July 02, 2013
On June 20, 2013, the European Commission (the Commission) launched a public consultation on a number of proposed changes to the EU Merger Regulation (the EUMR).1 The proposals include extension of the EUMR to the acquisition of non-controlling shareholdings, changes to the process of referring cases for review by the Commission rather than by national competition authorities, and various changes to the EUMR. The consultation period expires on September 20, 2013.
If implemented, the extension of the EUMR to non-controlling shareholdings is likely to be the most controversial of these proposals, as it would increase the number of transactions subject to review, while also raising difficult questions about how to determine if a transaction is subject to review – the vast majority of minority shareholding acquisitions do not raise substantive competition concerns.
REVIEW OF NON-CONTROLLING SHAREHOLDINGS
At present, EU merger control rules apply only to acquisitions of sole or joint control but do not apply to acquisitions of non-controlling minority shareholdings.2 While the EU rules on anti-competitive agreements and abuse of dominance (in Articles 101 and 102 on the Treaty on the Functioning of the European Union) can be applied to non-controlling interests, they do not provide an effective means of regulatory intervention to prevent acquisitions that may have anti-competitive effects, particularly as the notification rules do not include these acquisitions.
In the Commission’s view, this results in an enforcement gap, as minority shareholdings potentially can have significant anti-competitive effects. For example, a minority interest held by a competitor could result in a lessening of competition or the exchange of competitively sensitive information. In addition, a minority interest held by a supplier or customer could enable the restriction of competitors’ access to inputs or customers.3 To address these issues, the Commission is taking comment on two proposals to extend the EUMR to non-controlling interests:
i. A mandatory notification model, whereby all relevant non-controlling shareholdings would require mandatory pre-merger notification and approval, as is currently required for the acquisition of controlling interests.
ii. A discretionary review model, whereby the Commission would select which cases to investigate, either as a result of its own market intelligence (a “self-assessment” system) or by requiring parties to transactions that raise prima facie concerns to submit a short information notice containing basic details of the transaction (a “transparency” system).
The Commission acknowledges that these proposals would raise a number of issues that would need to be resolved, including the following:
- Review thresholds. The Commission would need toidentify the thresholds that would trigger a potential investigation and clarify the scope of any safe harbour. For example, reference could be made to a specified shareholding level, specific shareholder rights, or substantive criteria such as an ability to exercise “material influence” over the target company (as is currently the case in the United Kingdom, where non-controlling shareholdings can be subjected to merger control).
- Ex post versus ex ante review. The Commission would need to determine whether it would be sufficient to intervene in transactions after they have occurred (as would often be the case under the discretionary review model), or whether effective enforcement would require the Commission to review transactions prior to implementation (under the mandatory notification model).
- Discretionary review procedures. As the discretionary review model would represent a significant departure from the Commission’s current enforcement regime, a number of procedural issues would need to be addressed, including:
– Whether it would be possible to notify voluntarily, and whether the notification would be brief or require more detailed information.
– Whether voluntary notification would trigger a standstill obligation, and whether the parties would be obliged further to suspend implementation if the Commission chooses to investigate.
– The limitation period during which the Commission could investigate and after which the parties could have legal certainty that the acquisition could not be challenged under the merger control rules.
The Commission is also consulting on a number of other relatively minor changes to the EUMR, such as:
- Limiting jurisdiction where no effects in the EEA. The Commission is considering limiting its jurisdiction to review transactions that have no effect in the EEA, such as removing the requirement to notify the creation of joint ventures that are located and operating outside of the EEA.
- Streamlining the case referral process. Pre-notification requests for review by the Commission rather than national competition authorities (NCAs) would be shortened by reducing the period during which NCAs can object to referral (from 15 to 10 working days), or by enabling the Commission to start its phase I review before NCAs have decided whether to object to referral. Post-notification referral requests would be simplified to enable the Commission to accept a referral for the EEA as a whole where at least one of the Member States competent to review a transaction makes a referral request and none of them object.
- The EUMR is limited to acquisitions of control, defined as the “ability to exercise decisive influence” resulting from factors such as a majority shareholding, a majority of the board of directors, or strategic veto rights. By contrast, acquisitions of non-controlling shareholdings can be reviewed in some other jurisdictions, such as Austria, Germany, the United Kingdom, and the United States.↵
- The Commission cites the example of Ryanair’s shareholding in Aer Lingus, a competing airline. While the Commission prohibited Ryanair’s proposed acquisition of control over Aer Lingus, the Commission was unable to intervene to prevent Ryanair subsequently acquiring a non-controlling 29.4% interest, which Aer Lingus argued had enabled Ryanair to obtain confidential information and intervene in strategic decision-making, thereby affecting competition. SeeCase T-411/07 Aer Lingus v. Commission  ECR II-3691.↵