On 9 July 2014, the European Commission adopted a White Paper and opened a public consultation to consider possible new procedures that would allow the Commission to review acquisitions of non-controlling minority shareholdings under the EU merger control rules.  The White Paper also outlines proposed changes to the rules on the referral of merger cases between the Commission and the EU Member States.  Lastly, the White Paper suggests various other simplifications to the EU merger control procedure.  The proposals contained in the White Paper, if adopted, would constitute the most significant changes to EU merger control since the regime was overhauled in 2004.

Acquisitions of non-controlling minority shareholdings

At present, the Commission does not have the power under the EU merger control rules to review or take action against acquisitions of minority shareholdings that do not give the acquirer joint or sole control over the target company.  However, the Commission considers that, in certain cases, such acquisitions of non-controlling minority stakes could seriously harm competition.  For example, a company that acquires a minority stake in its competitor might compete less vigorously if this stake would entitle it to a share of the competitor's profits.  A minority shareholder could also have sufficient influence to affect the commercial strategies a competitor pursues. Although the Commission could investigate acquisitions of non-controlling minority stakes under Articles 101 and 102 TFEU, at least in certain cases, it considers that these existing legal provisions are insufficient and that an expansion of the Merger Regulation is therefore needed.

In June 2013, the Commission therefore launched a consultation to examine possible changes to the merger control law that would allow it to review acquisitions of non-controlling minority shareholdings that could raise competition concerns (see VBB on Competition Law, Volume 2013, No. 6, available at www.vbb.com).  At that time, the Commission put forward three possible options: (i) a mandatory "prior notification system" of all acquisitions of non-controlling minority shareholdings meeting the EU thresholds; (ii) a "transparency system", whereby acquirers of non-controlling shareholdings would have to file a short information notice based on which the Commission could decide whether to investigate the acquisition; and (iii) a "self-assessment system", whereby no filing would be necessary but the Commission would be free to open an investigation at its own initiative.

In the White Paper, the Commission has now proposed to pursue a modified, "targeted" form of the "transparency system", which would require parties to submit an information notice, but only in the case of an acquisition giving rise to a "competitively significant link".  According to this proposal, transactions would be considered to create a "competitively significant link" where: (1) the target of the acquisition is a competitor or is active in a market upstream or downstream from that of the acquirer; and (2) the acquired shareholding either reaches 20% or is between 5% and 20% but is accompanied by "additional factors", such as a de facto blocking minority, a seat on the board of directors, or access to commercially sensitive information.

The Commission proposes that the required information notice would contain certain details regarding the parties and the transaction, the shares and rights that would result from the minority stake being acquired, and "some limited market share information".  The Commission is considering imposing a standstill obligation of around 15 working days from the submission of the information notice, during which the parties could not close their transaction. The Commission would also have a defined period within which it would be free to investigate the transaction, which the Commission currently proposes to be four to six months long.  As part of its investigation, the Commission proposes that it would have the power to issue interim measures if the transaction has already been implemented, such as the hold separate order it can currently impose in its normal merger review.

Case referrals

In the White Paper, the Commission proposes to modify the procedures for three different types of merger control referrals.

The first proposed change concerns the provision that allows merging parties whose transaction does not meet the turnover thresholds for an EU notification but is capable of being reviewed in three or more Member States to request a referral of the case from these Member States to the Commission.  At present, parties wishing to take advantage of a "one-stop shop" by notifying their transaction to the Commission instead of in several Member States must undertake the preliminary step of filing a reasoned submission (known as "Form RS") and undergoing a 15-working-day waiting period during which the Member States where notification would otherwise be a possibility may object. 

Experience shows that Member States rarely object to such referral requests and that the completion of Form RS and the ensuing waiting period is therefore a mostly  unnecessary burden to the parties.  As such, the Commission is proposing to abolish Form RS and allow merging parties to notify their transaction immediately to the Commission whenever it is capable of being reviewed in three or more Member States.  Once the Commission receives the notification, it would immediately forward it to the Member States, which would still have 15 working days within which to object to the Commission's jurisdiction.  However, this period would run concurrently with the Commission's review of the transaction.  If no objections are raised within the 15-working-day period, the Commission would maintain full jurisdiction.  However, if any Member State competent to review the transaction objects, the Commission would renounce all jurisdiction and the parties would be obligated to file with each Member State whose rules require notification.

The Commission has also proposed modifying the process by which one or more Member States may request that the Commission takes over the review of a transaction that does not meet the EU thresholds.  At present, the rules allow other Member States to 'join' the request.  If any Member State chooses not to join the request, it remains free to review the transaction itself if it would have jurisdiction under national law to do so.  As a result, it is sometimes the case that the same deal is reviewed in part by the Commission and in part by one or more Member State authorities. 

The Commission now proposes that if the Commission agrees to the request and no Member State competent to review the transaction objects, the Commission would assume exclusive jurisdiction to review the entire transaction, whereas if the Commission refuses or if any competent Member State objects, the Commission would renounce all jurisdiction.  The result of this is that there would no longer be the possibility of the same transaction being reviewed at both the EU and Member State levels, except where a Member State authority had already approved a transaction notified to it before the Commission agreed to take jurisdiction further to a referral request by another Member State.

Finally, the Commission proposes amending the provisions by which the parties themselves may request that the Commission renounce jurisdiction and allow a Member State to review a transaction.  At present, parties are reluctant to request referrals from the EU level to a Member State because, in order to do so, the parties must argue that the transaction "may significantly affect competition in a market within [that] Member State".  The Commission proposes to eliminate this "element of self-incrimination" by permitting parties to state only that the transaction is likely to have its main impact in a distinct market in a Member State.

Other proposals

The Commission has also proposed certain miscellaneous procedural simplifications.  These include exempting from the notification requirement the creation of full-function joint ventures located and operating entirely outside the EEA.  The Commission is also considering whether to exempt certain generally non-problematic categories of cases, such as where the parties are neither competitors nor upstream and downstream from one another.

Analysis

Although there are some aspects that are likely to be of concern to the business community, the Commission's proposals are largely positive. 

As concerns case referrals, the changes being proposed would greatly improve a currently byzantine system.  In particular, the abolition of Form RS and the elimination of the possibility of partial review by different authorities will streamline the process to the benefit of merging parties. 

The proposed elimination of notification requirements for certain categories of transactions that do not raise competition concerns is also clearly welcome.

As concerns the proposals to expand the scope of EU merger control law to cover acquisitions of non-controlling minority shareholdings, while the merit of such an expansion can certainly be debated, the Commission's proposals reflect a desire to minimise its burden on companies.  Indeed, the Commission's preferred approach would not impose the burden of mandatory notification – or even mandatory submission of a short information notice – on all acquisitions of non-controlling minority shareholdings.  However, the proposed requirement to submit an information notice that would include "some limited market share information" raises questions as to how onerous the burden will be when it does apply.  Indeed, providing market share information necessarily means defining the relevant product and geographic market(s), which can be the most time-consuming part of a merger notification.

Of even greater concern is that the Commission's window within which to initiate an investigation into an acquisition of a non-controlling minority shareholding, while not yet fixed, has been proposed at four to six months. Such a period seems excessive and would greatly undermine the legal certainty needed for such transactions, particularly given the possibility of companies being ordered to hold assets separate long after the deal has been implemented.  It seems misguided to subject an acquisition of a minority stake to a longer period of legal uncertainty than that encountered in the case of an acquisition of sole control, which can often be notified and approved in less than six months.

The consultation website is accessible at http://ec.europa.eu/competition/consultations/2014_merger_control/index_en.html.

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