- Historically, the European Commission (EC) would only review transactions under its merger control rules if the parties’ respective turnover met the EU merger control jurisdictional thresholds, unless transactions falling below these thresholds were referred to the EC by Member States under the so-called ‘Article 22 referral mechanism’.
- This mechanism can be activated if a transaction affects trade between Member States and can significantly affect competition within the territory of the referring Member States.
- Prior to 2021, this referral mechanism had not been used to review transactions falling below the national merger control thresholds of the referring Member States. However, in 2021, the EC updated its relevant guidance to encourage referrals of transactions where, despite the target’s turnover being below the national thresholds at the time of the acquisition, the target could develop into a significant competitive force in the future.
- Two recent referrals of mergers from Member States to the EC are clear signs of the EC’s increased appetite to examine mergers that are below both EU and national notification thresholds. Proactive and upfront engagement with competition authorities may be needed to assess the risk of referral.
- Under the referral procedure, mergers may be examined even after their completion. To further compound matters, the EU’s General Court recently held that, in certain circumstances, an ex post investigation of a merger is also possible under the abuse of dominance rules.
- Antitrust risk analysis of transactions is now subject to greater uncertainty, and businesses must, more than ever, carefully consider the antitrust implications of their transactions, even when these do not meet any notification thresholds.
- Parties should consider the risk of a referral or an ex post investigation of their transactions and account for this in their deal planning and transaction documentation.
Traditionally, parties to an acquisition did not have to concern themselves with merger control if they were able to establish that the relevant jurisdictional thresholds triggering merger control were not met. This has now changed, with the European Commission (EC) seemingly shedding its reluctance to examine below-thresholds concentrations and recently accepting two new referral requests of proposed acquisitions which are below both EU and national thresholds.1
These are only the second and third referrals of cases below the EU and national notification thresholds that have been accepted by the EC, but their emergence within a few days of each other and the markets they relate to could indicate that they are harbingers of more referral cases to come. Concurrently, in March 2023, the EU’s General Court held that a national competition authority may examine a dominant player’s acquisition of its competitor under the abuse of dominance rules, even if the transaction was originally notified and approved by a competent competition authority, giving regulators another avenue to review transactions.
The combination of the EC’s increasingly ambitious use of the referral mechanism and the General Court’s endorsement of the innovative use of abuse of dominance rules to review acquisitions has reduced legal certainty and increased the complexity of antitrust risk assessments for parties contemplating a transaction. As a result, all companies must consider carefully the merger control implications of their M&A strategy, even if the risks remain low for the majority of below-thresholds deals.
(i) EU Merger Regulation and Article 22
The EU’s Merger Regulation (EUMR)2 has had a profound effect on the ex ante protection of competition, giving the EC the power to review and block concentrations (mergers, acquisitions, or joint ventures) that have a community-wide dimension, and that would reduce competition within the EU’s internal market. The EUMR delineates the exact jurisdiction of the EC by including objective, turnover-based thresholds that a transaction must meet for the EC to have jurisdiction over it. The EC’s jurisdiction is exclusive, meaning that concentrations meeting these turnover thresholds are not to be assessed by individual Member States. This ‘one-stop shop’ approach has proven valuable for cross-border businesses, reducing their administrative burden and providing legal certainty through the need to secure a clearance decision from only a single authority, thus avoiding the risk of disparate outcomes.
At the same time, Article 22 of the EUMR provides a referral mechanism through which Member States can request the EC to examine any concentration that does not meet the EUMR’s turnover thresholds, but that still affects trade between Member States and threatens to significantly affect competition within the territory of the Member States making the request. A referral may be made even if the Member States’ jurisdictional thresholds are not met and can, in theory, be made by just a single Member State. Crucially, a referral is possible even after a transaction has been implemented, although the EC has indicated that it will generally not accept a referral request if it is made more than six months after a deal has closed and the closing has been publicly disclosed.