Knowledge

NEW EU ANTITRUST GUIDANCE ON (VERY) SMALL MERGERS

2021-04-16


Merger filings within the EU may be required at EU or national level. EU filings, for large-scale deals having a "Community dimension," must be submitted to the EU Commission (thereby pre-empting the need to file with the Member States' authorities).  If the deal fails to meet the thresholds of the EU Merger Regulation (EUMR), the parties may be subject to any number of national filings in the 27 Member States (due to Brexit, the UK is now a separate jurisdiction which is no longer part of the EU merger review structure).  


Where a merger (or certain types of JVs) do not meet the EU or national thresholds, theoretically, the EU Commission has been authorized by Article 22 of the EUMR to receive referrals from affected Member States under two conditions: (i) the merger affects trade between Member States (which is loosely defined and easily satisfied), and (ii) the merger significantly affects competition within the referring Member State(s). 


However, for years, the Commission has chosen not to accept Article 22 referrals when the merger fails to meet the thresholds of the referring Member State(s). This practice was based on the assumption that most (if not all) deals which fail to meet the national thresholds are too inconsequential to merit an EU investigation.  


But in recent years, the pendulum has shifted due to the prevalence of so-called "killer acquisitions," by which large monopolistic companies are able to scoop up very small targets that escape European merger control altogether. Over time, such deals have insulated the acquiring firms from viable competition. The press has identified companies such as Facebook, Google and Amazon as examples of such monopolists.


The New Commission Guidance


In new Guidance published by the Commission on 26 March[1],the Commission has reversed the above policy, with the result that the Commission will now accept referrals from Member State antitrust authorities of mergers which do not meet the thresholds of the referring state(s). The Commission has indicated in the Guidance that it is particularly receptive to deals in sectors including (but not limited to) digital, pharmaceutical, biotech and certain industrial sectors, (almost certainly including AI and robotics)[2]. Indeed, any sector deemed important for the EU/national economy and/or national security is probably of potential concern to the Commission. The Guidance states that deals, even when the target has nominal sales or no sales at all, can be of interest, particularly when the deal affects the digital economy, R&D/innovation, or access to valuable assets, such as "raw materials, intellectual property rights, data or infrastructure.[3]"


The two-part test of Article 22 (see above) must still, however, be met in all cases. For the "effect on trade" requirement, the Commission would consider, among other things, where the parties are situated, trade flows and the geographical spread of EU customers.  


For the "effect on competition" assessment, the Commission would consider such as factors as whether the deal would increase the acquirer's market power, weaken or eliminate competition, reduce innovation, create entry barriers, or allow the acquirer to leverage its market power from one sector/product to another.  


Takeaways for Chinese firms


The new Guidance suggests that Chinese firms must now consider not only the likelihood of their small deals coming to the attention of Member State competition authorities, thereby potentially triggering national filing thresholds. They must also realize, where the national thresholds are not met, that one or more Member State authorities may refer the merger to the Commission under Article 22. In this latter situation, if the acquirer is unsuccessful in contesting the grounds for referral, parties would be required to notify their deal to the Commission, with all of the procedural requirements that would normally apply, including most likely, the suspension of the deal until it is cleared.


Moreover, under the new Guidance, the fact that the deal has already closed does not preclude a Member State from asking for the referral[4].


These factors suggest that when Chinese firms are contemplating deals that fall below the Member States' filing thresholds, it is important to determine whether the deal involves a sector of strategic interest to the EU; and if so, the parties should assess whether the elements of Article 22 are satisfied, which would entail an antitrust risk assessment.  


Notes:

[1]https://ec.europa.eu/competition/consultations/2021_merger_control/guidance_article_22_referrals.pdf

[2Id, at para. 7.

[3]Id, at para. 9.

[4]Id, at para. 21.


Authors:

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Dr. Frank Fine

     

Head of Intl Antitrust, 

DeHeng Law Offices (Brussel) Executive Director



Head of Intl Antitrust, DeHeng Law Offices (Brussel) Executive Director, China Institute of International Antitrust and Investment Visiting Professor of Law, China University of Political Science and Law (Admitted to practice in England & Wales, California and District of Columbia.) 

E-mail:frank.fine@dehenglaw.com


Disclaimer:

This article was written by the lawyer of DeHeng Law Offices. It represents only the opinions of the authors and should not in any way be considered as formal legal opinions or advice given by  DeHeng Law Offices or its lawyers. If any part of these articles is reproduced or quoted, please indicate the source.

Relevant Lawyer

  • Frank FINE

    Counsel

    Tel:+32 02 735 0880

    E-mail:frank.fine@dehenglaw.com

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