Adjustments to the European Merger Control Procedure

February 4, 2014

The European Commission adopted a number of changes to the EU merger control procedure  in the form of amendments to the Commission’s Notice on Simplified Procedures and to the Implementing Regulation on merger control, which came into effect on 1 January 2014. The amendments are designed to simplify the procedures adopted where notified transactions pose few genuine competition law concerns, while also clarifying the nature of the documentation required where remedies are sought.[1]

The text of the EU Merger Regulation ("EUMR") itself has not been revised, which means that the scope of notifiable transactions, the notification thresholds and the formal review periods remain the same. A further reform of EU merger control is anticipated to take place later in 2014.

I.    Extending and Enhancing the Simplified Procedure

The changes to the so-called "simplified procedure" under the EUMR have (1) widened the scope of the transactions that can benefit from that procedure, (2) reduced the amount of information transacting parties are required to provide for a range of simplified notifications, and (3) reduced, in practice, the time required to obtain clearance. More specifically:

1. More transactions fall under the simplified procedure: The simplified merger review procedure is available for transactions that involve no, or limited, horizontal or vertical overlaps between the notifying parties’ businesses and are thereby viewed as unlikely to raise any competition concerns. These transactions can be notified using the Short Form CO, which requires significantly less information than the full filing form (Form CO). In the case of horizontal overlaps (i.e., areas where the parties’ businesses compete), the combined market share threshold for which the Short Form CO can be used has been raised from 15% to 20%.  In the case of vertical overlaps (i.e., areas where one party is upstream or downstream from the other party, such as a supplier-customer relationship), the threshold has been raised from 25% to 30% (i.e., the short Form CO can be used if the parties’ individual or combined market share is below 30% in both the upstream and downstream markets). Furthermore, a new category of mergers that may benefit from the simplified procedure has been introduced: a transaction may qualify for the Short Form CO mergers where (a) the parties’ combined market share does not exceed 50% and (b) the market share increase resulting from the transaction is small (the Herfindahl-Hirschman Index increase resulting from the transaction is below 150).

2. Less information required for certain simplified notifications: Those joint ventures which are not active in the EU and which trigger the filing obligation solely because of the EU turnover of their parents will continue to require notification, assuming that the EUMR thresholds and requirements are met. However, the Commission will now pursue the "super-simplified" notification of these transactions. Thus, the notifying parties will have to provide even less information than what is required by the Short Form CO — specifically, the parties will only need to describe the transaction, their respective businesses and provide turnover figures for the purposes of establishing the Commission’s jurisdiction.

3. Shorter review period for certain simplified notifications: While the formal 25 working-day review period enshrined in the EUMR for a Phase One review has not been shortened, for transactions that do not involve any horizontal or vertical overlap between the parties, the Commission has done away with the timetable it traditionally utilised in practice for the pre-notification phase. The pre-notification phase is an informal practice that has developed over the years in which the notifying parties, prior to submitting a formal filing, share with the Commission the draft of their proposed filing, in order to avoid having their notification declared incomplete at the time of formal submission. According to its own guidelines, the Commission has five working days in which to review draft notifications in the pre-notification phase.  By allowing the parties to truncate the pre-notification procedure, the time necessary to obtain clearance and to proceed with closing has been significantly shortened.

II.    Further Information Requirements in Non-Simplified Procedures

Aside from the impacts of the changes on the "simplified procedure", the filing forms used in the merger filing process are also affected in a number of ways:

Amended Form CO: The updated Form CO both reduces in certain respects and increases in others the scope of documents to be submitted by the parties in a merger filing. Specifically:

• The scope of the transaction-related company documents that must accompany the filing has been expanded, and now includes the minutes of the meetings of any corporate bodies discussing the transaction, any analyses, reports, studies, surveys, presentations and comparable documents touching upon the transaction, as well as any documents relating to the parties’ understanding of any markets concerned by the transaction. Prior to this change, the documentation required by a Form CO was closely aligned with the requirements of the Hart-Scott-Rodino (HSR) form instructions in the U.S., which allowed parties filing in both the U.S. and the EU to provide similar documentation in support of both filings.  The new Form CO, however, appears to require documentation that is not required by Items 4(c) and 4(d) of the HSR instructions, such as board meeting minutes that do not analyse the transaction with respect to competition, markets, or sales growth.  Nevertheless, there remains substantial overlap between the documentation required for an HSR filing and a Form CO.
• The Commission provides detailed guidance regarding the types of waivers that the parties can request, which, if granted, exempt the parties from providing certain types of information during the pre-notification discussions. While the waivers can reduce the overall information burden on the parties, obtaining such waivers may prolong the pre-notification process and thereby the overall merger review timeframe, as negotiating and obtaining the waivers takes time.
• The definition of "affected markets" for which detailed information must be provided by the parties has been amended and only involves horizontal markets where the parties’ combined market share is in excess of 20% (against 15% until the end of 2013) and vertical markets on which the parties’ combined market share is more than 30% (against 25% until the end of 2013). The Form CO no longer requires detailed information both for hypothetical EU/EEA/EFTA-wide markets and for each of the Member States, but only for the relevant geographic markets. At the same time, the parties are required to submit information for plausible alternative relevant product and geographic markets as well.

Amended Form RS: The Form RS is used by the parties to request the referral of a case either (a) to the Commission, where the merger is notifiable in at least three Member States but does not meet the EUMR thresholds; or (b) to Member State(s) where the transaction is otherwise notifiable to the Commission but the parties consider that the competition authorities of one or more Member States are better placed to review it (e.g., because its effects are felt primarily on local or sub-national markets).

The amendments reduce the information required by the Form RS. The practical impact of the updated Form RS is questionable, however, particularly in the case of referrals to the Commission. Most of these referrals are successful, and the information contained in a more detailed Form RS could be incorporated directly into the text of the Form CO. 

III.    Clarifying Questions Relating to Remedies

The new and clarified rules also address those transactions that do raise competition concerns and, thereby, require remedies.

As part of the remedy review package, the Commission has published an updated standard model text for divestiture commitments [Best Practice Guidelines]. While the use of the model text remains voluntary, it is nevertheless a helpful tool in satisfying the Commission’s requirements in terms of the form that asset divestitures should take, as well as satisfying the requirements for the appointment of a Monitoring Trustee.

The Commission has also clarified the means by which the length of the review period in Phase Two mergers will be calculated where remedies have been offered. Remedies may lead to the extension of the review period. As general rule, if offered before Day 55 of the Phase Two review period, no extension is mandated, while the offering of remedies on Day 55 or later results in the Phase Two review period being automatically extended by 15 working days. The Commission has now clarified that the 15-working day automatic extension period also applies in the case of remedies that are submitted before Day 55 but which are amended after Day 55.

IV.    Conclusion

The changes introduced by the Commission should be welcomed by the merger bar in Brussels and clients.  In particular, a lighter notification burden for mergers that do not result in market shares in excess of the thresholds, in addition to those mergers that result in small incremental changes while falling short of 50% market share, will be most welcome.  Having said that, the impact of the changes as regards the treatment of "affected" markets might be less profound. At least in the short term, the practical impact of this change might be minimal, as notifying parties struggle to differentiate between not being required to calculate alternative product or geographic markets while at the same time providing information on such markets. The full benefits of the changes will no doubt be reaped by those parties whose merger takes place in distinct (i.e., well-defined) relevant product and geographic markets; volatile or dynamic markets will in all likelihood continue to involve a similar workload in terms of the preparation of a filing under the EUMR.

Similarly, the need for less information in the Form RS context will be welcomed by those keen on resolving the jurisdictional issue, but ultimately the information not submitted for jurisdictional purposes will in any event need to be submitted to the Commission for its substantive review. Indeed, it is arguable that those parties not supplying a full dossier under the Form RS procedure might struggle to convince Member States that the Commission is best placed to review the merger in question in the first place.

Finally, as regards the offer of remedies to obtain the clearance of a transaction, two points can be made.  First, practice has indicated that divergence from the standard model text tends to delay the process of remedy evaluation, which means that caution should be taken in departing from its structure in anything other than extraordinary circumstances.  Significant divergence from its terms is therefore probably counter-productive in most cases in terms of the timing of the review process, even if not in terms of substance. In addition, the use of the 55-day period in a Phase Two review seems to be an arbitrary watershed which might lend itself to "gaming"; surely the availability of a more general possibility of extending the procedure will serve public policy goals well. On balance, however, while this clarification will have the impact of further lengthening the review period in the average Phase Two review, it will at least provide additional certainty to the parties in terms of expected timing.