of transaction, including
- where undertakings have joint control over a joint venture with negligible or no activities in the EU or
- where none of the parties is engaged in business activities in the same product or geographical market or in a product which is upstream or downstream of a product market in which the other is involved.
- where two or more are engaged in the same product and geographic market or upstream and downstream market, provided that their market shares, in aggregate does not exceed 15% for horizontal relationships and 25% in the case of vertical relationships or, where a party is to acquire sole control of an undertaking which it already has joint control.
In practice, the above types of concentration are unlikely to be challenged and accordingly a short-form decision may be published within one month. The Commission may revert back to the standard procedure if it believes it is necessary.
If the Commission does not complete the matter within the statutory timeframe, its consent is deemed to be given. There is generally a 30 working day period from the commencement of the second stage.
The Commission may decide that the transaction is compatible or incompatible with the Common Market.
If the proposal has been implemented, the Commission may order it to be unwound and separation of assets. Fines may be imposed on undertakings of up to 10% of aggregate turnover and a further penalty of up to 5% of average turnover per day until the transaction is unwound. Approval may be subject to conditions.
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