Irish merger control – Sub-threshold transactions in the spotlight
Irish merger control – Sub-threshold transactions in the spotlight
The Irish merger control authority (i.e. the Competition and Consumer Protection Commission (CCPC)) has been given a significant new power of merger control intervention under the recently-enacted Competition (Amendment) Act 2022 (Act). The Act amends the Irish merger control system under the Competition Act 2002 (as amended) (Competition Act). The key change under the Act is that the CCPC now has a clear basis to intervene in relation to "sub-threshold" transactions (i.e. those that do not meet the Irish merger control compulsory notification thresholds). The merger control changes under the Act are expected to commence shortly.
They come at a time of greater intervention and scrutiny of sub-threshold transactions more widely, for example by the European Commission (Commission) under Article 22 of the EU Merger Regulation (EUMR) (with additional powers under the Digital Markets Act (DMA)) and national merger control authorities (such as the Bundeskartellamt in Germany).
What are the pre-existing Irish merger control categories for notifiable transactions to the CCPC?
There are two pre-existing categories of notifiable transaction to the CCPC under the Competition Act.
First, where there is no EU dimension under the EUMR, a qualifying merger, acquisition or joint venture must be notified to the CCPC under the Competition Act if:
(i) the combined turnover in Ireland of all the parties to the transaction is at least €60m, and
(ii) each of at least 2 of the parties to the transaction have turnover in Ireland of at least €10m, or
(iii) the transaction is a "media merger".
Breach of this requirement is an offence and parties can be subject to fines of up to €250,000 (plus daily default fines) as well as the transaction being void.
The Act has introduced new sanctions for "gun-jumping" (i.e. it is now an offence to put a relevant transaction into effect before CCPC approval with a fine of up to €250,000 and the CCPC being able to prosecute gun-jumping in the District Courts).
Secondly, parties to a sub-threshold transaction can voluntarily notify the CCPC under the Competition Act to avoid an investigation by (and obtain formal approval from) the CCPC if the parties think that their transaction raises adverse competition issues in Ireland (e.g. if it substantially lessens competition (SLC) in Ireland). This voluntary system has been occasionally used in practice – as described below, the Act now strengthens the CCPC's hand with such sub-threshold transactions.
What changes does the Act make to the CCPC's review of sub-threshold transactions?
The Act adds a third category of notifiable transaction to the CCPC (whether or not it has already been put into effect).
The CCPC can now require a qualifying merger, acquisition or full-function JV to be notified to the CCPC that does not meet the thresholds under the Competition Act for compulsory notification (and that has not been voluntarily notified) but which may, in the opinion of the CCPC, have an effect on competition in Ireland – a potentially a very low competition bar.
This "call-in" provision is not limited to transactions in Ireland and can apply to foreign-to-foreign transactions where there may be some effect on competition in Ireland.
The CCPC must call-in such transactions by giving parties a time period (extendable) for submission of the notification and the call-in must take place in up to 60 working days after the earliest of when:
(i) one of the parties to the transaction publicly announces an intention to make a public bid (or a public bid is made but not yet accepted),
(ii) the CCPC becomes aware that the parties to the transaction have entered into an agreement the result of which would, if implemented, be that the transaction occurs, and
(iii) the transaction is put into effect.
The normal €8,000 Statutory fee is payable and the notification is invalid if false or misleading in a material respect.
In addition (and despite unclear drafting), the likely intention of the Act is that a called-in transaction cannot be put into effect until approved by the CCPC (with gun-jumping sanctions for any breach (unless the transaction had already been put into effect when the CCPC called it in for notification)).
The usual Phase 1 and Phase 2 notification assessment timetables (and obligations) apply to such called-in transactions (including remedies and CCPC requirements for information).
Where a party to the called-in transaction fails to notify, the CCPC may still examine the transaction as if a notification had been received. Also, where there is a risk that the transaction (or any other notified transaction under the Competition Act) may have an effect on competition in Ireland, the CCPC can now impose binding interim measures (including being required to refrain from taking any step towards putting the transaction into effect (or further into effect)).
The wider international context – how are sub-threshold transactions being scrutinised?
Part of the wider international context for the merger control assessment of sub-threshold transactions is a (sometimes contentious) concern that larger purchasers may look to acquire smaller current (or potential) rivals by way of so-called "killer acquisitions" and thus remove competition. Such killer acquisitions are regarded as particularly relevant to the digital and pharma sectors. A number of jurisdictions can (or are likely to be able to) conduct merger control reviews of such transactions including:
(i) The EU
At the EU level, Article 22 EUMR allows for one or more Member States to request the Commission to examine (for those Member States) any transaction that does not have an EU dimension but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State(s) making the request. In its 2021 Guidance Paper (Guidance Paper), the Commission noted that Article 22 of the EUMR "is applicable to all concentrations [i.e. transactions], not only those that meet the respective jurisdictional criteria of the referring Member States."
The Guidance Paper goes on to identify market developments of transactions involving firms that play (or may develop into playing) a significant competitive role despite generating little or no turnover at the time of the acquisition (particularly in the digital and pharma sectors where innovation is an important parameter of competition). Article 22 EUMR has assumed an added significance as a result of the Illumina/Grail decision of the General Court on 13 July 2022 (Case T‑227/21 (subject to possible appeal to the Court of Justice)). The General Court confirmed the Commission's view that Article 22 EUMR can apply to transactions which are sub-threshold at the Member State level.
Under Article 14 of the DMA, a "gatekeeper" must inform the Commission of any intended transaction within the meaning of the EUMR prior to its implementation – this is where the merging entities or the target provide core platform services or any other services in the digital sector or enable the collection of data, irrespective of whether it is notifiable to the Commission under the EUMR or to a national merger control authority (e.g. to the CCPC). The Commission then informs Member State authorities and they can use such information for their domestic merger control purposes or to consider referring such transactions to the Commission under Article 22 EUMR.
Merger control in Germany was amended in 2017 to include a €400,000 transaction value threshold for the notification of transactions to the Bundeskartellamt involving a target with a low turnover in Germany but which is still significantly active in Germany.
(iii) The UK
The UK Government recently proposed adding a provision to the UK merger control rules that would create an additional basis for establishing jurisdiction to enable merger control review of so-called killer acquisitions (and other mergers which do not involve direct competitors). If enacted (and subject to certain other provisions), this would apply where one of the merging businesses has: (a) an existing share of supply of goods or services of 33% in the UK (or a substantial part of the UK), and (b) a UK turnover of £350m.
(iv) The US
In the US, the Federal Trade Commission or the Department of Justice can still take merger control-related steps if a transaction (whether or not completed) does not meet the relevant mandatory notification thresholds under the Hart-Scott-Rodino Act.
Comments on the new Irish merger control call-in powers
The application of the Act to sub-threshold transactions in Ireland means that the CCPC now joins the increasingly-wide group of merger control regulators able to pro-actively review so-called killer acquisitions. However, much uncertainty in Ireland remains:
The CCPC's new merger control powers to call-in sub-threshold transactions provide the basis for the CCPC to be more interventionist - however, the Act has set a potentially low and untested "effect on competition" threshold for the CCPC to be able to call-in such sub-threshold transactions.
Guidance from the CCPC as to its intended approach under these powers would be welcome. In particular, identifying a clear nexus with Ireland and a realistic concern about potential material adverse effects of a sub-threshold transaction in Ireland (e.g. based on SLC) rather than applying an open-ended (and potentially contentious) competition test under the Act would assist businesses and their advisors (for both Ireland-based and foreign-to-foreign transactions (e.g. in the digital or pharma sectors) which may have some effect on competition in Ireland).
The current system of pre-notification guidance under Irish merger control could be adapted to allow parties to consult early with the CCPC to understand whether a transaction would be called-in (e.g. along the lines of the CMA's mergers intelligence committee).
Parties to a sub-threshold transaction may decide that they have to publicise the fact of their transaction to ensure the 60 working-day clock starts (as well as addressing any timing and transaction-execution risk of a call-in by the CCPC in the transaction documents).
The CCPC will need to reflect on how it will apply its new powers under the Act in light of Article 22 EUMR and in the context of a transaction which may affect competition in Ireland but which may also have a wider EU effect.