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Antitrust in 60 Seconds: EU Merger Control Rules

· October 11, 2019

The 60-Second Read:

The European Commission (EC) reviews concentrations (mergers, joint ventures, acquisitions of control) that have an European Union (EU) dimension, i.e., when certain turnover thresholds are met.  Differently than in the U.S., the EU Merger Control Regime (EUMR) co-exists with the different Member States’ merger control regimes.  This is the reason why there are regulations and guidelines that establish how the different merger control regimes interact with each other, even for cases where the turnover thresholds to notify to the EC are not met. When reviewing mergers, the EU focuses solely on competition concerns and efficiencies and only in exceptional circumstances are other considerations factored in.

What is the EU Merger Control Regime?

The EUMR is composed of the Council Regulation (EC) No. 139/2004 and its guidelines, whereby the EC is given the mandate to review transactions in the form of mergers, creation of joint ventures, acquisitions of control, etc. — called in the EU concentrations-that have an EU dimension.  This set of rules co-exists with the Member States’ domestic merger control regimes. 

The rules governing the EUMR establish a mandatory notification system.   Parties to a transaction that meet the notification thresholds who fail to notify the EC are subject to pecuniary fines of up to 10% of their total turnover.  Additionally, the EU merger control regime is a suspensory one, therefore, transactions cannot be closed prior to obtaining clearance from the EC.

Who reviews what?

In terms of jurisdictions, the EUMR establishes a broad principle whereby the EC investigates those concentrations that meet certain turnover thresholds, whereas national competition authorities (NCAs) review those concentrations that have no EU dimension in accordance with the Member States’ merger control regimes.  In practice, this means that a merger between two Austrian companies may be reviewed by the EC if the parties to such transaction meet the EU merger control turnover thresholds. The EUMR is based on the ‘one-stop-shop’ principle: once a transaction has triggered notification to the Commission, the national authorities of the Member States are precluded from applying their own competition laws to the transaction.

That being said, because of the EU architectural nature, the EU Merger Control Rules also provide for the possibility of referring a concentration that does have an EU dimension to the EC (sometimes referred to as the “Dutch clause”), as well as referring a concentration that has an EU dimension (sometimes referred to as the “German clause”). It is often forgotten that the EUMR is also applicable to the European Economic Area, and therefore, it governs transactions in the three EEA countries that are non-EU members: Iceland, Liechtenstein and Norway. 

What are the notification thresholds?

A concentration has to be notified to the EC if: (i) the aggregate worldwide turnover of all the parties exceeds €5 billion; and (ii) the aggregate Union-wide turnover of each of at least two parties exceeds €250 million; unless (iii) each of the parties achieves more than two-thirds of its aggregate Union-wide turnover in one and the same Member State.

If a concentration has to be notified in at least three Member States, parties can notify it to the EC instead, provided that: (i) the aggregate worldwide turnover of all the parties exceeds €2.5 billion; (ii) the aggregate Union-wide turnover of each of at least two parties exceeds €100 million; (iii) in each of at least three Member States, the aggregate turnover of all the parties exceeds €100 million; and (iv) in each of at least three Member States mentioned immediately above, the turnover of each of at least two parties exceeds €25 million; unless (v) each of the parties achieves more than two-thirds of its aggregate Union-wide turnover in one and the same Member State.

What is the legal standard applied?

The EC can only block a concentration that significantly impedes effective competition in the European Union or a substantial part of it, as a result of the creation or strengthening of a dominant position.  However, in special circumstances, Member States may have the possibility to review such transactions and intervene for national interest related reasons other than competition-related considerations.

In reviewing concentrations, the EC will only take into account efficiencies that are of direct benefit to consumers, merger-specific, substantial, timely and verifiable, thereby counteracting the adverse effects of the merger.  In reality, however, the EC has never authorized an otherwise troublesome concentration purely on the basis of economic efficiencies that would be realized by the transaction.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.