The European Commission (EC) recently adopted a package of measures with the aim of further simplifying its procedures for reviewing concentrations under the EU Merger Regulation (EUMR). The new rules entered into force on September 1, 2023.
The package was adopted after extensive consultation and includes (1) a revised Merger Implementing Regulation, (2) a new Notice on the Simplified Procedure (the Notice), and (3) a Communication on the transmission of documents. The key changes of this reform are highlighted below.
OBJECTIVE
The reform seeks to streamline the current simplified and normal merger review procedures as well as reduce reporting requirements by 25%, as announced in the EC’s Communication on Long-term competitiveness of the EU.
NEW CONCENTRATIONS TO BE FILED WITH SHORT FORM CO
Cases Eligible for the ‘Super Simplified’ Procedure
The Notice specifies that the following transactions can be notified using the Short Form CO, without pre-notification contacts to the EC, which is a welcome simplification and shortening of the procedure:
- No EU nexus: Two or more undertakings acquire joint control of a joint venture (JV) that has no current or expected turnover (i.e., expected to be generated in the three years following notification) within the territory of the European Economic Area (EEA), and the undertakings concerned (namely, the JV partners) have not planned to transfer any assets within the EEA to the JV at the time of notification.
- No competition issues: Two or more undertakings merge, or one or more undertakings acquire sole or joint control over another undertaking, provided that none of the parties to the concentration are engaged in business activities in the same product and geographic market or in a relevant product market that is upstream or downstream from a product market in which any other party to the concentration operates.
Cases Eligible for the ‘Simplified’ Procedure
Under the Notice, the following concentrations will benefit from the new simplified procedure and will be notified using the Short Form CO (however, stricter rules still apply to JVs):
For Non-competitors
- The undertakings concerned (namely, the acquiring party and the target) do not compete and are not active on upstream or downstream markets to the activities of any party to the transaction.
- A JV with negligible activities in the EEA, meaning that (1) the current annual turnover of the JV and its expected turnover over the next three years is less than EUR 100 million (approximately $108 million) in the EEA and (2) the value of assets transferred to the JV in the EEA planned at the time of the notification is less than EUR 100 million, including the assets that the parties plan to contribute to the JV in the future.
For Competitors
- For mergers or acquisitions of sole or joint control, the undertakings concerned compete, their combined market share on such market, under all plausible market definitions, must be either (1) below 20% or (2) below 50% and result only in a small increment in market share (below 150 on the Herfindahl-Hirschman Index (HHI)).
- The market shares in the upstream or downstream activities of the undertakings concerned are, under all plausible market definitions:
- below 30% (individually or combined) on the upstream and downstream markets;
- below 30% upstream and have a combined purchasing market share below 30% on the downstream market; or
- below 50% (individually or combined upstream and downstream), the HHI delta is below 150, and the smaller undertaking (in terms of market share) is the same in both the upstream and downstream markets.
Additional Cases That May Be Eligible for the Simplified Procedure
In cases that are not automatically eligible for the simplified procedure under the categories described above, the EC may still decide, at the request of the notifying parties, to treat them under the simplified procedure.
The Notice includes the following so-called “flexibility clauses” for cases where the thresholds for simplified review are only marginally exceeded:
- horizontal overlaps where the combined market share(s) of the parties to the concentration is between 20% and 25%;
- vertical relationships where the individual or combined upstream and downstream market shares of the parties are between 30% and 35%;
- vertical relationships where the individual or combined market shares of the parties to the concentration do not exceed 50% in one market and 10% in the other vertically related market; and
- JVs with turnover and assets between EUR 100 and 150 million, respectively, in the EEA.
NEW FILING FORMS
The EC revised the Form CO, Short Form CO, Form RS, and Form RM. The new Form CO and the Short Form CO have “yes/no” ticking boxes and tables in order to streamline the information to be provided by the parties and simplify the completion of the forms. That said, the amount of information and internal documentation that parties need to provide has not been materially reduced, despite requests from stakeholders in the context of the consultations.
The need to justify the applicability of the new simplified procedures could even result in the need to produce more supporting evidence (regarding all plausible market definitions and related data, for example).
SAFEGUARDS AND EXCLUSIONS
The Notice provides that the following cases may not be suitable for review under the simplified procedure in certain circumstances:
- Defining the relevant markets or providing the market shares of the parties to the concentration is challenging. Notifying parties are responsible for (1) describing all alternative relevant product and geographic markets and (2) providing all of the data and information relating to the definition of such markets.
- There is a horizontal overlap or vertical link between the target and a company in which the acquirer holds a significant noncontrolling minority shareholding and the companies in question have significant market shares (even if the combined market shares of the parties to the concentration are below the relevant thresholds).
- There is an increase in the market power of the parties resulting from the combination of technological, financial, or competitively valuable assets, such as raw materials, intellectual property rights (for example, patents, know-how, designs, and brands), infrastructure, a significant user base, or commercially valuable data inventories.
- At least two parties to the concentration are present in closely related neighboring markets.
OUR ANALYSIS
The EC’s simplification of its merger review procedure has been welcomed by practitioners. Allowing certain cases, in particular without an EU nexus, to proceed faster is an improvement, while the new process allowing for the ticking off of boxes and tables also allows filings to be finalized more quickly. However, the amount of information and supporting documentation that parties need to provide remains significant and in some cases may be even greater than before. Only practice will show how effective the simplification process will be.
This trend for ever-increasing data appears to have been mirrored in the recent reform by the US Federal Trade Commission (FTC) with a new proposed HSR form that will materially increase burdens for filing parties. Additionally, the possible exclusions from the simplified procedure (“significant non-controlling shareholdings” and “other competitively valuable assets”) are broadly drafted and could lead the EC to treat cases that should benefit from simplified treatment under the normal procedure through the back door.