December 13, 2013
On December 5, 2013, the European Commission announced that it had adopted a series of changes to its merger review procedures under the EU Merger Regulation (the EUMR) intended to simplify the current system.1 These amendments are primarily focused on three key changes: (1) expanding the range of transactions that may be reviewed under the Commission’s simplified procedure; (2) reducing the volume of information that parties are required to provide when notifying a transaction; and (3) simplifying the process of pre-notification discussions. The changes will come into effect on January 1, 2014.
1. Greater use of simplified procedure
The Commission currently permits parties to notify certain transactions that are unlikely to raise substantive concerns using a Short Form notification that requires substantially less information. At present, transactions that benefit from this simplified procedure account for 60-70% of all notified mergers, and include joint ventures with little or no EEA activities, changes from joint to sole control, and transactions involving an overlapping market share of no more than 15% or vertical relationships involving a market share of no more than 25%.
The revised rules will expand the scope of the simplified procedure to two new categories, which it expects will enable an additional 10% of cases to benefit from the simplified procedure. In particular:
- The Commission has raised the market share eligibility thresholds for horizontal overlaps (20% rather than 15%) and vertical relationships (30% rather than 25%); and
- Transactions that result in a horizontal overlap of up to 50% may benefit from the simplified procedure provided that the Herfindal-Hirschman Index (HHI) increment is less than 150 points.2
However, the Commission is currently entitled to withdraw the benefit of the simplified procedure and revert to its standard procedure on a case-by-case basis,3 and it has announced that it may withdraw the simplified procedure in a wider range of cases where concerns may arise notwithstanding relatively low shares. These additional cases include transactions involving: potential/recent entrants; important innovators or mavericks; significant cross-shareholdings or indications of coordination; a party having an individual share of 50% or more; combinations of resources in closely related markets; and joint ventures where the EEA activities may be expected to increase significantly in the next three years or that may give rise to a risk of coordination with the parents.
2. Changes to information required for notification
The Commission has also made a number of changes to the information that parties are required to provide in notifications. Some of these changes are intended to reduce the volume of information that is required. For example:
- The Commission has raised the share threshold for “affected markets” in respect of which the parties are required to provide detailed substantive information. The thresholds have been raised from 15% to 20% for horizontal overlaps, and from 25% to 30% for vertical relationships.
- Parties will no longer be required to provide certain formalistic information (such as lists of subsidiaries). Parties will also be invited to request waivers from the obligation to provide other information that may not be relevant in a particular case, although the impact of this provision will largely depend on the willingness of the Commission to grant the requested waivers.
- Joint ventures that are active entirely outside the EEA will benefit from a “super-simplified notification,” which will require very limited information to be provided (e.g., a description of the transaction and the parties’ activities, and turnover data).
However, the Commission has also introduced new obligations to provide additional information. In particular:
- Additional internal documents will be required. For Form CO notifications, parties are currently required to provide board or shareholders’ meeting documents that analyse the proposed transaction. This obligation has been significantly widened, as parties will now be required to provide all documents prepared by or for, or received by, any board member or the shareholders’ meeting, including: (i) board and shareholder meeting minutes in which the transaction has been discussed; (ii) board and shareholder documents that analyse the transaction and discuss alternative acquisitions; and (iii) board and shareholder analyses from the last two years that assess the competitive position in any of the affected markets. For Short Form notifications, parties must now provide board and shareholder documents that analyse the notified transaction.
- Additional substantive market assessment will be required. While parties are currently required to assess the affected markets, they will now be required also to provide information on all plausible alternative product and geographic markets, by reference to prior decisions of the Commission or judgments of the EU Courts, industry reports, market studies or the parties’ internal documents. While case teams already often request such information in certain cases, this formal requirement may result in an additional information burden in a wider range of transactions.
3. Simplifying pre-notification
Parties are currently required to engage in pre-notification discussions with the Commission prior to submitting the formal notification to enable the case team to ensure that it has all the information that it may require for its review. While this process can often streamline the subsequent review process, it can also result in additional delays and information burdens. The Commission has therefore indicated that transactions that do not result in any horizontal overlap or vertical relationship (estimated to be around 25% of simplified procedure cases) will not require pre-notification, and that the reduced information requirements (noted above) may also simplify the pre-notification process in other cases.
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The Commission’s changes to the EUMR procedures are intended to streamline and expedite its merger review process and, by simplifying certain elements of its notification system and extending the simplified procedure to a wider range of transactions, the information burden is likely to be reduced in transactions that do not raise substantive concerns. However, by expanding the obligation to provide internal documents and information on plausible alternative markets, the Commission’s revised rules may materially increase the burden on notifying parties in other cases. The new information required may also result in increasing the time needed to complete a notification; parties to a transaction should plan accordingly. The overall practical impact of the changes is therefore likely to depend to a large extent on how the Commission’s case teams apply these new procedures, which should become clearer over the course of 2014 once the new rules are in effect.
- See http://europa.eu/rapid/press-release_IP-13-1214_en.htm. The Commission will amend its existing Simplified Procedure Notice (Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) 139/2004, May 3, 2005) and Implementing Regulation (Commission Regulation implementing Council Regulation (EC) 139/2004 on the control of concentrations between undertakings, April 21, 2004). The Commission will also make minor changes to its model texts for divestiture commitments and trustee mandates, and its guidelines on best practices for divestiture commitments (see http://ec.europa.eu/competition/mergers/legislation/template_commitments_en.pdf, http://ec.europa.eu/competition/mergers/legislation/trustee_mandate_en.pdf, http://ec.europa.eu/competition/mergers/legislation/best_practice_commitments_trustee_en.pdf).↵
- The HHI is an economic concept used to measure concentration within markets, and is calculated as the sum of the square of each party’s market share. In practice, where combined shares are more than 20% (and the transaction is thus otherwise ineligible for the simplified procedure) an HHI delta of less than 150 would arise only where there is a negligible overlap.↵
- The Commission’s current guidelines indicate that it may do so where it is difficult to determine whether share thresholds may be met, or where transactions raise novel issues or otherwise require closer investigation. Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) 139/2004, May 3, 2005, paragraphs 6 and 7.↵