Alert to businesses - Non-notifiable acquisitions increasingly at risk of EU review - the European Commission's recent guidance and implications for merger control in Ireland
Alert to businesses - Non-notifiable acquisitions increasingly at risk of EU review - the European Commission’s recent guidance and implications for merger control in Ireland
On 26 March 2021, the European Commission (Commission) published a Staff Working Document summarising the findings of an evaluation (Evaluation) of procedural and jurisdictional aspects of the application of Council Regulation (EC) No 139/2004 of 20 January 2004 (i.e. the EU Merger Regulation (EUMR)).
This included an assessment of the referral system for acquisitions under the EUMR from national merger control authorities (including the Competition and Consumer Protection Commission (CCPC)) up to the Commission.
The interpretation of these findings by the Commission may already be having material implications for businesses who have acquisitions that are neither notifiable to the Commission nor to any Member State merger control authority (e.g. the CCPC) but find that the Commission is encouraging national merger control authorities (e.g. the CCPC) to refer such acquisitions (including completed acquisitions) to the Commission for review under the EUMR. This risks causing unexpected deal delay and uncertainty for businesses.
The EUMR in context
The EUMR grants the Commission exclusive jurisdiction (i.e. a "one-stop-shop") to review acquisitions (i.e. "concentrations with an EU dimension") which meet certain worldwide, EU and Member State turnover-based thresholds.
These thresholds identify the acquisitions whose impact on markets is deemed to go beyond the national borders of any one Member State and which, as such, are better dealt with at the EU level.
If an acquisition involves lower turnover thresholds, individual Member State merger systems may apply to that acquisition (e.g. acquisitions which require to be (or in far fewer instances are voluntarily) notified to the CCPC).
The EUMR acquisition referral system
The EUMR contains a corrective mechanism to the application of these quantitative jurisdictional thresholds, allowing, under certain circumstances, a referral of acquisitions from a Member State (e.g. the CCPC) to the Commission (i.e. Article 4(5) EUMR referrals (at the request of the acquisition notifying parties) and Article 22 EUMR referrals (at the request of the Member States (e.g. by the CCPC)).
There is also a system under the EUMR for the referral of acquisitions to the Member States from the Commission (i.e. Articles 4(4) and 9 EUMR).
This system of referrals aims to ensure that the more appropriate authority or authorities investigate an acquisition (despite that authority not being initially entitled to do so).
What is Article 22 EUMR?
Article 22 EUMR allows for one or more Member States to request the Commission to examine, for those Member States, any acquisition that does not have an EU dimension but: (i) affects trade between Member States and (ii) threatens to significantly affect competition within the territory of the Member State (or Member States) making the request.
Acquisitions that can be referred to the Commission under Article 22 EUMR are those that:
(a) require to be notified under a Member State's compulsory notification thresholds (the Irish merger control thresholds under the Competition Act 2002 (as amended)).
(b) are not caught by the compulsory notification thresholds of a Member State's merger regime (e.g. in Ireland) and which therefore do not require to be notified under that regime – this is the category of most relevance to the Commission under its Guidance as described below.
What is the Commission's new approach under Article 22 EUMR?
Following the Evaluation, the Commission adopted a communication providing guidance (Guidance) on the application of the acquisition referral mechanism between Member States (e.g. Ireland) and the Commission under Article 22 EUMR.
The Commission intends, in certain circumstances, "to encourage and accept referrals in cases where the referring Member State does not have initial jurisdiction over the case, where the criteria of Article 22 are met."
Previously, the Commission discouraged referrals of acquisitions under Article 22 EUMR that were under national merger control thresholds as they weren't generally considered likely to have a significant impact on the internal market.
What industries in particular are in play for Article 22 EUMR referral to the Commission?
The Commission now believes that market developments have resulted in a gradual increase of acquisitions involving companies that play (or may develop into playing) a significant competitive role on the market(s) at stake despite generating little or no turnover at the time of the acquisition.
According to the Commission, these developments appear particularly significant in the digital economy, pharma and companies with access to (or impact on) competitively valuable assets, such as raw materials, intellectual property rights, data or infrastructure.
Article 22 referrals can also be relevant to an acquisition involving:
an actual or potential important competitive force
a start-up or recent entrant with significant competitive potential that has yet to develop or implement a business model generating significant revenues
an important innovator or one which is conducting potentially important research
a company with access to competitively significant assets or with products or services that are key inputs or components for other industries
Have there been recent examples of Article 22 EUMR references to the Commission since the Guidance?
Yes. In April 2021, the Commission accepted Article 22 requests by six national competition authorities to assess the proposed Illumina/GRAIL acquisition under the EUMR. In July 2021, the Commission began a Phase 2 assessment of the proposed acquisition (the sector involved is biotech/healthcare). This acquisition is not believed to have met Member State merger notification thresholds. An application has been lodged with the General Court challenging the Commission's Article 22 EUMR jurisdiction in this case (Case T-227/21).
In May 2021, the Commission accepted a request under Article 22 EUMR from 10 national competition authorities to assess the proposed Facebook/Kustomer acquisition. In August 2021, the Commission began a Phase 2 assessment of this proposed acquisition (the sector involved is software development). This acquisition met the national thresholds for notification in Austria.
Can an Article 22 EUMR referral to the Commission be made for a completed acquisition?
Yes. While a referral to the Commission is subject to the deadlines set out under Article 22 EUMR, the fact that an acquisition has already been completed does not stop a Member State (e.g. the CCPC) from requesting a referral to the Commission.
However, the time elapsed since completion is a factor that the Commission may consider when exercising its discretion to accept or reject a referral request.
The Commission would generally not consider a referral appropriate where more than 6 months has passed after the acquisition has completed. If the completion of the acquisition was not in the public domain, the 6 month period runs from the moment when material facts about the acquisition have been made public in the EU.
In exceptional situations, a later referral to the Commission may also be appropriate, based on, for example, the magnitude of the potential competition concerns and of the potential detrimental effect on consumers.
This flexibility in the Commission accepting referrals after an acquisition has completed will leave substantial uncertainty for businesses and whether they should look more closely at the risks that their sub-threshold acquisitions may be reviewed by the Commission.
What are the likely implications for merger control in Ireland of the Commission's Article 22 EUMR interpretation?
There are acquisitions that do not meet the Irish merger control's compulsory notification thresholds of: (i) at least aggregate €60m turnover in Ireland for all undertakings involved in the acquisition, and (ii) each of at least 2 of the undertakings involved in the acquisition with turnover in Ireland of at least €10m).
If an acquisition does not meet the Irish merger thresholds then there is no obligation to notify the CCPC (though merging parties can seek a pre-cautionary approval from the CCPC if there is a risk that the acquisition might substantially lessen competition in Ireland (i.e. a "voluntary" notification – these are rare in practice).
Separately under Irish merger control, "media mergers" must be notified to the CCPC (or the Commission if the EUMR applies) and to the Irish Government irrespective of these thresholds.
Some implications for acquisitions Ireland in light of the Commission's Article 22 EUMR Guidance are as follows:
The Commission may hear about a sub-Irish merger threshold acquisition and encourage the CCPC to refer it to the Commission under Article 22 EUMR
The CCPC may, on its own initiative, refer such a sub-Irish merger threshold acquisition to the Commission under Article 22 EUMR
Previously businesses would look to see if their acquisition needed either Commission approval or CCPC approval – now they will need also to still more carefully consider if their sub-Irish threshold acquisition might be an Article 22 EUMR candidate i.e. whether it would
(i) affect trade between Member States (e.g. if it is liable to have some discernible influence on the pattern of trade between Member States), and
(ii) threaten to significantly affect competition within Ireland (and other Member States) (e.g. eliminating an important competitive force (such as the elimination of a recent or future entrant or a merger between two important innovators))
Digital, pharma and bio-technology-related sub-threshold acquisitions in Ireland are clearly now more in play with the Commission but all other industries may be relevant so merging businesses in all sectors need to review whether there is any risk of an Article 22 EUMR referral
The Irish Competition (Amendment) Bill (due to be published later in 2021 and which will reflect the requirements of ECN+) will likely contain additional merger control powers to the CCPC to review and unwind acquisitions which are sub-Irish merger threshold acquisitions and which would risk substantially lessening competition in Ireland – how these likely additional and major new powers accorded to the CCPC will co-exist in practice with the Article 22 EUMR system remains to be seen but adds to the likely greater scrutiny of sub-Irish merger threshold acquisitions
Businesses who are not certain that their sub-Irish merger threshold acquisition might be referred under Article 22 EUMR may want to approach the CCPC to explain why their acquisition should not be referred (and this would need such businesses to have also squared-away their analysis of any specific Irish competition effects of such acquisitions in light of the voluntary notification system under the Irish merger control rules)
Businesses should accommodate the possibility of an Article 22 EUMR referral of an acquisition (even post-completion) in their transaction documentation