On December 5, 2013, following an extensive public consultation carried out earlier this year (please see our June legal alert), the European Commission (“EC”) published a package of measures to amend the EU merger control system1. Despite its relatively limited ambit, the package contains the most significant amendments to the EU merger control regime in a decade. It is to enter into force on January 1, 2014.
The rationale behind the reform has been to simplify the existing merger control procedure to make it more business-friendly in line with feedback received from businesses. The EC also intends to “reduce administrative burden for businesses and focus its resources on cases that require more thorough analysis.” The EC expects the changes to reduce the merger notification costs by a third. The aims of the reform appear to have been partially achieved to the extent that the quicker and cheaper simplified procedure will soon be potentially available to deals where the parties’ combined market share is up to (but excluding) 50%. So the reform is definitely a step in the right direction, although the EC could have taken this opportunity to go further.
Fortunately, the EC has thus far abstained from lowering the threshold for the EU merger regime to minority acquisitions. Instead, the reform extends the scope of the simplified procedure to cover slightly more horizontal and vertical mergers (the EC expects an increase of the number of transactions falling under the simplified procedure by approximately 10%). Had the simplified procedure thresholds been set higher, more transactions could be caught and more undertakings could benefit from the simplified procedure.
The EC has also left the door to the simplified procedure open in transactions where (i) the combined market share of merging undertakings falls below 50% and (ii) the transaction does not result in any substantial increment in the level of concentration in the market (so called Herfindahl-Hirschman Index (“HHI”) — please see below for details). This provision could apply to a number of transactions and provide for tangible effects for many undertakings, but for the EC’s discretion whether to review the transaction under the simplified or full procedure. The flexibility this provision offers may prove useful for the EC, but for merging undertaking it creates a significant deal of uncertainty when drawing up a timetable of a transaction.
The reform also involves the reduction of the amount of information that needs to be submitted to the EC by merging undertakings. This includes simplifying forms that need to be notified to the EC by merging undertakings as well as specifying which information requirements can be waived by the EC. To an extent, this also codifies the practice of granting waivers by the EC with regard to certain information.
In addition, pre-notification discussions with the EC will be streamlined as a result of the reduction of information requirements. Further, the EC will not require pre-notification discussions for mergers which do not have horizontal/vertical overlaps, which should shave off approximately 1 month of the transaction timeline.
Here are details of the most practically relevant changes envisaged in the EC’s reform package:
• Horizontal mergers (i.e., between competing undertakings) will qualify for a simplified review where their combined market shares do not exceed 20% (instead of 15%);
• Even where the combined market share of merging undertakings exceeds 20% but falls below 50%, a transaction can still qualify for a simplified review if the increment of the HHI resulting from the transaction is below 150, whereby it will be for the EC to decide on a “case-by-case basis” whether to examine the transaction under the simplified or full procedure;
• Vertical mergers (i.e., between undertakings active up- and downstream of each other, such as aircraft engines manufacturers and aircraft producers) will qualify for a simplified review where the market shares do not exceed 30% (instead of 25%);
• Forms used to notify mergers to the EC (Form CO and Simplified Form CO) will be truncated so that less data will need to be provided; categories of information with regard to which a waiver request can be made will be clearly identified;
• Less information will need to be submitted in order to request a referral of a transaction to the EC from national competition authorities or the other way round;
• Contacts between the EC and merging undertakings preceding a notification are to be shortened and simplified; where there are no horizontal overlaps or vertical links between the merging undertakings in the EEA, a notification can be made straightaway without the need to enter into pre-notifications discussions with the EC at all;
• A “super-simplified” procedure will apply to notifications of joint ventures active entirely outside the EEA; accordingly, it will suffice to briefly explain the planned activity of the joint venture to the EC without providing any additional market data; and
• EC model texts for divestiture commitments and the trustee mandate (used as templates by merging undertakings offering commitments to the EC or appointing a trustee) will be amended respectively.
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Scott-ThaneThis article was originally published by Bingham McCutchen LLP.