Today, the European Commission adopted a package to simplify its merger control process for transactions that do not raise concerns. Many practitioners will agree that in the past, opting to submit a simplified filing did not necessarily simplify or expedite a case. Let’s take a look at how the Commission intends to change that.
Merger control at the level of the European Commission tends to be a formalistic procedure. There is a predetermined form to complete as a filing, deviating from that form is difficult, and in practice pre-notification discussions are mandatory.
In theory, submitting filings for transactions that evidently do not raise any substantive concerns should be easier. In such cases, parties can use a so-called “Short Form CO”, which requires less information and is meant to simplify the process. But in practice, it could turn out to be very burdensome to justify that the prerequisites for a simplified proceeding were met. At times, parties rather opt for a full filing instead of risking prolonged discussions with the case team over whether market shares in merely hypothetical markets would still justify a simplified filing.
The Commission has vowed to improve things and has adopted a package including three items:
- A revised Merger Implementing Regulation – this is the formal regulation setting out which information has to be provided in merger control filings
- A Notice on Simplified Procedure – the document provides further guidance on the simplified procedure and the criteria to be met
- A Communication on the transmission of documents – the document sets out how, in which form etc. documents should be submitted to the Commission
The Commission’s goal is to reduce “reporting requirements” by 25% – which does not mean that 25% less transactions will require merger control, but more cases will require that less information to be submitted.
More cases to qualify for simplified treatment
As the first and potentially most significant change, the Commission seeks to expand the number of cases qualifying for the Short Form CO. To summarise in
too short terms, the following kinds of transactions are now covered:
- The acquisition/formation of joint ventures with revenue and assets of less than EUR 100 million in the EEA.
- Transactions in which the activities of the parties do not overlap and in which there is no (potential) vertical link.
- A change from joint control to sole control.
- Transactions in which:
- the combined market share of the parties is below 20% or the increment to the market concentration is relatively low; and
- where there is a (potential) vertical link between the parties’ activities, (i) the respective market shares of the parties are below 30% in all relevant vertical markets; (ii) the market share in the upstream market is below 30% and the purchasing share in the downstream market is below 30%; or (iii) the respective market shares of the parties are below 50% in all relevant vertical markets, the increment to the market concentration in those vertical markets is relatively low and the smaller undertaking in terms of market share is the same in the upstream and downstream markets.
The last two “options” are new. I would expect them to only concern a small number of cases, but in some vertical cases they could open a door to a more straightforward approach.
That said, the “catch” stays the same as before: The thresholds have to be met “under all plausible market definitions”. What these are and how market shares are to be calculated could at least so far lead to difficult discussions during pre-notification, with an impact on timing and the risk of having to switch to a full filing after all.
Discretion to include more cases
Even where the above conditions are not met, the Commission has the discretion to treat transactions under the simplified procedure where:
- the activities of the parties overlap but their combined market share is below 25%; and
- if there is a (potential) vertical link between the parties, the respective market shares of the parties are below 35% in all relevant vertical markets; or the market share is below 50% in one market and below 10% in all other vertically related markets.
The Commission also has discretion with regard to the acquisition/formation of joint ventures with revenue and assets of less than EUR 150 million in the EEA.
The catch is the same as above – the conditions have to be met “under all plausible market definitions”.
In addition to expanding the scope of the simplified procedure, the Commission has also sought to reduce the volume of the information that has to be provided and has introduced a new notification form, which the regulator calls the “tick-the-box” Short Form CO.
The new form indeed contains a lot of boxes to tick, plus predetermined tables for the parties to provide market shares for the past three years (
really necessary for a short form?). It is particularly noteworthy that the parties are now also obliged to provide information on “pipeline products” in certain cases.
Whether the new Short Form CO will indeed lead to reduced burden for deal parties will depend on how case teams will handle the proceedings, the extent to which they are willing to grant waivers regarding certain information, and how much information on alternative market definitions they might request.
Safeguards and exclusions
The new Short Form CO includes a Section 11 on “Safeguards and Exclusions”. If any of these apply, a case will not automatically qualify for simplified treatment even where the conditions laid out above are met. A few items catch the eye – the following can exclude a deal from the simplified procedure:
- Shareholdings above 10% in competitors (the common ownership discussion is alive)
- Competitors hold a share of more than 10% in one of the parties (common ownership again)
- The parties’ share of capacity in a given market
- Pipeline-to-pipeline or pipeline-to-marketed overlaps
The Commission describes pre-notification discussions as “a service offered by the Commission to notifying parties on a voluntary basis to prepare the formal merger review procedure”. I am not sure everyone outside the regulator would consider these discussions a “service”, in particular when they are mandatory in practice.
But the mandatory-part might be up for change. The Commission is willing to treat filings as “super-simplified” and not requiring prior pre-notification in case of the acquisition/formation of a joint venture with no (planned) activities in the EEA; and in case of no overlapping activities and no (potential) vertical links. It will be interesting to see how this plays out in practice. However, deal parties will be grateful for shaving off weeks of pre-notification in no-issues cases.
In particular from pre-Covid times, some might remember hectic hours (sometimes days) before submission of an EU filing, in which several copies (up to 28 back in the day) including all annexes had to be printed and driven to the Commission’s registry in Brussels.
Those times are gone for good. The Commission has been accepting electronic filings since the pandemic and has now formalised this procedure. Unless in exceptional cases, filings have to be made via the Commission’s digital platform, and have to be signed using a Qualified Electronic Signatur (so no scanned signatures or the like).
This already is a rather long post by the standards of this blog, so I will keep it short here: Streamlining the Commission’s simplified procedure has been long in the making. It is a good development and shows that the regulator takes stakeholder concerns seriously.
But, as so often with new rules, whether and how much things will improve depends on how these rules are implemented in practice (e.g., regarding information on alternative plausible markets). So, “exciting” times ahead. And that is the one downside to close with: The new rules will only be applicable from 1 September 2023.
Oh, and by the way: Review deadlines will stay the same with 25 working days in Phase 1. The Commission is able to clear cases from (working) day 15 (but parties should not count on that).
Photo by Wesley Tingey on Unsplash