Upcoming Reforms in EU Merger Control

February 14, 2013

The European Commission (EC) plans to engage in a targeted reform of EU merger control to (i) extend the scope of the European Merger Regulation (EUMR) to also cover the acquisition of non-controlling minority shareholdings, and (ii) simplify and limit the burden associated with EU merger filings.

Acquisitions of Minority Shareholdings

In the course of the past months, the EC has engaged into an in-depth examination of the extent to which the acquisition of non-controlling minority shareholdings constitutes an enforcement gap in EU competition law.  The main concern is that minority shareholdings may affect the incentives of the minority shareholder to compete aggressively with the target, and pose the risk of improper information sharing.  The EC has reviewed whether and in what ways the EU Member States as well as other jurisdictions, such as the United States and Canada, are subject to acquisitions of minority stakes to prior regulatory approval and has also taken into consideration economic theory findings and available empirical data.

Following this review exercise, the EC will soon adopt a proposal to extend the scope of the EUMR to non-controlling minority shareholdings.  The proposal will be submitted to public consultation in the first half of 2013, so that stakeholders have the chance to provide views on the way such notification system should be devised. Contentious issues are expected to include safe harbors, mandatory verses optional filing, and the general verses selective approach towards a notification system for minority shareholdings.

Simplification of Procedures

The EC recently published an initiative aimed at simplifying merger notification procedures.  The simplification will essentially be two-tiered, i.e. it will consist of: (i) extending the scope of the simplified merger procedure for transactions which are not expected to raise significant competition concerns; and (ii) updating, streamlining and significantly reducing the information requirements for merger notifications.

Regarding the extension of the scope of the simplified merger procedure, the EC has in mind to raise the currently applicable market share thresholds by 5%.  As a result, the simplified merger procedure should apply to transactions with horizontal overlaps where the cumulated market share of the parties does not exceed 20%, and/or vertical relations where the market share of one of the parties does not exceed 30%.  In addition, the EC considers introducing the possibility to use the simplified merger procedure in cases of horizontal mergers which only lead to small increments in market shares.

One consequence of this reform may be the revision of the thresholds below which a horizontal or non-horizontal merger is unlikely to raise any significant competition concern.  In that respect, the current guidance provides that the EC is unlikely to find that effective competition would be impeded where the combined market share of the parties concerned does not exceed 25% (for horizontal mergers), and the market share of the new entity in each of the upstream or downstream markets remains below 30% and the resulting HHI is below 2000 (for non-horizontal mergers).  Given the expected changes in thresholds for the simplified procedure, it may be appropriate to also raise the market share (and HHI) level below which the EC is unlikely to find grounds for concern.

The EC intends to launch a public consultation on the simplification of merger procedures in the course of the spring of 2013.

A Limited Reform – But with Significant Consequences

The planned reforms are arguably going to be much more targeted than the ones introduced by the EC in 2004.  The European watchdog’s assessment appears to be that, in general terms, EU merger control is operating smoothly.  What is rather at issue is closing certain loopholes and making the scheme more time—and resource-efficient.  For companies and lawyers, the reforms are intended to simplify and lessen the filing requirements for an increasing number of M&A transactions.  As a result, should the reforms proceed, more transactions should be subject to lower expenses and information requirements.