It is an absolute landmark case: Today, the EU’s General Court has ruled on Illumina v Commission. The case concerns the question whether the EU Commission may conduct merger control reviews of transactions that neither reach the merger thresholds of the Commission nor of Member States. The General Court has confirmed that the Commission indeed has such powers. Here are a quick recap and three initial takeaways.
The beginning of the case dates back nearly two years: In September 2020, US biotechnology company Illumina agreed to acquire US healthcare company Grail for approx. USD 8 billion. Grail did not have any activities (leave alone turnover in Europe). Still, the EU Commission assumed jurisdiction over the case and subjected it to a merger control review, which is still ongoing.
Quick recap: The referral requests
We have blogged about the EU’s referral system previously, so I will keep this short:
- The EU Commission has traditionally only been able to review transactions that were notifiable directly to the Commission or that were notifiable in one or more EU Member State(s) and were referred to the Commission.
- However, in September 2020 (curious coincidence with the Illumina/Grail-deal), the regulator announced that it would start accepting referrals from Member States under so-called Art. 22 EUMR irrespective of whether the respective national regulators had the power to review a transaction themselves.
- The reason was a (perceived) enforcement gap, in particular regarding transactions in the tech and biotech/pharma space that did not meet the EU’s merger control thresholds.
The Illumina/Grail-transaction was the first where the new policy was applied, and things unravelled as follows: In December 2020, the Commission received a complaint about the deal and in February 2021, the Commission invited Member States to refer the case. In March 2021, the Commission published a guidance on Art. 22 referrals. A month later, in April 2021, the Commission accepted a referral request from the French regulator, joined by a number of other Member States, to review Illumina/Grail.
Illumina tried to fight the referral at national courts but did not succeed.
The next step: Closing without clearance
The EU Commission had concerns about the transaction and opened a Phase 2 investigation in July 2021. Remember: There is a suspension obligation in European merger control law, so while a review is ongoing, a transaction must not be closed. But in a move that might either show faith in one’s own legal position or desperation to do an agreed deal, Illumina went ahead in August 2021 anyway and publicly announced that it had closed the transaction – an absolute rarity (if not novelty) in EU merger control.
The Commission reacted by adopting interim measures meant to keep Grail separate from Illumina, inter alia imposing that Grail shall be run by an independent hold separate manager. And separately, the deadline for the Commission’s merger control review has (following the submission of a remedy offer) been suspended since February 2022.
The General Court’s judgement
Right after the EU Commission accepted the referral requests, in April 2021, Illumina took the regulator to court to seek the annulment of the referrals. In a ruling that will be appealed to the European Court of Justice, the General Court has today denied the request and strengthened the Commission’s position.
The court has so far only published a press release, so a thorough analysis will have to wait, but here are three initial takeaways:
- The court finds that Art. 22 gives Member States the power to refer “any” transaction to the Commission that otherwise meets the criteria of Art. 22 (of which triggering the merger control thresholds in the respective Member State is not one). So, there seems to be no immediate limit to transactions that might or might not be referred, other than the arguably broad criteria already laid out in Art. 22.
- With regard to the deadline to submit a referral, it seems that the court takes the position that the deadline generally only starts once information on the transaction has been actively submitted to a Member State. This raises the question whether parties in certain transaction should now inform all Member States about their deal pro-actively because otherwise referrals could be made at any future point in time.
- Finally, there is some silver lining for critics of the Commission’s practice: According to the court, the Commission taking a period of 47 days between receiving the complaint and inviting Member States to refer the case was “unreasonable”. But because the this did not affect the capacity of the parties to defend themselves, the court decided against annulling the referrals.
Despite the slight criticism of the EU Commission, the regulator will certainly welcome the judgement and Illumina has already confirmed that the company will file an appeal. As strange as it may sound because judgements tend to have the opposite effect, a result of this particular judgement might be greater uncertainty for parties to M&A transactions:
- Before the Commission adopted its new policy, parties could assess with relative confidence whether or not a transaction was notifiable in the EU. Even in countries with market share (Spain/Portugal) or transaction value (Austria/Germany) thresholds, there are criteria and associated risks for parties to work with.
- However, within the limits now set by the Illumina judgement, the Commission basically has the power to, with the help of Member States, call in any transaction happening anywhere. As in Illumina/Grail, whether or not both parties have activities in Europe is not a decisive criterion.
- Timing-wise, referrals can be made long after the announcement or even closing of a transaction, and the whole referral system itself slows the process down compared to the Commission being able to call in transactions directly.
- Some national regulators in the EU (including the German Bundeskartellamt) so far took the position that they would not refer cases that did not have to be notified in their respective Member State. It remains to be seen whether that position will change, with a potential for more referrals.
It is (still) a challenge to reflect this in transaction agreements and deal planning – transaction parties would certainly welcome (i) further guidance from the Commission and/or the courts; or (ii) a change in the EU’s merger control law to close a perceived enforcement gap by amending the law instead of by changing the policy regarding an “old” and somewhat indirect merger control provision.