Summary Merger control and state aid (including case law)
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Course
European Law
Institution
Universiteit Utrecht (UU)
This is a summary of the course European Law and deals with merger control and state aid. The summary is in English and includes the jurisprudence associated with the theme.
29.1. introduction
The Treaties were silent on the topic of mergers. Undertakings were able to
circumvent (ontduiken) the applications of 101 and 102. Instead of entering into
agreements prohibited by 101, they could achieve the same objectives by
merging with other undertakings.
The C was powerless to prevent such mergers between, and acquisitions by,
undertakings having market power, and could only act afterwards under art 102
or 101.
Besides, a judgment showed that 101 was not an appropriate tool to deal with
mergers, taking into account the nullity sanction under para 2, the exemption
under para 3 and the lack of thresholds triggering its application to mergers.
The C made attempts to bring mergers within the scope of EU competition law. In
the light of the above the MS decided to deal with merger control at EU level.
29.1.1. adoption of Regulation 4064/89 and its replacement by
Regulation 139/2004 (MR
The reform of EU competition law resulted in the adoption of the new MR.
29.2. the scope of application of the MR
The MR does not prohibit concentrations. Unlike 101 and 102 the repressive
(onderdrukkend) element is absent.
On the one hand, many concentrations are necessary in order to reinforce the
competitiveness of EU undertakings, but on the other, concentrations may have
damaging effects on the competitive structure of the market.
Concentrations can be classified as horizontal, vertical and conglomerate.
Horizontal: concentration takes place between undertakings which are
competing in the same product and geographic market and at the same
level of production/distribution. Have great impact on the market; after the
concentration the number of undertakings is reduced. Horizontal mergers
are the most likely to adversely affect the structure of the relevant market
in terms of its competitiveness.
Vertical: concentration between undertakings operating at different levels
of the economy (e.g. between a manufacturer and its supplier of raw
material)
Conglomerate: concentration between undertakings that are not
competing with each other in any product market and which does not
result in any vertical integration.
Ordinarily conglomerate concentrations are neutral, or even beneficial for
competition.
Concentrations are within the scope of the MR if they satisfy two conditions:
1. They are ‘concentrations’ as defined by the MR
2. They have ‘an EU dimension’ within the meaning of the MR
29.2.1. the concept of concentration
3(1) of the MR.
Three types:
- Merger
- Acquisition
, - Full-function joint venture. A joint venture which satisfies the definition of
concentration (3(1)) is within the scope of the MR, otherwise it is dealt with
under 101.
29.2.1.1. merger
Merger may occur in two ways:
- Legal merger where two or more undertakings cease to be legally distinct
and independent from each other and form a single separate legal entity;
or,
- De facto merger where two or more undertakings create a permanent
economic management while continuing to exist as separate legal entities.
In fact, they act on the relevant market as a single economic unit.
29.2.1.2. acquisition
By whatever means take control over the whole or part of other undertakings. A
distinction is made between:
- Sole control: one undertaking alone can exercise de facto or de jure
decisive influence on another undertaking
- Joint control: two or more undertakings are able to exercise decisive
influence over another undertaking
Acquisition of control is defined in 3(2) MR.
The definition of control is broad. In many cases the existence of control is easy
to determine, for example, on the basis of ownership. In other cases an economic
analysis will be necessary to establish the existence of control.
There may be acquisition of control even if this is not the declared intention of
the parties.
By virtue of 3(3)(b) indirect control, that is, the situation where title to the assets
or contracts conferring control is ‘divorced’ from the ability to benefit from such
rights, is within the scope of the MR.
An acquisition of control must result in a lasting change in the control of the
undertaking concerned. Agreements which provide for a definite end-date are
within the scope of the MR if the period envisaged is sufficiently long to result in
a lasting change (blijvende verandering). The C considers that 10-15 years
constitutes a sufficient period but not a period of 3 years.
29.2.1.3. joint ventures
Commercial arrangements between two or more undertakings to create a new
entity by contributing equity and then sharing the profit/losses, expenses and
control of the new entity. They are created to achieve a particular commercial
goal.
The difference between mergers and joint ventures is that in a JV there is no
transfer of ownership. Some JV’s are within the scope of the MR, others are dealt
with under 101.
Only a full-function JV having an EU dimension is within the scope of the MR.
See art 3(4) MR.
Three requirements must be satisfied for a JV to be within the scope of 3(4) MR:
1. There must be joint control by two or more entities over another entity. The
concept of joint control is defined in 3 MR.
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