Reed Smith In-depth

The European Commission (EC) recently announced a major change in merger policy affecting cross-border M&A deals in Europe. European Union (EU) merger control rules allow one or more Member States to request that the EC review cross-border M&A deals that threaten to significantly affect competition in the EU, even if they do not fall under the EC’s jurisdiction in the first place, under the so-called “Article 22 referral” mechanism. Until recently, the EC generally discouraged referrals of transactions that did not trigger the filing thresholds at Member State level. This has now changed. On 26 March 2021, the EC published its guidance on the application of the referral policy and now actively encourages and accepts Article 22 referrals in M&A deals that fall below the EU and national filing thresholds, but may nonetheless impede effective competition in the EU (including so-called “killer acquisitions”). The EC is now actively using this tool to intervene in M&A deals, in particular in the digital/tech, pharmaceutical and biotech sectors (on 20 April 2021, the EC, for the first time, accepted a request to review a merger (pharmaceutical sector) that falls below the EU and national filing thresholds). The new referral practice creates significant uncertainty for deals that would not have triggered scrutiny in the EU before. Our Brussels antitrust team sheds more light on the EC’s new referral policy and addresses the practical key implications when planning cross-border M&A deals in Europe.

Merger referrals under Article 22 of the EU Merger Regulation (EUMR)

EU merger control aims to prevent cross-border M&A deals that hamper competition in the EU internal market. The EC has exclusive jurisdiction to assess concentrations provided the turnover of the parties exceeds the relevant EU turnover thresholds so that the transaction is considered to have an “EU dimension”. Absent an EU dimension, transactions do not benefit from the one-stop shop review before the EC but may still require merger control approval at Member State level provided the relevant national thresholds are met.

Article 22 of the EUMR allows Member States to ask the EC to review M&A deals that do not have an EU dimension if the following requirements are met:

  • First, the transaction must constitute a concentration under the EUMR (i.e., a merger or an acquisition of (sole or joint) control over another business). In contrast, the acquisition of a non-controlling minority stake in another business that may trigger merger review at national level (e.g., in Austria and Germany) is not subject to referral and cannot be reviewed by the EC.
  • Second, it must affect trade between Member States.
  • Third, the transaction must threaten to significantly affect competition within the territory of the Member State or Member States making the request. For this, there must be a prima facie risk that the transaction could significantly impede competition by (i) eliminating an important competitive force (e.g., elimination of a recent or future entrant or a merger between two important innovators); (ii) reducing competitors’ ability and/or incentive to compete, including by making their entry or expansion more difficult or by hampering access to supplies or markets; and/or (iii) leveraging a strong market position from one market to another by means of tying or bundling or other exclusionary practices.

In the past, the EC discouraged Article 22 referrals in transactions that fell outside the referring Member State’s national merger control thresholds on the basis that cross-border effects were unlikely to arise in these circumstances. This afforded businesses significant comfort that their deals would not trigger merger review in the EU, where the EU and national merger control thresholds were not exceeded.

This policy has now changed. The EC will now actively encourage and accept referrals even in cases where the transaction is not notifiable at EU and national level. The EC sees this as a necessary tool to close a (perceived) enforcement gap and to react to “a gradual increase of concentrations involving companies with low turnover, but with high competitive potential in the internal market”.1 The EC’s Guidance Paper of 26 March 2021 describes the types of cases that may be suitable candidates for an Article 22 referral and the criteria the EC may take into account when exercising its discretion to accept such referrals.2