MERGERS AND ACQUISITIONS
THE BACKGROUND TO EU MERGER CONTROL
History of EU Merger Control
- Nothing on EU merger control in the Treaties
- 1971: Continental Can → COM used the framework of Art. 102 to stop a Merger
-
- 1973: EC proposal for merger regulation
- 70s and 80s: Political stalemate over jurisdiction and substantive analysis
- 1990: Entry into force of the ECMR (Reg 4064/89)
- 2004: entry into force of the EUMR (Reg. 139/2004)
Purpose of EU Merger Control
- Preventing harmful effects on competition caused by mergers while recognising the
economic benefits they may bring.
- The EU system of merger control requires mergers that have a Union dimension to be
pre-notified to the Commission; it is unlawful to consummate a merger without a prior
clearance from the Commission
- Whether or not a merger has a Union dimension is determined by reference to the
turnover of the undertakings concerned in a transaction.
- Where a merger has a Union dimension the Commission has sole jurisdiction in relation
to it: this is the principle of ‘one-stop merger control’.
- Once the Commission has jurisdiction it is required, within fixed time limits, to determine
whether a merger could significantly impede effective competition in the internal market
or a substantial part of it; in conducting this assessment the Commission asks, in
particular, whether the merger could create or strengthen a dominant position.
Merger Control by numbers
- 7,289 notifications (1990 - now)
- Only 1% of all mergers have been prohibited
- 6% cleared with conditions
- 93% cleared
International context
- Art. 3(1) and (2) Reg. 139/2004: catches concentrations with an EU dimension irrespective
, of whether the firms are based in the EU; determination of whether or not a concentration
exists will be based on qualitative rather than quantitative criteria
- A global merger: may have an obligation to notify the competition authorities in more
than 10 or 15 countries at the same time
Guidelines and Notices
- ICN’s Merger Guidelines Workbook and Investigative Techniques Handbook
- Guidelines on the assessment of horizontal mergers (C-31/5)
- Guidelines on the assessment of non-horizontal mergers (265/6)
- Notice on the definition of the relevant market (C 372/5)
- Notice on restrictions directly related and necessary to concentrations (C 56/24)
- Notice on case referral in respect of concentrations (C 56/2)
- Notice on access to the file (C 325/7)
- Consolidated Jurisdictional Notice (C 95/1)
- Guidelines on the assessment of non-horizontal mergers (C 265/6)
- Notice on remedies acceptable under the EUMR (C 267/1)
- Notice on a simplified procedure for treatment of certain concentrations (C 366/5)
- The General Court has stated that the Commission is bound by its Notices, provided that
the Notices do not depart from the rules in the Treaty or from the EUMR (T-282/06 Sun
Chemical Group BV v Commission [55])
- The COM still retains ‘great freedom of action’ where a Notice allows it to choose the
types of evidence or the economic approach most appropriate to a particular case (T-
210/01 General Electric v Commission [519])
JURISDICTION
Does EU merger control apply?
- Does the merger concern a concept of concentration?
- What are the turnover thresholds?
- Key guidance document: Consolidated Jurisdictional Notice
Requirements
Art. 1 EUMR
1. Is the merger a merger in the name of EU law i.e. is it a concentration? (see Art. 3(4))
a. Fully functioning
b. Long lasting
2. Must have an EU dimension?
- If so it must be notified to the EU COM
- Check whether the merger has a significant impact on the competition SIEC (real
assessment, all the rest is procedure)
Concept of Concentration / Joint Venture
Concentration
, - Article 3 EUMR: meaning of a concentration: the EUMR applies to mergers or, more
precisely, to ‘concentrations’.
- Article 3(1): A concentration shall be deemed to arise where a change of control on a
lasting basis results from:
a. the merger of two or more previously independent undertakings or parts of
undertakings, or
b. The acquisition, by one or more persons already controlling at least one
undertaking, or by one or more undertakings, whether by purchase of securities
or assets, by contract or by any other means, of direct or indirect control of the
whole or parts of one or more other undertakings.
Mergers
- Art. 3(1)(a) EUMR: covers complete mergers, it implies the formation of one enterprise from
undertakings that were previously distinct; can bite in some circumstances where the
undertaking retain their separate legal personalities, but create nonetheless a single
economic unit
- E.g. AstraZeneca/Novartis (M 1806) and Chevron/Texaco (M 2208).
- Dealt with in the Jurisdictional Notice [9-10]
Union Dimension
- Arts. 1 and 5: the EUMR applies to concentrations that have a ‘Union dimension’. The
meaning of this term is found in Article 1, and is further explained in the Jurisdictional
Notice. It is determined by reference to the turnover of the ‘undertakings concerned’,
including their affiliated undertakings as set out in Article 5.
- Establishment of a new corporate entity by two competitors to a joint-purchasing scheme or a
joint research and development (R&D)
- JV caught by the Merger Regulation only if it results in the creation of an autonomous
economic entity which performs functions on a lasting basis
- Change of Control
- Lasting Basis
- (part of) undertaking as object
Notion of Control
- Ernst & Young (C-633/11)[2018]
- By its first to third questions, which it is appropriate to examine together, the
referring court asks, in essence, whether Article 7(1) of Regulation No 139/2004
must be interpreted as meaning that a concentration is implemented only by a
transaction which, in whole or in part, in fact or in law, contributes to the change
in control of the target undertaking. In particular, it seeks to ascertain whether the
termination of a cooperation agreement, in circumstances such as those at issue
in the main proceedings, may be regarded as bringing about the implementation
, of a concentration and whether, in that regard, the question whether such a
termination has produced market effects is relevant. [36]
- It follows that a concentration within the meaning of Article 7 arises as soon as
the merging parties implement operations contributing to a lasting change in the
control of the target undertaking. [46]
- However, where such transactions, despite having been carried out in the
context of a concentration, are not necessary to achieve a change of control of
an undertaking concerned by that concentration, they do not fall within the scope
of Article 7 of Regulation No 139/2004. Those transactions, although they may
be ancillary or preparatory to the concentration, do not present a direct functional
link with its implementation, so that their implementation is not, in principle, likely
to undermine the efficiency of the control of concentrations. [49]
- In the light of all the foregoing considerations, the answer to the first to third
questions is that Article 7(1) of Regulation No 139/2004 must be interpreted as
meaning that a concentration is implemented only by a transaction which, in
whole or in part, in fact or in law, contributes to the change in control of the target
undertaking. The termination of a cooperation agreement, in circumstances such
as those in the main proceedings, which it is for the referring court to determine,
may not be regarded as bringing about the implementation of a concentration,
irrespective of whether that termination has produced market effects. [62]
- Upon appeal by EY the Danish Court referred two sets of questions on the scope
of the standstill obligation to the Court for a preliminary ruling: one set of
questions effectively queried about the proper scope of the standstill obligation
while the second set of questions asked whether it mattered if the termination
produced any market effects.
- KPMG DK and EY (both active in auditing and accountancy services) agreed to
merge on 18 November 2013 (merger did not have community dimension). On
the same day, and as required by the merger agreement, KPMG DK terminated
its exclusive cooperation agreement with KPMG International (network of
auditing firms), before the parties notified the transaction to the Danish
Competition Council. While the termination was planned to take effect only as of
30 September 2014, following the notice being served several KPMG DK
customers switched to KPMG International which had already entered into a new
cooperation agreement with another tax consultancy firm. The Danish
Competition Council cleared the transaction on 28 May 2014, but found later that
KPMG DK had breached the suspension obligation laid down Danish Law on
Competition by terminating the cooperation agreement with KPMG International
prior to clearance (this provision mirrors Article 7(1) EUMR.)
Sole Control
- Obtaining 100% of the business → most straightforward case
- Article 3(2) EUMR defines control for the purpose of determining whether there is a
concentration:
- Control shall be constituted by rights, contracts or any other means which, either
separately or in combination and having regard to the considerations of fact or law
involved, confer the possibility of exercising decisive influence on an undertaking, in
particular by:
