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Transactions and practices: EU Mergers & acquisitions
• Resource type: Practice note
• Status: Maintained
• Jurisdiction: European Union
The European Commission has power under the EU Merger Regulation to vet major cross-border mergers and acquisitions, and to
prohibit them when they are incompatible with the internal market. This Practice note considers the scope and application of the Merger
Regulation in relation to mergers and acquisitions. (Joint ventures are considered separately in the Practice note, EU Joint ventures).
Alex Nourry and Jennifer Storey, Clifford Chance LLP
Contents
• Legislation and notices
• Mergers and acquisitions subject to EU control
• EU dimension
• Turnover thresholds
• Calculation of turnover
• Mergers outside the EU
• What is a concentration?
• Control
• Sole control and joint control
• Simplified procedure for certain concentrations
• Exclusions
• One-stop shop principle
• Exceptions
• Legitimate interests
• National security
• Referral back to member states
• Referral to the Commission
• Proposals for reform
• Notification of a concentration
• Pre-notification guidance, contacts and discussions
• Confidentiality
• Incomplete notification
• Suspension
• Derogation from suspension
• Completion in breach
• Fines
• Commission's review procedure
• Initial investigation: Phase I
• In-depth investigation: Phase II
• Time limits
• Priority rule
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• Advisory Committee
• Powers of investigation
• Remedies
• Notice on remedies
• Phase I undertakings
• Phase II undertakings
• Third party interventions
• Access to documents
• Commission's assessment
• The test: compatibility with the internal market
• Substantive assessment
• Collective dominance
• Merger control statistics
• Assessment of ancillary restrictions
• Appeals against merger decisions
• International co-operation
• Best Practices for multi-jurisdictional mergers
• Commission notices and guidance relating to mergers
• Merger notifications: Best Practice Guidelines
• Skanska/Scancem case
• Nestlé/Ralston Purina
• EU merger control statistics
• Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel
• Reform of EU merger control in 2004
• Revised EU Merger Regulation
• Non-legislative measures
• Horizontal Guidelines
• The Non-horizontal Guidelines
• Sony/BMG
• 2014 White Paper - proposed changes to make Merger Regulation more effective.
Changes in terminology: Following the entry into force of the Lisbon Treaty on 1 December 2009, Article 81 and Article 82 of
the EC Treaty have been renamed Article 101 and Article 102 of the Treaty on the Functioning of the European Union (TFEU)).
In addition, the Court of First Instance (CFI) has been renamed the General Court. This new terminology has been reflected
throughout this note. For further information on the Lisbon Treaty see the Practice note, The European Union after the Treaty
of Lisbon (www.practicallaw.com/2-381-1190).
The European Commission has the power to vet major cross-border mergers, acquisitions and certain joint ventures, and to prohibit
them when they are incompatible with the internal market, by virtue of the EU Merger Regulation (Merger Regulation) (Regulation
139/2004 on the control of concentrations between undertakings (OJ 2004 L24/1)).
For this purpose, the Merger Regulation requires compulsory and exclusive ("one-stop shop") notification to the Commission of
significant structural changes which have an impact on the EU market going beyond the borders of any one member state. The size of
the transactions concerned is measured by way of cumulative turnover thresholds.
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This Practice note considers the scope and application of the Merger Regulation in relation to mergers and acquisitions. The Merger
Regulation also applies to full-function joint ventures (see Glossary (www.practicallaw.com/A14505)), which are considered
separately in Practice note, EU Joint ventures (www.practicallaw.com/A14479).
Legislation and notices
The main EU legislation relating to mergers and acquisitions comprises the Merger Regulation itself, and the Commission's
implementing regulation which deals with procedural matters (Regulation 802/2004 OJ 2004 L133/1, as amended by Regulation
1033/2008 and Regulation 1269/2013) (the Implementing Regulation).
The current version of the Merger Regulation (Regulation 139/2004) was adopted on 20 January 2004 and came into force on 1 May
2004, replacing the original version (Regulation 4064/89), which had been in force since 1990.
This Practice note discusses the Merger Regulation as it applies since 1 May 2004. The main changes introduced to the Merger
Regulation in 2004 are summarised in the box, Reform of EU merger control and are also discussed in detail in the Practice note, EU
Merger Control Reform Package (www.practicallaw.com/A28356).
In addition, the Commission has issued a series of notices containing guidance on aspects of the EU merger control regime (see box,
Commission notices and guidance relating to mergers). In July 2007, the Commission adopted a notice which consolidated four of the
previous notices on jurisdictional issues (the Consolidated Jurisdictional Notice) (OJ 2008 C95/1) (see Legal updates, Commission
consults on new consolidated merger control jurisdictional notice (www.practicallaw.com/0-204-8104) and Commission adopts
consolidated merger control jurisdictional notice (www.practicallaw.com/4-371-7993)).
The Commission's 2004 reforms also included new guidelines and other non-legislative measures intended to improve the
Commission's decision making process, including guidelines on horizontal mergers (OJ 2004 C31/03)(see boxes, Reform of EU merger
control and Horizontal Guidelines). The Commission also adopted a revised Commission notice on simplified procedure for the
treatment of certain concentrations (the Notice on Simplified Procedure) (further revised in 2013) and a revised Commission notice on
restrictions that are directly related and necessary to concentrations (the Notice on Ancillary Restraints) (OJ 2005 C56/03).
In 2007, the Commission began consultations on new guidelines on non-horizontal mergers (the Non-horizontal Guidelines) and on a
revised version of its notice on remedies acceptable under the EU Merger Regulation (Remedies Notice) (see Legal updates,
Commission consults on draft non-horizontal merger guidelines (www.practicallaw.com/4-219-2953) and Commission consults on
revised Remedies Notice (www.practicallaw.com/6-312-5952)). It adopted the final version of the Non-horizontal Guidelines on 29
November 2007 (OJ 2008 C265/7). The guidelines provide guidance on the Commission's assessment of mergers where the parties
are active on distinct relevant markets: vertical mergers or conglomerate mergers (see box, The Non-horizontal Guidelines and Legal
update, Commission adopts guidelines on non-horizontal mergers (www.practicallaw.com/6-379-6526)). The Commission adopted the
Remedies Notice on 22 October 2008 (OJ 2008 C267/01) (see Legal update, Commission publishes new Remedies Notice and
amendments to Implementing Regulation (www.practicallaw.com/8-383-7955)).
In October 2008, the Commission began a consultation on a review of the Merger Regulation. The main aim of this review was to
evaluate how the rules on jurisdictional thresholds (see Turnover thresholds) and the referral mechanisms (see One-stop shop
principle) were working. The Commission also sought any comments on the operation of the Merger Regulation more generally (see
Legal update, Commission begins consultation on review of Merger Regulation (www.practicallaw.com/1-383-8897)). In June 2009, the
Commission published a report setting out the results of this review. This found that, overall, the jurisdictional thresholds and the referral
mechanisms have provided an appropriate legal framework for allocating cases between the EU level and member states. Although the
Commission identified certain possible issues of concern, it did not make any proposals for reform (see Legal update, Commission
publishes report on operation of Merger Regulation (www.practicallaw.com/8-386-3039)).
However, in June 2012, Joaquin Almunia, Vice President of the Commission responsible for competition policy, indicated in a speech
that the Commission is considering certain revisions to the Merger Regulation, in particular, further simplifying the simplified merger
notification procedure (see below) and reviewing the Commission's pre-notification practice. The Commission also stated that it was
examining issues such as scrutiny of acquisitions of non-controlling minority interests and the interaction between national and EU
merger controls (see Legal update, Speech by Joaquin Almunia on competition enforcement (www.practicallaw.com/5-519-9168)).
Joaquin Almunia confirmed these potential reforms in a speech given in November 2012 (see Legal update, Speech by Joaquin
Almunia on the evolution of EU merger control (www.practicallaw.com/1-522-2463)).
On 27 March 2013, the Commission issued a consultation on proposed revisions to the simplified merger procedure and to the
notifications forms, in order to update and simplify notification procedures (Legal update, Commission consults on proposals to simplify
procedures under EU Merger Regulation (www.practicallaw.com/7-525-4658)). On 5 December 2013, the Commission adopted a new
Notice on Simplified Procedure (OJ 2013 C366/5) and Regulation 1269/2013 amending the Implementing Regulation) (OJ 2013
L336/1), with effect from 1 January 2014 (see Commission adopts package of measures to simplify procedures under EU Merger
Regulation (www.practicallaw.com/0-551-0925)).
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On 20 June 2013, the Commission launched a consultation on further measures to improve the effectiveness of EU merger control,
including the possible extension of the scope of the Merger Regulation to the acquisition of non-controlling minority interests and
modification of the pre and post -notification system for referrals of cases from member states to the Commission (see Legal update,
Commission consultation on measures to improve the effectiveness of EU merger control (www.practicallaw.com/9-532-3774)).
Following this consultation, the Commission published a White Paper on its refined proposals on 9 July 2014 (see box, 2014 White
Paper - proposed changes to make Merger Regulation more effective.).
Mergers and acquisitions subject to EU control
Any "concentration" within the meaning of the Merger Regulation (see What is a concentration?), which has a EU dimension (see
below), must be notified to the Commission for approval before being implemented.
EU dimension
A concentration will have an EU dimension where the turnover thresholds set out in the Merger Regulation are exceeded:
Turnover thresholds
The turnover thresholds will be exceeded where either:
• The combined aggregate worldwide turnover of all the undertakings concerned is more than EUR5 billion (this threshold is intended
to exclude mergers between small and medium-sized companies); and
• The aggregate EU-wide turnover of each of at least two of the undertakings concerned is more than EUR250 million (this threshold
is intended to exclude relatively minor acquisitions by large companies or acquisitions with only a minor European dimension),
unless each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same
member state (this threshold - the so-called "two-thirds rule" - is intended to exclude cases where the effects of the merger are felt
primarily in a single member state, when it is more appropriate for the national competition authorities (NCAs) to deal with it) (Article 1
(2), Merger Regulation);
or:
• The combined aggregate worldwide turnover of all undertakings concerned is more than EUR2.5 billion (instead of EUR5 billion);
and
• The aggregate EU-wide turnover of each of a least two of the undertakings concerned is more than EUR100 million (instead of
EUR250 million); and
• The combined aggregate turnover of all undertakings concerned is more than EUR100 million in each of at least three member
states; and
• In each of at least three of these member states, the aggregate turnover of each of at least two of the undertakings concerned is
more than EUR25 million,
unless each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same
member state (Article 1(3), Merger Regulation).
This second limb of the turnover test covers concentrations of a smaller size where the parties carry on, jointly and individually, a
minimum level of activities in three or more member states.
The Commission's report on the operation of the jurisdictional thresholds, published on 18 June 2009, concluded that, overall, the
jurisdictional thresholds were working well. However, some concerns about the operation of the "two thirds rule" were identified. The
Commission considered that the two-thirds rule has generally distinguished appropriately between concentrations that have cross-
border effects and those that do not. However, there were a small number of cases with potential cross-border effects which had fallen
outside the Commission's jurisdiction as a result of the two-thirds rule. The Commission also noted that public interest considerations
other than competition policy had been applied in a number of cases that were reviewed by national authorities under the two-thirds rule
and which could have given rise to competition concerns. The Commission, therefore, concluded that the two-thirds rule in its current
form merits further consideration, in order to ensure that the application of merger control across the EU ensures the protection of
undistorted competition (see Legal update, Commission publishes report on operation of Merger Regulation (www.practicallaw.com/8-
386-3039)). However, the Commission has not, to date, made any proposals for legislative reform of the two-thirds rule.
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However, in June 2013, in a consultation on improving the effectiveness of the Merger Regulation, and in a subsequent White Paper
published in July 2014, the Commission raised the possibility of limiting the jurisdiction for concentrations that do not have any effect in
the EEA, such as the creation of a full-function joint venture located and operating outside the EEA and that would not have any
conceivable impact on markets in the EEA (these are currently dealt with under the Notice on Simplified Procedure).
The operation of the turnover thresholds is illustrated in the box, Merger Regulation thresholds, below.
In December 2007, the ECJ confirmed that, given the need for the Commission to examine mergers with a EU dimension in accordance
with strict timescales, the Commission's competence to examine such a merger (on the basis that the thresholds are met) "cannot be
challenged at any time or be in a state of constant flux". The Commission cannot be required to reconsider its competence on a regular
basis throughout the merger investigation proceedings. To do so would be to the detriment of the examination of the substance of the
case. The ECJ, therefore, concluded that the Commission's competence to examine a merger under the Merger Regulation must be
established (for the whole of the proceedings) at a fixed time. That fixed time must necessarily be closely related to the notification of
the concentration (Case C-202/06 - Cementbouw Handel & Industrie BV v Commission, judgment of 18 December 2007).
In the Cementbouw case, the ECJ was considering the issue of whether the offer of remedies (which, if implemented, would bring the
transaction below the jurisdictional thresholds) could impact on the Commission's jurisdiction to examine a merger. The ECJ concluded
that it would not. Although the Commission loses its competence to examine a merger where it is completely abandoned, this is not the
case where the parties propose partial amendments to the notified arrangements.
Calculation of turnover
The undertakings involved in the transaction whose turnover is relevant for this purpose are: the merging companies in the case of a
merger; the bidder and the target in the case of a public bid; the buyer and the target in the case of an acquisition of sole control; in the
case of an acquisition of joint control of a pre-existing target, each of the undertakings acquiring joint control and the target; and, in the
case of an acquisition of joint control of a newly-created undertaking, each of the undertakings taking joint control ( Consolidated
Jurisdictional Notice).
• Other relevant undertakings. The turnover figures must include not only the turnover of the undertakings concerned in the
transaction but also that of all the other undertakings which belong to the same group (although, as mentioned above, in the case of
acquisitions only the target's turnover is to be counted in respect of the seller). The relevant definitions of group companies for this
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purpose in the Merger Regulation (Article 5(4)) and the Commission's Consolidated Jurisdictional Notice extend beyond legal control
(so that a 50% holding is not required). Even turnover realised by franchisees may be included, depending on the level of control by
the undertaking concerned (for example, compare Case IV/M.940 - UBS/Mister Minit with Case IV/M.126 - Accor/Wagon-Lits).
• Relevant accounts. The relevant turnover is the amount derived during the last financial year from the sale of products or the
provision of services in the ordinary course of business (Article 5(1), Merger Regulation). This can be obtained from the profit and
loss statement in the audited accounts for that financial year. Deductions may be made from this figure in respect of sales rebates,
and value added tax and other taxes directly related to turnover. Sales of goods or the provision of services to other companies
within the same group are excluded from turnover.
These figures for the last financial year should be adjusted to take account of important fluctuations since the end of the financial
year (such as acquisitions or disposals of certain businesses by the undertaking concerned or other group companies). This is
necessary so that the true value of the companies being concentrated can be assessed.
When calculating EU or national turnover, as a general rule, turnover should be attributed to the place where the customer is
located.
In November 2005, the Commission was asked to confirm whether the Spanish electricity company Endesa could be seen to
achieve two thirds of its annual turnover in Spain, such that the acquisition by it of the Spanish gas company, Gas Natural ( two
thirds of whose turnover was achieved in Spain) would fall outside the Merger Regulation. It confirmed that on the basis of Endesa's
annual audited accounts for 2004, and after disallowing certain deductions suggested by Endesa, the two-thirds exception was
satisfied (Commission press release IP/05/1425).
Endesa appealed the Commission's determination that the proposed takeover by Gas Natural did not have an EU dimension. On 1
February 2006, the General Court rejected an application by Endesa for interim measures (to suspend any acquisition by Gas
Natural until after the General Court's substantive ruling) (Case T-417/05 Endesa SA v Commission, Order of the President of the
Court of First Instance [2006] ECR II-18).
On 14 July 2006, the General Court dismissed Endesa's appeal and upheld the Commission's use of the audited accounts of the last
full business year (as opposed to reconciled accounts using a new accounting standard). The General Court also held that the
Commission had been correct not to discount the turnover of Endesa's electricity distribution businesses. Contrary to what was
claimed by Endesa, this turnover was not merely a "pass through" of the amounts paid by electricity generators to suppliers (Case T-
417/05 Endesa SA v Commission, judgment of 14 July 2006; see Legal update, CFI dismisses appeal by
Endesa (www.practicallaw.com/5-203-4656)).
• Acquisition of part of an undertaking. The general rule that turnover should be calculated on a consolidated basis does not apply
where the concentration consists of the acquisition of a part or parts of one or more undertakings (whether or not they constitute
legal entities). In this case, only the turnover relating to those parts which are the subject of the transaction is to be taken into
account (Article 5(2), Merger Regulation). However, artificially splitting the target undertaking into parts cannot be used as a means
of avoiding the application of the Merger Regulation. Where two or more acquisitions of part, involving the same persons or
undertakings, take place within a two-year period they are treated as one and the same transaction arising on the date of the last
acquisition.
• Currency conversions. Currency conversions should be done by using the exchange rates made available by both the
Commission and the European Central Bank (published in the Monthly Bulletin of the European Central Bank and available on its
website at http://www.ecb.europa.eu/pub/mb/html/index.en.html) (see also the Practice note, How to do a EURO currency
conversion (www.practicallaw.com/A28377)).
• Banks, financial institutions and insurance companies. Special rules apply for the calculation of the turnover of banks and of
other financial institutions, and insurance companies (Article 5(3), Merger Regulation). In relation to credit institutions and other
financial institutions, the aggregate amount of specified items of income as shown in the annual accounts and consolidated accounts
is used (interest income and similar income, income from securities, commissions receivable, net profit on financial operations and
other operating income), after deduction of value added tax and other taxes directly related to those items. By way of exception to
the general rule that turnover should be attributed to the place where the customer is located, banking income should be allocated
by reference to the residence of the bank's branches or divisions.
For insurance companies, the value of gross written premiums is used. Gross written premiums are all amounts received and
receivable in respect of insurance contracts issued by or on behalf of insurance companies, including all outgoing reinsurance
premiums and after deduction of taxes and contributions having an effect equivalent to taxes. Insurance income is to be allocated on
the basis of the residence of the persons from whom the premiums have been received.
Commission Form CO (see Notification of a concentration) contains some helpful worked examples for calculating the turnover of
banks and insurance companies.
• Other sectors. For certain sectors, such as air transport and telecommunications, further guidance on determining how to allocate
turnover geographically may be found in Commission decisions and the Commission's Consolidated Jurisdictional Notice.
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Mergers outside the EU
The thresholds can have the effect of bringing transactions that take place outside the EU within the scope of the Merger Regulation,
where neither the parties nor the businesses concerned are principally European in nature. If the thresholds are exceeded, the
Commission may assume jurisdiction over companies which do not have a registered office, subsidiary or branch within the EU if their
transaction has an EU dimension.
The territorial scope of the Merger Regulation was considered by the General Court in Gencor (Case T-102/96 [1999] ECR 753).
Gencor argued that the Merger Regulation did not apply to economic activities carried out in a non-member state - in this case mining
activities in South Africa. The General Court rejected this argument, concluding that the Merger Regulation applies to all concentrations
with an EU dimension. The EU dimension is satisfied if the various conditions relating to turnover are met. The Merger Regulation does
not require that the companies must be established or carry out production in the EU. The General Court also took into account the fact
that the purpose of the Merger Regulation is to ensure that competition is not distorted in the internal market. What mattered was not
that the parties' mining activities were in South Africa, but that the market for the sale of platinum was in the EU, and on this basis the
Commission did have jurisdiction in the case.
The Commission will not hesitate to impose conditions on mergers involving companies based primarily outside of the EU where it
considers that they have a significant negative impact on competition in the internal market, as it did in the Boeing/McDonnell Douglas
(Case IV/M.877), World/Com/MCI Case IV/M.1069) and United Airlines/US Airways (Case IV/M.2041) cases, and it may even block a
concentration, as it did in Gencor/Lonrho (Case IV/M.619), WorldCom/Sprint (Case IV/M.1741) and General Electric/Honeywell (Case
COMP/M.2220). The latter case was the first time that the Commission had blocked a merger between two US companies which had
already been cleared by the US competition authorities (see also International co-operation). As of 1 December 2013, the Commission
has blocked a total of 24 concentrations under the Merger Regulation, the most recent being the proposed combination of Ryanair and
Aer Lingus (CaseCOMP/6663 ).
What is a concentration?
The term "concentration" is broadly defined in the Merger Regulation. A concentration arises if there is a change of control on a lasting
basis where:
• Two or more previously independent undertakings merge; or
• One or more undertakings (or one or more persons already controlling at least one undertaking) acquire, whether by purchase of
securities or assets, by contract or by any other means, direct or indirect control of the whole or part of one or more other
undertakings (Article 3(1), Merger Regulation).
This covers mergers, de-mergers, acquisitions of shares or assets, and structural joint ventures ( see Practice note, EU Joint
ventures (www.practicallaw.com/A14479)).
Control
The determining factor is whether the transaction will lead to a lasting change in control (direct or indirect) over one or more
undertakings - the legal form by which the change of control may be brought about does not matter. Thus the Merger Regulation has
been held to apply to management buy-outs and other venture capital-type transactions (see, for example, Industry Kapital/Dyno (Case
COMP/M.1813) and CVC/Lenzing (Case COMP/ M.2187)), although such transactions are often covered by the simplified notification
procedure due to the absence of competitive overlaps (see Simplified procedure for certain concentrations).
The definition of control is very broad. It is sufficient that one party acquires the possibility of exercising decisive influence over
another company (Article 3(2), Merger Regulation). Decisive influence may arise by the ownership of all or part of the company's
assets, or of rights which confer decisive influence on the decision-making process of the company (for example, by means of voting
rights attached to shares, or contractual rights).
Control can be exercised on a de facto or a legal (de jure) basis, regardless of the size of the shareholding concerned. For example, a
shareholding of 34% (which was to be increased to 42% by a capital reduction of the share capital) has been held to confer decisive
influence (Case IV/M.1046 Ameritech/Tele Danmark).
There are various factors which may be relevant in deciding whether de facto control exists. There may be de facto control where, for
example:
• A shareholder is highly likely to achieve a majority at shareholders' meetings, for example because the remaining shares are widely
dispersed; or
• Minority shareholders have strong common interests which means that they would not, in practice, act against each other (this would
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give rise to joint, as opposed to sole, control (see further below)).
In Ryanair/Aer Lingus (Case COMP/M.4439), Ryanair had acquired a 19.21% stake in Aer Lingus prior to notifying the Commission of
its takeover bid for the company. It subsequently increased its stake to 29.4%. The Commission ultimately prohibited the acquisition, but
did not require Ryanair to divest the shares that it had already acquired. The Commission took the view that the stake already acquired
did not amount to an acquisition of control by Ryanair over Aer Lingus.
Aer Lingus challenged this decision to the General Court, claiming that the acquisition of the stake amounted to implementation of a
concentration that had been found incompatible (Case T-411/07R Aer Lingus Group plc v Commission). On 6 July 2010, the General
Court dismissed Aer Lingus' appeal. It held that the Commission had been correct to find that Ryanair had not acquired control over Aer
Lingus, neither in the form of de jure nor de facto decisive influence. It noted, in particular, that there was evidence that Ryanair had not
been able to impose its will on Aer Lingus (despite Ryanair's opposition, Aer Lingus' board was able to take two important strategic
decisions). Further, the two airlines had continued to compete since the acquisition of Ryanair's shareholding.
The acquisition this minority stake is, however, currently under review by the UK Competition Commission. In addition, Ryanair
launched a further takeover bid for the whole of Aer Lingus, which, after another Phase II investigation, the Commission again
prohibited on 27 February 2013 (Case COMP/M.6663).
Generally, the grant of an option to purchase or convert shares will not of itself confer control, but it may do so if, at the time when the
Commission carries out its appraisal of the concentration, it is shown that the beneficiary of the option has formed an intention to
exercise the option (see Case T-2/93 - Air France [1994] ECR 323). Even if the existence of such an intention cannot be established,
the fact that there is a strong likelihood of the option being exercised can be a factor which, in combination with other factors, may lead
to the conclusion that control has been conferred (paragraph 60, Consolidated Jurisdictional Notice).
In Cementbouw Handel & Industrie BV v Commission, the General Court considered the circumstances in which control can be
acquired by way of a series of transactions (Case T-282/02 [2006] ECR II-319). It found that the definition of a concentration within
Article 3(1) of the Merger Regulation implies that there is no difference whether direct or indirect acquisition of control is acquired in one,
two or more stages by means of more than one transaction, provided that the end result constitutes a single concentration. The ECJ
upheld this judgment in December 2007 (Case C-202/06 - Cementbouw Handel & Industrie BV v Commission, judgment of 18
December 2007).
It is for the Commission to ascertain on a case-by-case basis whether the transactions are unitary in nature, such that they constitute a
single concentration. In doing this, the Commission must ascertain whether those transactions are interdependent such that one
transaction would not have been carried out without the other. This reflects the economic reality underlying the transactions and the
economic aim pursued by the parties. A concentration will therefore arise even where there are number of distinct legal transactions
which are sufficiently interdependent on each other, where the result confers on one or more undertakings direct or indirect economic
control over the activities of one or more other undertakings.
Proposals for reform: extension to non-controlling shareholdings
The Commission is proposing to extend the scope of the Merger Regulation could be extended so that acquisitions of significant
minority stakes falling short of the acquisition of "control" could be subject to the Commission's scrutiny. In contrast to the current
position under the Merger Regulation, other regulators such as the US Department of Justice and even a number of European NCAs
(for example those in the UK, Germany, Austria) do have the competence to review such acquisitions.
In June 2013, the Commission published a staff working paper to seek views on this issue (see Legal update, Commission consultation
on measures to improve the effectiveness of EU merger control (www.practicallaw.com/9-532-3774)). In July 2014, it published a White
Paper in which it seeks views on more developed proposals (see Commission White Paper on making EU merger control more
effective (www.practicallaw.com/8-573-9189)).
The Commission is of the view that acquisitions of non-controlling minority shareholdings (also referred to as structural links by the
Commission) may in some cases lead to anti-competitive effects:
• By reducing competitive pressure between competitors (horizontal unilateral effects).
• By substantially facilitating coordination among competitors (horizontal coordinated effects).
• In the case of vertical structural links by allowing companies to hamper competitors' access to inputs or customers (vertical effects).
As demonstrated by the Rynair/ Aer Lingus case (above), the Commission does not consider that it currently has the tools to
systematically prevent anti-competitive effects deriving from structural links falling short of control. However, the Commission
recognises that the number of cases creating problematic structural links is limited, and so it may be doubted whether it is necessary to
apply all the procedural rules of the Merger Regulation to structural links, in particular, the mandatory ex ante notification system, or
whether procedural rules can be devised so that the Commission is able to select the problematic cases only.
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The Commission is, therefore, consulting on whether to extend the scope of application of the Merger Regulation so as to give the
Commission the possibility to investigate and, if necessary, intervene against anti-competitive structural links.
In June 2013, the Commission consulted on the following options:
• To extend the current system of ex ante merger control to structural links. All relevant structural links would, therefore, have to
be notified to the Commission in advance and could not be implemented before the Commission has cleared them. The Commission
would decide in each case whether or not the transaction could be authorised (notification system).
• The Commission would have discretion to select cases of structural links to investigate. This could be achieved either by:
• a self-assessment system, where the obligation to notify a transaction to the Commission in advance would not apply to structural
links, but instead the parties would be allowed to proceed with the transaction but the Commission would have the option whether
and when to open an investigation. The Commission would have discretion to investigate such structural links, but would have to
rely on own market intelligence or complaints to become aware of structural links that may raise competition issues (self-
assessment system); or
• in order to ensure that transactions do not take place unnoticed, it would be possible to impose on the parties of a prima facie
problematic structural link an obligation to file a short information notice (containing, for example, information on the parties, the
type of transaction and possibly limited information on the economic sectors or markets concerned) to the Commission. This
notice would be published on the Commission's website and/or in the Official Journal in order to make third parties and member
states aware of the transaction (transparency system).
Under both under the self-assessment system and the transparency system, it would also have to be decided if the parties to a
transaction should have the possibility to make a voluntary notification.
Following consideration of responses to the June 2013 consultation, in the July 2014 White Paper, the Commission has concluded that
a "targeted" transparency approach would be most appropriate. The Commission states that a system for controlling acquisitions of non
-controlling minority shareholdings should reflect the following principles:
• It should capture the potentially anti-competitive acquisitions of non-controlling minority shareholdings.
• It should avoid any unnecessary and disproportionate administrative burden on companies, the Commission and national
competition authorities (NCAs).
• It should fit with the merger control regimes currently in place at both the EU and national level.
The Commission considers that a targeted transparency approach would meet these principles. Such a system would allow potentially
problematic transactions to be targeted at the outset, so that they can be controlled by the Commission, even without the need for a full
notification system.
The Commission is proposing that those transactions to be targeted would be those that create a "competitively significant link". This
would arise where there is a prima facie competitive relationship between the acquirer's and the target's activities, either because they
are active in the same markets or sectors or they are active in vertically related markets.
In principle, the system would only be triggered when the minority shareholdings and the rights attached to it enable the acquirer to
influence materially the commercial policy of the target and therefore its behaviour in the marketplace or grant it access to commercially
sensitive information. However, above a certain level the shareholding itself might result in a change in acquirer's financial incentives in
a way that the acquirer would adjust its own behaviour in the market place, irrespective of whether it gains material influence over the
target.
The Commission is proposing the following definition of a "competitively significant link":
• Acquisitions of a minority shareholding in a competitor or vertically related company (there needs to be a competitive relationship
between acquirer and target); and
• The competitive link would be considered significant if the acquired shareholding is:
• around 20%; or
• between 5% and around 20%, but accompanied by additional factors such as rights which give the acquirer a "de-facto" blocking
minority, a seat on the board of directors, or access to commercially sensitive information of the target.
(in determining these thresholds, the Commission has taken into account levels of voting rights that typically enable the
shareholders to block special resolution and the levels of shareholdings that shift financial incentives).
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The Commission is proposing the following procedure and application of this new competence:
• An undertaking would be required to submit an information notice to the Commission if it proposes to acquire a minority shareholding
that qualifies as a "competitively significant link".
• The information notice would contain information relating to the parties, their turnover, a description of the transaction, the level of
shareholding before and after the transaction, any rights attached to the minority shareholding and some limited market share
information.
• The Commission will decide whether further investigation of the transaction is warranted and member states would consider whether
to request a referral on the basis of this information notice. The Commission notes that it could also consider proposing a waiting
period (for example 15 working days) once an information notice has been submitted, during which the parties would not be able to
close the transaction and during which the member states have to decide whether to request a referral.
• The parties would only be required to submit a full notification if the Commission decided to initiate an investigation and the
Commission would only issue a decision if it had initiated an investigation.
• To provide parties with legal certainty, they should also be able to voluntarily submit a full notification.
• The Commission would be free to investigate a transaction, whether or not it has already been implemented, within a limited period
of time (possible four to six months) following the information notice. This would allow the business community to come forward with
complaints. It would also reduce the risk of the Commission initiating an investigation on a precautionary basis during the initial
waiting period.
• If the Commission initiates an investigation of a transaction which was already (fully or partially) implemented, it should have the
power to issue interim measures (such as a hold separate order) in order to ensure the effectiveness of its ultimate decision under
Articles 6 and 8 of the EU Merger Regulation.
• Any agreements entered into between the acquirer of the minority shareholding and the target remain subject to assessment under
Articles 101 and 102 of the TFEU unless they constitute "ancillary restraints". As for acquisitions of control, such agreements would
be taken into account during the substantive assessment of a transaction under the merger control rules.
• In relation to "staggered acquisitions", the Commission is proposing to require submission of an information notice only the first time
a competitively significant link is established. Subsequent increases would not trigger a new information notices unless they result in
acquisitions of control, which would trigger notifications under the existing rules.
• The existing SIEC substantive test would be applied to the assessment of acquisitions of minority shareholdings that the
Commission investigates. J
• Joint ventures which are not jointly controlled but rather have several shareholders with minority stakes who make decisions through
changing majorities would also fall under the new competence as long as the joint venture is full-function in nature. Acquisitions of
minority shareholdings by several companies in a joint venture would constitute a single transaction if the share purchase
agreements are conditional upon each other or if they are concluded at the same time. Where a joint venture is newly established
and two of the shareholders acquire joint control (triggering a notification) while a third shareholder acquires a minority stake without
control (triggering only an information notice), the third shareholder should also join the notification if the operation constitutes a
single transaction.
These proposals could be implemented by:
• Defining in the Merger Regulation the Commission's competence to cover only acquisitions of minority shareholdings which create a
"competitively significant link". The criteria of a "competitively significant link" would either be set forth in the articles of the Merger
Regulation, the recitals, and/or a guidance document.
• Stating in the Merger Regulation that the Commission is competent for acquisitions of minority shareholdings above 5% if further
criteria, to be specified by the Commission in an implementing regulation, are fulfilled. This would give the Commission the ability to
fine-tune the criteria, in consultation with the member states, after gaining some experiences and without requiring a full amendment
of the Merger Regulation.
• It would be necessary to amend Article 3(5) of the Merger Regulation (which allows financial institutions to acquire a controlling
shareholding in other companies under certain circumstances without having to notify the transaction) to specify that restructuring
transactions, carried out by financial institutions in the normal course of business and for a limited period of time, would not create
competitively significant links.
The consultation on the White Paper proposals is open until 3 October 2014.
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Sole control and joint control
Sole control exists where a single shareholder is able to exercise decisive influence over a company, whereas joint control arises where
two or more shareholders together are able to exercise decisive influence.
An acquisition of sole control will mean that only one party will be able to exercise decisive influence over the target, post-transaction,
while an acquisition of joint control means that two or more parties will each be able to exercise decisive influence over the joint
venture resulting from the transaction.
A concentration will also arise if there is a change:
• From sole control to joint control;
• In the structure of joint control (such as an increase in the number of shareholders exercising joint control); or
• From joint control to sole control (including where this is a return to an earlier situation (Case IV/M.909 - Worms/Saint Louis).
The special considerations that apply to concentrations arising from the creation of joint control, or from changes in the structure of joint
control, are discussed in Practice note, EU Joint ventures (www.practicallaw.com/A14479).
Simplified procedure for certain concentrations
A simplified procedure was introduced by the Commission in September 2000 for the handling of routine concentrations which do not
involve significant competition concerns. The 2004 Implementing Regulation introduced a new Short Form CO for concentrations which
meet the criteria for the application of the simplified procedure (see Commission's review procedure ). In 2005, the Commission
specified these criteria in its Notice on Simplified Procedure.
In December 2013, the Commission adopted a new Notice on Simplified Procedure and a new Short Form CO was adopted, both of
which have effect from 1 January 2014 (see Legal update, Commission adopts package of measures to simplify procedures under EU
Merger Regulation (www.practicallaw.com/0-551-0925)). The new Notice widens the scope of the simplified merger procedure. The
Commission anticipates that 60-70% of all cases that fall within the EU Merger Regulation will, in future, fall within the simplified
procedure (an increase in about 10%). This is intended to reduce the burden on businesses, and also reduce legal fees associated with
merger notification
The simplified procedure covers:
• Mergers and acquisitions where none of the parties to the concentration are engaged in business activities in the same product and
geographic market, or in a product market which is upstream or downstream from a product market in which any other party to the
concentration is engaged.
• Mergers and acquisitions where there are no markets on which either:
• two or more of the parties have a combined market share of 20% or more (horizontal relationships), or
• where any party has a share of 30% or more on a market which is upstream or downstream of a market on which the other party
is active (vertical relationships).
These thresholds have been increased from respectively 15% and 25% with effect from 1 January 2014.
• Joint ventures with no, or de minimis, actual or foreseen activities within the European Economic Area (EEA). A turnover and asset
transfer test of less than EUR100 million is used to determine this.
• The acquisition of sole control by a party who already has joint control.
• Mergers or acquisitions where both:
• the combined market share of all the parties to the concentration that are in a horizontal relationship is less than 50%; and
• the increment (delta) of the Herfindahl-Hirschman Index (HHI) resulting from the concentration is below 150.
This condition was introduced by the December 2013 revisions to the Notice on Simplified Procedure. The Commission will decide
on a case-by-case basis whether, under the particular circumstances of the case at hand, the increase in market concentration level
indicated by the HHI delta is such that the case should be examined under the normal first phase merger procedure.
However, the Commission may revert to a normal first phase merger procedure and launch an investigation if certain safeguards and
exclusions apply, which are set out in the Notice on Simplified Procedure (see Commission's review procedure).
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In terms of timing, the Notice states that the Commission "will endeavour" to adopt a short-form decision between 15 and 25 working
days after notification. By way of example, the Commission cleared an acquisition of joint control of the assets and business of a
residential property complex in Moscow by Deutsche Bank AG and American International Group after 16 working days (Case
COMP/M.4391 - Deutsche Bank/AIG/Pokrovsky Hills).
The Commission can be particularly demanding when assessing the completeness of EU merger notifications, including those under
the simplified procedure, notwithstanding the absence of any real horizontal, vertical or conglomerate overlaps.
Exclusions
The Merger Regulation excludes the following categories of transactions from its application (Article 3(5), Merger Regulation):
• Certain acquisitions of securities by banks and other financial institutions on a temporary basis (less than one year);
• Certain acquisitions of assets by a liquidator or other office-holder in the context of insolvency proceedings;
• Certain acquisitions by financial holding companies (that is, companies which hold shares for investment purposes only); and
• Intra-group restructurings (as there is no change of control between two separate undertakings, as defined in the Merger
Regulation).
The first of the above exclusions was considered by the General Court in an appeal against the Commission's conditional approval, in
January 2004, of theLagardère/Natexis/ VUP merger (Case COMP/M.2978) by a third party Éditions Odile Jacob SAS (EOJ). The target
VUP assets were held through the intermediary of Natexis Banque Populaire (NBP), from December 2002. This transaction structure
(sometimes referred to as a "warehousing" or "parking" structure) was used to allow the seller (Vivendi Universal) to complete the sale
of the VUP assets quickly, and without bearing any of the risk that the Commission might subsequently prohibit the transaction. The
Commission considered that warehousing by NBP fell within the exception in Article 3(5)(a) of the Merger Regulation. However, EOJ
argued that the acquisition by NBP could not be covered by the exception because NBP acquired VUP only after giving a commitment
to resell that undertaking to Lagardère. EOJ argued that the acquisition of the assets by NBP was itself a concentration because it
permitted Lagardère control over those assets.
In September 2010, the General Court dismissed EOJ's appeal. The General Court found that the holding of the target VUP assets,
through the intermediary of NBP, from December 2002 (and prior to the Commission's decision), did not give Lagardère the possibility
of exercising decisive influence (either jointly or solely) over VUP and did not give rise to a separate concentration. The terms of the
contract regulating the holding of the target assets made this clear. Further, EOJ had failed to show that the board members of the
relevant NBP investment company did not possess the necessary independence of action. It was only a temporary holding that fell
within the financial institutions exception (T-279/04 Éditions Jacob SA v Commission; see PLC Legal update, General Court upholds
conditional approval of Lagardere/VUP merger but annuls approval of purchaser of divestment assets (www.practicallaw.com/4-503-
3201)).
EOJ appealed the General Court's judgment to the ECJ. In March 2012, the Advocate General recommended that the ECJ dismiss
EOJ's appeal (see Legal update, Advocate General recommends that ECJ dismiss Editions Odile Jacob
appeal (www.practicallaw.com/2-518-3338)). In November 2012, the ECJ did dismiss the appeal, upholding the General Court's
analysis (see Legal update, ECJ dismisses appeals against General Court judgments on Lagardere/VUP
merger (www.practicallaw.com/6-522-2757)).
However, the General Court's judgment does not mean that warehousing arrangements can safely be considered to be legal, as the
Commission's Consolidated Jurisdictional Notice (issued after its clearance decision in Lagardère/Natexis/VUP) adopted a revised
approach to the legality of warehousing arrangements, stating that the Commission would no longer accept that the article 3(5)(a)
exception applies if the acquisition by a financial institution is part of a wider transaction in which the ultimate acquirer of control would
not fall within the scope of the exception, an approach which was not explicitly addressed by the General Court's judgment.
One-stop shop principle
The principle underlying the Merger Regulation is to provide a "one-stop shop" for determining the competition-related issues arising
from transactions falling within the scope of the Regulation. In general, companies need only obtain clearance from one level of
authority, either at EU or national level, as the respective jurisdictions of the Commission under the Merger Regulation and the national
competition authorities are mutually exclusive.
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In practice, this means that once a transaction is caught by the Merger Regulation, no notifications will be required in any country within
the EEA. The Agreement on the European Economic Area (which entered into force on 1 January 1994) between the EU and Iceland,
Liechtenstein and Norway has created a category of merger: "EFTA mergers" (see Practice note, Merger control and the EFTA states -
jurisdictional issues and interaction with the EC Merger Regulation (www.practicallaw.com/3-380-2005)). These are subject to
compulsory notification to the Commission, or to the EFTA Surveillance Authority (ESA), depending on the turnover of the parties:
• If the parties' turnover meets the Merger Regulation thresholds (including the EU wide turnover thresholds), the EU Commission will
have jurisdiction to consider the competitive effects of the transaction throughout the EEA) and no national authorities of EU or the
EFTA countries which are currently members of the EEA (Iceland, Liechtenstein and Norway) will be permitted to apply national
merger control rules.
• If the parties' turnover does not meet the EU wide thresholds of the Merger Regulation, but does meet similar thresholds for turnover
in the EFTA states, the ESA will have jurisdiction. In this case, national authorities of EU member states will be permitted to apply
national merger control rules to the transaction. So, for example, the ESA will have jurisdiction if there is no EU dimension and the
undertakings concerned have combined worldwide turnover of more than EUR 5 billion, combined EFTA-wide turnover (in Iceland,
Liechtenstein and Norway) of more than EUR 250 million and do not generate more than two-thirds of their EFTA wide turnover in
one and the same EFTA State (or if the second limb of the EUMR thresholds – which is similarly adapted – is satisfied).
Currently, all EEA countries except Luxembourg (an EU member state), and Liechtenstein (an EFTA member state) have national
merger control regimes (see further International merger notification (www.practicallaw.com/A14483)).
On 18 June 2009, the Commission published its report to the Council of Ministers on the effectiveness of the operation of the
jurisdictional thresholds and the procedures for the referral of cases to and from the Commission.
The Commission reached the overall conclusion that the jurisdictional and referral mechanisms (see below) have provided the
appropriate legal framework for a flexible allocation and reallocation of cases. In most cases, the current framework is effective in
distinguishing between mergers which have an EU relevance and those which are primarily national. However, the Commission
identified certain issues:
• There are still a significant number of transactions that need to be notified in more than one member states: there were at least 100
transactions which were notified in three or more member states in 2007, requiring more than 360 parallel investigations by the
national authorities (about 240 cases were reviewable in two or more member states). The majority of these cases involved markets
which were wider than national or where there were several national or narrower markets. These transactions therefore had
significant cross-border effects, and yet fell outside the Merger Regulation thresholds. About 6% of the cases notified in at least
three member states gave rise to competition concerns. The negative impact of parallel proceedings and the potential for
contradictory outcomes are particularly significant in cases raising substantive competition concerns. The Commission considered
that this evidence indicated that there was further scope for "one stop" review of such transactions by the Commission. There
seemed to be a number of additional concentrations that could (with regard to the "more appropriate authority" principle)
appropriately have been reviewed by the Commission.
• The pre-notification referral mechanisms (Articles 4(4) and Article 4(5) of the Merger Regulation, see below) have substantially
improved the allocation of cases between the Commission and member states. The evidence available shows that the mechanisms
have enabled the appropriate authority to handle cases. They have also prevented unnecessary parallel proceedings and
inconsistent enforcement. However, respondents to the consultation identified some, mainly procedural, problems relating to the
timing of the referral process and its burdensome nature. The Commission received evidence that parties have decided not to
request referral due to such concerns. The Commission considered that there appears to be scope for more referrals to member
states under Article 4(4). Further, there seems to be further scope for using the Article 4(5) referral mechanism to increase the
benefits of the "one-stop shop". In particular, given the limited use of the member states' refusal powers under Article 4(5), it was
suggested that consideration should be given to the possibility of moving to a system of automatic referral where the three member
state criterion is met (as was initially proposed in the consultations prior to the adoption of the Merger Regulation). It was argued that
this could increase transparency and reduce costs.
• The post-notification referral mechanisms under Article 9 and 22 of the Merger Regulation have continued to be useful corrective
instruments, even after the introduction of the pre-notification mechanisms. They serve a different function (allowing flexibility at the
request of the Commission or member states, rather than the parties). However, business respondents to the consultation
expressed similar concerns about the timing and cumbersome nature of these procedures, as for pre-notification referrals.
The report did not propose any measures to address the issues identified. However, the Commission noted that it may decide to
present proposals to revise the notification thresholds or the referral mechanisms, with particular regard to the reactions of the Council
of Ministers to the report.
In June 2013, the Commission published a consultation on various measures to improve the effectiveness of the EU Merger Regulation,
including possible reforms to system for pre and post notification referrals from member states to the Commission. This was followed by
a White Paper in July 2014 (see below).
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Exceptions
There are limited exceptions to the Commission's exclusive jurisdiction. Since the Merger Regulation was first introduced there has
been an ongoing debate about the scope of the Commission's jurisdiction and the need to ensure that, while maintaining the
administrative certainty and benefits of a one-stop shop, cases are dealt with by the most appropriate authority. Further, member states
wished to maintain some rights to scrutinise cases that raise issues of particular national importance.
In the revision of the Merger Regulation in 2004, the Commission decided that rather than amending the jurisdictional thresholds, the
appropriate way to deal with concerns about the handling of multi-jurisdictional cases (which fell below the Merger Regulation
thresholds) or cases involving national markets (which were caught by the Merger Regulation thresholds) was to reform the procedures
for the referral of cases between the Commission and member state competition authorities (see Referral back to member states and
Referral by member states).
The Commission adopted a Notice on the principles for the referral of cases (the Notice on Case Referral) (OJ 2005 C56/2). The Notice
describes the rationale underlying the referral system, sets out the legal criteria that must be fulfilled in order for referrals to be possible,
explains the factors that the Commission will take into account in deciding whether to make or accept a referral (generally, which is the
more appropriate authority for dealing with the case) and provides guidance on the procedures for referral.
Legitimate interests
The Commission retains sole jurisdiction to investigate concentrations that have a EU dimension on competition grounds, but a member
state may carry out a parallel investigation if its "legitimate interests" are affected (Article 21(4), Merger Regulation).
The Merger Regulation sets out the following examples:
• Public security.
• Plurality of the media (the need to maintain diversified sources of information).
• Prudential rules (national prudential or supervisory rules, relating in particular to providers of financial services such as banks and
insurance companies).
This list is, however, non-exhaustive and other interests, such as the regulation of utilities, may be recognised by the Commission if
member states communicate those interests in accordance with Article 21(4). For example, in Lyonnaise des Eaux/Northumbrian Water
(Case IV/M.567), the Commission recognised the legitimate interest of the UK in applying, under certain conditions, the relevant
provisions of the UK Water Industry Act in parallel with the Commission's merger investigation (see also Lagardère/Aerospatiale (Case
IV/M.820), which concerned essential security interests).
Legitimate interests which are not expressly set out in the Merger Regulation need only be cleared by the Commission if they directly
relate to the transaction in question. In Electricité de France/London Electricity (Case IV/M.1346), which concerned the acquisition of
London Electricity by the state-owned electricity group Electricité de France, the UK authorities had submitted a request to the
Commission for certain public interest matters to be recognised as legitimate interests. In particular, the UK authorities were of the view
that the Director General of Electricity Supply should continue to be allowed to take certain measures designed to ensure regulatory
transparency in the electricity sector and to protect consumers and other small customers. The Commission, however, concluded that
these measures were taken pursuant to an existing system of ongoing regulation of the electricity sector and were not aimed at the
concentration itself. It was not, therefore, necessary for the Commission to recognise a legitimate interest before the UK authorities
could take the measures concerned.
In a number of cases, the Commission has issued decisions preventing a member state from blocking a concentration falling within the
Commission's exclusive jurisdiction. In the first case, BSCH/A.Champalimaud (Case IV/M.1616) the Commission refused to recognise
that Portugal had a legitimate interest in freezing Champalimaud's shares on the basis that Portuguese regulators had been given
insufficient notice of the deal and that the transaction failed to comply with financial rules. The Commission subsequently cleared the
concentration in August 1999, and overruled the Portuguese measures on the grounds that they contravened EU competition law.
In another case, also involving Portugal, the Commission found that national actions to block a merger were not justified as measures to
protect a legitimate interest under Article 21 of the Merger Regulation (COMP/M.2054 -Secil/Holderbank/Cimpor). This case involved
proposed bids for the Portuguese cement company Cimpor, in which the Portuguese state held special shares.
Portugal appealed the Commission's decision to the ECJ but the ECJ dismissed Portugal's arguments and supported the "one-stop
shop" principle confirming that the legislative intent of the Merger Regulation was to ensure a clear division of powers between the
supervisory authorities of the member states and those of the Commission (Case C-42/01 Portugal v Commission, judgment of 22 June
2004).
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In March 2006, the Commission announced that it had begun a procedure against Poland claiming infringement of Article 21 of the
Merger Regulation. The Commission considered that Poland had breached the Commission's exclusive jurisdiction to review mergers
with an EU dimension by requiring the bank Unicredit to divest shares in a bank, the acquisition of which had already been approved by
the Commission (Case COMP/M.3894 - Unicredito/HVB ).
The Polish Treasury instructed UniCredit to sell its shares in the acquired bank on the basis that an earlier privatisation contained a
"non-competition" clause which prevented UniCredit, for a period of 10 years, from opening subsidiaries and/or branches in Poland,
acquiring control of banks active in Poland or making any capital investment in any company active in the Polish banking sector. The
Commission announced that it considered that the Polish government's decision to invoke, and its expressed intent to enforce, the "non
competition" clause constituted a measure of the Polish state. This measure could de facto prevent, or seriously prejudice the
UniCredit/HVB concentration and had the aim of unduly protecting competition. In addition, the Commission noted that Poland had not
communicated any hypothetical legitimate interests (under Article 21(4)) to it (Commission press release IP/06/277).
In addition, in September 2006, the Commission took a decision under Article 21 against Spain in relation to conditions imposed by the
Spanish energy regulator on the proposed merger of the German energy company, E.On, with Spanish electricity company, Endesa.
The Commission had approved this merger unconditionally under Article 6(1)(b) of the EU Merger Regulation (Case COMP/M.4110 -
E.ON/Endesa ). The Commission concluded that Spain had violated Article 21 on the basis that the Spanish regulator adopted its
decision to impose conditions on the merger without prior communication of the measures to the Commission and without the
Commission's approval, as required under Article 21(4). In addition, the conditions imposed by the regulator were considered to be
contrary to the right of establishment and the freedom to provide services under Articles 43 and 56 of the EC Treaty (now Article 49 and
Article 56 of the Treaty on the Functioning of the European Union (TFEU)). By virtue of this decision, Spain was required to withdraw
the unlawful conditions imposed on the acquisition (Commission press releases IP/06/1265).
Further, in December 2006, the Commission reached a second decision concluding that Spain had breached Article 21 of the Merger
Regulation by virtue of modified conditions imposed on E.ON's bid for Endesa by the Spanish Minister of Industry, Tourism and Trade
(Commission press release IP/06/1853). In March 2007, the Commission referred Spain to the ECJ for failing to withdraw the conditions
that had been imposed by the Spanish energy regulator and by a Ministerial decision on E.On's bid for Endesa (Commission press
release IP/07/427). In March 2008, the General Court ruled that Spain had failed to fulfil its EU law obligations by not withdrawing the
conditions as required by the Commission's Article 21 infringement decisions (Case C-196/07 Commission v Spain, judgment of 6
March 2008).
In December 2007, the Commission announced that Spain had also breached Article 21 by virtue of conditions imposed by the Spanish
energy regulator on Enel and Acciona in relation to their acquisition of Endesa (which had received unconditional clearance from the
Commission under Article 6(1)(b) of the Merger Regulation) (see Legal update, Commission finds that Spain has breached Article 21 of
Merger Regulation in relation to Enel/Acciona/Endesa merger (www.practicallaw.com/4-379-7065)). Spain lodged an appeal against this
decision with the General Court. In April 2008, the General Court rejected an application by Spain for interim measures to suspend the
Commission's decision (requiring the withdrawal of the offending conditions) until the General Court's judgment (see Case T-65/08 -
Spain v Commission, order of the General Court President, 30 April 2008). Spain subsequently withdrew its appeal.
Appeals were also lodged with the General Court against a decision of the Commission to close Article 21 proceedings brought against
Italy. The Italian authorities had initially refused the company Autostrade permission to merge with Abertis under an Italian law relating
to motorway concessions (despite the merger having been approved by the Commission under the Merger Regulation). However,
following Commission action under Article 21, Italy withdrew the offending measures and issued new rules to clarify the regulatory
framework for the authorisation of the transfer of motorway concessions. The applicants (including one of the parties to the original
proposed merger) claimed, however, that the Commission erred in its application of Article 21 by ending its infringement action (Case T-
58/09 - Schemaventotto SpA v Commission and Case T-200/09 - Abertis Infraestructuras v Commission).
In June 2010, the General Court ruled that the appeal by Abertis was inadmissible as it had been brought out of time. In September
2010, the General Court also ruled that Schemaventotto's appeal was inadmissible. The General Court concluded that the
Commission's decision not to pursue the Article 21 proceedings was not an appealable decision. The decision was not a decision either
on the compatibility of certain Italian measures with EU law or a decision on the recognition of legitimate public interest measures under
Article 21(4) of the EU Merger Regulation. As the Abertis/Autostrade merger had been terminated, the Commission did not have the
power to take such a decision under Article 21(4). Therefore, the decision could not have a binding legal effect or affect the interests of
Schemaventotto (see Legal update, General Court rules that appeal by Schemaventotto against Commission decision to close Article
21 proceedings is inadmissible (www.practicallaw.com/2-503-3320)).
The UK exercised this right in 2010 in News Corp's public bid to obtain complete ownership of BSkyB. The Commission had exclusive
jurisdiction to examine the competition aspects of the deal; however, the transaction also raised questions over the future diversity of
media ownership in the UK. In December 2010, the Commission issued its clearance decision, concluding that the proposed acquisition
would not significantly impede competition in the EU (Case NCOMP/M.5932 – News Corp/ BSkyB). However, News Corp had to await
the UK's determination on media plurality before the takeover could be advanced.
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The UK Office of Fair Trading (OFT) and communications regulator, Ofcom advised the UK Secretary of State that the proposed
transaction may operate against the public interest in media plurality. The Secretary of State therefore announced that he intended to
refer the merger to the Competition Commission for an in-depth investigation, but before doing so, he would consider whether
undertakings in lieu of a reference would prevent or otherwise mitigate the merger from having effects adverse to the public interest.
News Corp subsequently offered undertakings. However, this coincided with a scandal over phone hacking at News of the World
newspaper which led to News Corp's decision to close the newspaper, cast some doubt on previous advice given to the Secretary of
State on media plurality, and ultimately led News Corp to withdrew its bid for BSkyB.
National security
Member states have also invoked Article 346 of the TFEU (formerly Article 296 of the EC Treaty) in order to protect their essential
security interests, which provides that:
• No member state is obliged to supply information the disclosure of which it considers contrary to the essential interests of its security
(Article 346(1)(a)).
• A member state may take such measures as it considers necessary for the protection of the essential interests of its security which
are connected with the production of or trade in arms or other products intended for military purposes. This does not, however, apply
to the non-military aspects of a concentration, which would still need to be notified under the Merger Regulation (Article 346(1)(b)).
Referral back to member states
Pre-notification referral
It is possible for the parties to establish prior to making a formal notification whether a merger, which has an EU dimension, should
more appropriately be considered by a member state competition authority.
Under Article 4(4) of the Merger Regulation, where a transaction falls within the jurisdiction of the Commission under the Merger
Regulation (but has not yet been notified on Form CO), the parties may inform the Commission that the concentration may significantly
affect competition in a market within a member state that presents all the characteristics of a distinct market and that it should,
therefore, be examined, in whole or in part, by that member state.
The parties must make a reasoned submission to the Commission (using Form RS) providing information about the parties and the
transaction and markets affected by the transaction. The reasoned submission must also provide a detailed explanation of why the
parties believe that the concentration would be eligible for a referral to a member state.
The Commission must forward the reasoned submission to all member states without delay (it typically does so the working day after
the date in which the submission is filed). The member state referred to in the submission must let the Commission know whether it
agrees or disagrees with the referral request within 15 working days of receiving the submission (member states typically receive the
submission on the same day as it is sent by the Commission, or the day after). If it does not do so then it will be deemed to have agreed
to the referral.
If a relevant member state disagrees with a referral request then the Commission may not refer the case to it. However, where no
disagreement is expressed the Commission has discretion to decide whether to make a referral, of whole or part of the case, to the
relevant member state. The Commission must take this decision within 25 working days of receiving the reasoned submission, if it does
not do so then it will be deemed to have made the referral requested in the reasoned submission.
Where the whole of a case is referred then the parties do not need to submit a Form CO notification to the Commission and national
competition law will apply to the concentration.
Recent examples of where the Commission has referred a transaction to be reviewed in its entirety by a national authority include: Case
COMP/M.6359 – Saint Gobain/Build Center; Case COMP/M.6143 - Princes/Premier Foods Canned Grocery Operations and Case
COMP/M.6294 - Shell/Rontec Investments, which were all fully referred to the UK. The Commission may also refer a transaction only in
part to a member state, see Case COMP/M.6146– XELLA/ H+H where German aspects of the deal were referred to Germany.
As at 30 June 2014, a total of 87 cases had been referred back in full to the member states (with four partial referrals) under the Article
4(4) procedure. To date, there have been no refusals to refer back.
Post-notification referral
The Commission may, at the request of one or more member states, refer a notified concentration with an EU dimension, in whole or in
part, to the relevant authority of the member state(s) concerned (Article 9, Merger Regulation). Any such request must be made within
15 working days of the member state receiving a copy of the notification from the Commission. The request for referral may be made on
the member state's own initiative or the Commission may invite member states to request a referral.
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The Commission has a discretion as to whether to make such a referral when the concentration threatens to affect significantly
competition in a distinct market within that member state (the previous test was whether it threatens to create or strengthen a dominant
position as a result of which competition would be significantly impeded (see Commission's assessment)), but it is obliged to make the
referral if the territory concerned does not form a substantial part of the internal market.
Examples of cases in which the Commission has referred concentrations back to member states under Article 9 are as follows:
• In Krauss-Maffei/Wegmann (Case IV/M.1153), the German authorities requested the referral back of a joint venture which raised
competition concerns in the market for armoured vehicles in Germany. The Commission found that the market was national, mainly
due to purchaser behaviour. As the Commission was unable to resolve the particular competition concerns, there were no significant
effects in other markets and no other factors that would make it appropriate for the Commission to retain the case, this part of the
case was referred to the German authorities.
• In Alliance Unichem/Unifarm (Case IV/M.1220), the Commission referred the entire case to the Italian authorities. The concentration
concerned pharmaceutical wholesaling in certain parts of Italy. The Commission found that the market was regional or local,
although further analysis was required to establish the precise geographical scope of the market, which the Italian authorities were
better placed to carry out.
• In Interbrew/Bass (Case IV/M.2044), the Commission referred the proposed acquisition by the Belgian company, Interbrew, of the
brewing and distribution assets owned by the British company, Bass, to the UK's Office of Fair Trading (OFT) for investigation. The
referral only related to those parts of the deal that affected the UK beer sector. The Commission considered that the UK was best-
placed to carry out the necessary further examination because it was already investigating Interbrew's acquisition of Whitbread Plc's
brewing interests and the UK authorities had concluded a number of recent investigations into the UK beer industry.
• In Total/PetroFina (Case IV/M.1464), which concerned the acquisition of the Belgian oil and petrochemical company PetroFina by
the French oil company Total, the Commission referred back to the French authorities the part of the concentration which affected
the petroleum storage infrastructure in the Languedoc-Roussillon region of south-west France, where the parties' petroleum storage
facilities was likely to raise serious competition concerns.
• In Lafarge/Redland (Case IV/M.1030), the Commission referred parts of a concentration to France and the UK. This was the first
occasion on which a concentration had been referred to two member states. Other recent examples of where a merger has been
referred back to more than one member state include: Case COMP/M.1684 - Carrefour/Promodès; Case COMP/M.5790 –
LIDL/PLUS ROMANIA/PLUS BULGARIA; Case COMP/M.5881- ProSiebenSat.1/RTL interactive/JV; and Case COMP/M.5557 -
SNCF-P/CDPQ/KEOLIS/EFFIA.
• In Arla Foods/Express Dairies (Case COMP/M.3130) the Commission referred parts of the merger to the UK authorities. It concluded
that there were potential competition concerns in relation to the markets for processed milk and the supply of clotted cream in
distinct UK markets. Further, it concluded that the market for the supply of bottled milk fell within distinct local markets that did not
constitute a substantial part of the internal market. However, it did not refer the market for the procurement of raw milk in the UK as it
did not find any potential competition concerns in this market.
• In MAG/ Ferriovial Aeropuertos/ Exeter Airport (Case COMP/M.3823) the Commission accepted a referral request by the UK
authorities. It concluded that the relevant product market was that for the provision of airport infrastructure service to airlines and that
the geographic market was at most national in scope and may be as narrow as the South West of England. It therefore concluded
that the market was a distinct one and that there was at least a risk of distortion of competition within it due to the parties' combined
ownership, post-merger, of both Exeter Airport and Bristol Airport . The case was referred for a second stage investigation by the UK
Competition Commission due to competition concerns, but the deal was subsequently abandoned.
• In Thomas Cook/ travel business of Co-operative Group/ travel business of Midlands Co-operative Society (Case COMP/M.5996)
the Commission accepted a referral request by the UK authorities. The Commission accepted that the proposed transaction would
threaten to affect significantly competition in a distinct market which is at most UK-wide (the market for holiday distribution, in
particular of package holidays, in the UK). The UK competition authorities were well placed to investigate the effect of the transaction
on the national market or parts of this market. As Co-operative Group Limited and Midlands Co-operative Society Limited are not
active in other member states, any possible competition problems would be confined to the UK.
In Case COMP/M.5650 - T-Mobile/ Orange, the UK authorities requested a partial referral of the proposed transaction in relation to the
parts of the case concerning the UK mobile communications markets. In the event, however, the parties offered commitments to the
Commission which addressed the concerns of the UK authorities, and the request was consequently withdrawn
The Commission rejected a request from the French authorities to refer the Lagardère/Natexis/VUP merger to it. The Commission
concluded that most of the markets in question (various publishing markets) related to all French speaking countries and areas in
Europe and not just to France. Accordingly, the transaction could not be seen to be taking place in a market "which presents all the
characteristics of a distinct market" as required by Article 9 of the Merger Regulation. The Commission also took into account the fact
that both Lagardère and the Belgian authorities expressed a preference for the case to the dealt with solely by the Commission.
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The Commission has also recently refused Article 9 referral requests in three cases in which it had opened Phase II investigations:
• In the Holcim/ Cemex West (COMP/M.7009) case the Commission rejected a referral request from Germany. Germany submitted
that the transaction threatened to affect significantly competition in the cement markets in Northern and Western Germany.
However, the Commission concluded that the relevant cement markets affected by the transaction were not national or narrower
than national in geographic scope. Rather, they included territories outside of Germany, such as parts of Belgium, the Netherlands
and the Northeast of France. The Commission took account of the existence of substantial cross-border trade of cement and the
results of its market investigation into the competitive dynamics of the cement sector.
• In Telefónica Germany/ E-Plus (COMP/M.7018) the Commission refused a referral request from Germany. Although the markets
concerned were national, the Commission considered that it was better placed to deal with the case because of its experience in
assessing mergers in the mobile telecommunications sector and the need for a consistent application of the merger control rules in
the EU.
• In Liberty Global / Ziggo (COMP/M.7000), again the Commission rejected the referral request, from the Netherlands, on the basis
that it was the better placed authority to examine the transaction. The Commission noted that it has extensive experience of
assessing mergers in the converging media and telecommunications sectors, including in national markets. Liberty Global is an
international media operator present in a majority of EEA countries, and a Commission investigation into the merger would better
ensure consistency in the application of the merger control rules in the EEA. In addition, the Commission considered that the merger
might have effects outside the Netherlands, such as in the linguistically homogenous Flemish part of Belgium.
The Commission's discretion to refer a case to a NCA has been confirmed by the General Court. Royal Philips Electronics NV
challenged the Commission's decision to refer part of the merger between electrical goods producers SEB and Moulinex (Case
COMP/M.2621) to the French authorities. The Court decided that the Commission had exercised its discretion reasonably in
determining that the merger threatened to create or strengthen a dominant position (the new entity would have an unrivalled range of
products in France) in a distinct market (France could be seen to be a separate market having regard to factors such as prices, national
trademarks and the distribution structure). The Court did, however, comment that the systematic referral to member states where there
was a distinct market could damage the principles of the one-stop shop but as this was inherent in the referral procedure in Article 9 it
was not its place to change the tests (Case T-119/02 Royal Philips Electronics v Commission [2003] ECR II-1433).
As at 30 June 2014, there had been a total of 104 requests for referral under Article 9. 41 had resulted in a full referral, 42 had resulted
in partial referral and nine requests had been refused.
Referral to the Commission
Pre-notification request
The parties to a transaction, which is a concentration for the purposes of the Merger Regulation but which does not have an EU
dimension, may seek to have the transaction considered by the Commission rather than making a number of individual notifications to
different member states (Article 4(5), Merger Regulation).
The parties may send the Commission a reasoned submission, using Form RS, informing it that the concentration is capable of being
reviewed under the national competition laws of at least three member states and should, therefore, be examined by the Commission.
Form RS requires the parties to provide information about the parties, the transaction and the markets concerned. The parties must also
provide sufficient turnover and other information to demonstrate which national EU merger control rules the transaction falls within.
The Commission must send the submission to all member states straight away. If at least one member state, that is competent to
review the merger, disagrees with the referral then the Commission cannot accept the reference. Where no disagreement is expressed
within the relevant period (15 working days), the case is deemed to be referred to the Commission. The parties must then notify the
transaction to the Commission using Form CO and the normal Commission procedures for reviewing concentrations will apply (see
Notification of a concentration and Commission's review procedure). In accordance with the one stop shop principle, no member state
may then apply their national merger control rules to a concentration that the Commission will review under this provision.
This procedure is designed to reduce the administrative burden on companies caused by the preparation of multiple notifications and
liaison with a number of different competition authorities. The referral process is triggered by purely jurisdictional factors and not any
assessment of the competition effects of the merger. However, member states can veto the process for any reason, although this will
usually be where they have a particular interest in reviewing the case due to the companies or markets involved. The Commission has
no power to reject a referral under this provision, unless it is not satisfied that the jurisdictional tests for three national merger control
rules are met.
The Article 4(5) referral procedure has been used on a number of occasions since the provision came into effect. For example, in
Reuters/Telerate (Case COMP/M.3692), the parties sought referral under Article 4(5) as, otherwise, the transaction would have been
subject to review in 12 member states. Other examples of cases successfully referred to the Commission under the Article 4(5) referral
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system include: Case COMP/M.6323 - Tech Data Europe/MuM VAD Business; Case COMP/M.6091 - GALENICA/FRESENIUS
MEDICAL CARE/VIFOR FRESENIUS MEDICAL CARE RENAL PHARMA JV; and Case COMP/M.6205 - Eli Lilly/Janssen
Pharmaceutica Animal Health Business Assets.
As at 30 June 2014, a total of 271 requests for referral had been made under the Article 4(5) procedure. Referral had been refused in
six cases and accepted in 259 cases.
Post-notification request
Originally devised to assist member states with less developed merger control laws, Article 22 has been used for joint referrals by a
number of member states acting together as a way of solving the problem of mergers which do not have an EU dimension but which
trigger merger filing requirements in multiple national jurisdictions. Such cases might be better and more efficiently dealt with by the
European Commission rather than being simultaneously reviewed by a number of national authorities. More recently, it has also come
to be perceived as a way to ensure scrutiny of mergers which are not even notifiable under national merger control laws, but which
nonetheless raise competition concerns in the eyes of the national authority.
Under revised Article 22, one or more member states may request the Commission to examine a concentration without an EU
dimension that affects trade between member states and threatens to affect significantly competition within the territory of the member
state(s) concerned. The request must be made no later than 15 working days from when the transaction was notified to the member
state under national merger control rules or, where no notification is required, otherwise made known to it. In past cases, transactions
have been "made known" to member states as a result of press releases (for example, Case COMP/M.784 - Kesko/Tuko), letters (for
example, Case IV/M.890 - Blokker/Toys‘R’Us(II)) and completion of the concentration itself (for example, Case IV/M.278 - British
Airways/Dan Air). In addition, the Commission may, on its own initiative, decide to inform one or more member states that it believes
that a transaction that they are reviewing meet the criteria for reference under Article 22 and invite them to make a reference request.
Where any member state makes such a request, the Commission will inform all member states and they then have a further period of
15 working days to join the initial request (it is not therefore strictly necessary for all relevant member states to collaborate prior to
making a request). National time limits relating to the review of the concentration are suspended until the Commission decides whether
or not to accept the referral, unless a member state informs the Commission that it does not wish to make a referral request. The
Commission has a further period of 10 working days in which to make its decision.
Where the Commission decides to accept a referral it may request the parties to submit a Form CO notification and the national laws of
those member states that made a request will no longer apply to the merger. Unlike under the Article 4(5) procedure, however, member
states that do not join the request for referral may apply their national merger control rules to the merger.
In October 2005, the Commission rejected an Article 22 referral request by the Italian and Portuguese authorities in relation to the
proposed acquisition by Spanish gas company Gas Natural of Spanish electricity company Endesa. The Spanish authorities, to whom
the transaction had been notified, did not join this request. The Commission decided that, in accordance with the principles set out in its
Notice on Case Referral it was not better placed to examine the competitive effects of this merger than the Portuguese and Italian
competition authorities (Commission press release IP/05/1356).
In September 2010, the Commission accepted an Article 22 referral request in relation to the proposed acquisition by SC Johnson &
Son Inc. of the leasehold insect control business of Sara Lee Corporation (Case COMP/M.5969 - SCJ/Sara Lee) from six member
states (Commission press release IP/10/1099). The Commission accepted the referral request from Spain, together with Belgium,
Greece, France, Czech Republic and Italy, despite the fact that the transaction had only originally been notified in Portugal and Spain
and thus the transaction was not even notifiable in five of the six referring member states. Portugal chose not to join Spain in the referral
request; the transaction therefore continued to be examined separately, and was unconditionally cleared by the Portuguese competition
authority. However, the parties aborted the transaction on 9 May 2011 and withdrew their notification from the Commission following the
Commission's initiation of a Phase II investigation in December 2010. This case highlights both the procedural peculiarities of the
Merger Regulation and the increasing interagency co-operation between NCAs in relation to merger reviews (see International co-
operation).
The General Court clarified the scope of the Commission's competence in Article 22 investigations in the Endemol case (Case T-221/95
[1999] ECR 1299). This concerned a proposed joint venture, Holland Media Group, which had been referred to the Commission by the
Dutch government.
The Commission had initially decided to prohibit the joint venture on the basis that it would have created a dominant position on the
Dutch television market, but subsequently decided to approve the joint venture on condition that Endemol's participation was
terminated. Endemol argued that the Dutch government had restricted its request to the television advertising market and that the
Commission could not go on to examine the television production market.
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The General Court held that the scope of the Commission's investigation in such cases is circumscribed solely by the terms of Article 22
of the Merger Regulation and that Article 22 does not grant the power to the member state concerned to control the Commission's
conduct of the investigation or to define the scope of the Commission's investigation. The General Court found in any event that the
Dutch government in this case had not in fact restricted the scope of the Commission's investigation and had expected the Commission
to examine the concentration as a whole.
In Kesko/Tuko, Kesko challenged the Commission's decision to prohibit its acquisition on the ground, amongst others, that the Finnish
national authorities concerned lacked competence to make a referral under Article 22 and that the Commission had failed to verify
whether the national authorities were competent to make the referral under Finnish law (Case T-22/97 [1999] ECR 3775). The General
Court, in dismissing the action, noted that it was not for the Commission to determine the competence of national authorities under
national law to submit a request pursuant to Article 22. Instead, the Commission is only required to verify whether the request is one
which is made by a member state within the meaning of Article 22.
In January 2005, the European Competition Authorities Association (the ECA) published agreed principles on the use of Article 22 (and
Article 4(5)) and on procedures for exchanging information between member states. The procedures aim to facilitate contact between
competition authorities in member states where a merger has been or will be notified from a very early stage. The agreed principles also
aim to speed up the process of review by all the participants involved. In November 2011, the EU Merger Working Group also published
best practices for co-operation between EU NCAs in merger reviews (see Legal update, Best practices for co-operation between
national authorities on multi-jurisdictional mergers adopted (www.practicallaw.com/8-511-7171)).
As at 30 June 2014 , there had been a total of 30 requests for referral under Article 22. 27 referrals had been accepted.
Proposals for reform
The Commission is concerned that a significant number of cross border cases are still subject to multiple review in several member
states. To some extent, the reason for this could be the procedural burden associated with a referral as the referral procedures have
been criticised as being cumbersome and time-consuming. In some cases, where the Commission might have been the more
appropriate authority, companies may also have opted against a referral to the Commission in order to avoid the Commission's
jurisdiction for reasons of forum shopping.
To remove these obstacles, the Commission is considering a modification of the referral mechanisms, relating in particular to pre-
notification referrals to the Commission (Article 4(5) of the Merger Regulation) and post-notification referrals to the Commission (Article
22 of the Merger Regulation). The aim would be to facilitate referrals and to make them more efficient without fundamentally reforming
the features of the system or the allocation of competences between the Commission and member states.
Following a preliminary consultation in June 2014, in a White Paper published in July 2014, the Commission consulted on the following:
• Reform of Article 4(5). The Commission considers that the cumbersome and time-consuming nature of the two stage procedure
(reasoned submission followed by full notification once the referral has been approved) may be deterring some parties from seeking
a referral in appropriate cases. Given the low number of Article 4(5) requests that were vetoed by a member state since 2004 (only 6
of the 261 requests), the Commission proposes abolishing the current two-step procedure (a reasoned submission followed by a
notification).
Under these reforms:
• Parties would notify a transaction directly to the Commission, who would then forward the notification to the member states
immediately.
• Member states that are prima facie competent to review the transaction under national law would then opportunity to oppose the
referral request within 15 working days.
• If no competent member state opposes the request, the Commission would have jurisdiction to review the whole transaction.
• If at least one competent member state opposes the jurisdiction of the Commission, the Commission would renounce jurisdiction
entirely and member states would retain jurisdiction. The Commission would not have any discretion, and would adopt a decision
stating that it is no longer competent. It would then be up to the parties to determine in which member states they must notify.
• To facilitate the information exchange, the Commission proposes sending the parties' initial briefing paper or the case allocation
request to the member states to alert them about the transaction during the pre-notification contacts.
The Commission considers that this change would speed up Article 4(5) referrals and make them more efficient while maintaining
the ability of member states to veto a request in the rare event that they consider it necessary.
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• Reform of Article 22. The Commission is concerned that the fact that it is currently only able to obtain jurisdiction for the member
states which have made or joined a referral request has led, in some cases, to parallel investigations by the Commission and NCAs
contrary to the one-stop shop principle. It is therefore proposing streamlining Article 22 referrals to give the Commission EEA-wide
jurisdictions in cases referred to it so as to better implement the one-stop-shop principle. Under the proposed amended Article 22
procedure:
• One or more member state(s) that are competent to review a transaction under their national law could request a referral to the
Commission within 15 working days of the date it was notified to them (or made known to them).
• The Commission would be able to decide whether or not to accept a referral request (on the basis of its cross-border effects).
• If the Commission decided to accept a referral request, it would have jurisdiction for the whole of the EEA.
• However, if one (or more) competent member state(s) opposed the referral, the Commission would renounce jurisdiction for the
whole of the EEA, and the member states would retain their jurisdiction.
• A member state would not need to give reasons for opposing the referral.
The Commission notes that two potential problems need to be addressed:
• A timing problem could arise if the referral request is made after one member state has already cleared the transaction in its
territory as this would prevent the Commission from being able to take EEA-wide jurisdiction.
• Other member states might not have enough information to ascertain whether they are competent and would have the right to
oppose the referral, or if they were competent, to make an informed choice whether or not to veto the referral.
To resolve these problems, the Commission is proposing that:
• The NCAs circulate early information notices for multi-jurisdictional or cross-border cases or cases concerning markets that are
prima facie wider than national as soon as possible after a member state receives the notification or otherwise learns of the
transaction, indicating whether it is considering making a referral request. In that case, the notice would trigger the suspension of
the national deadlines of all member states which are also investigating the case.
• Alternatively, If the Commission itself believes that it could be the more appropriate authority it would invite the member state to
request a referral under Article 22(5) and such an invitation would equally suspend all national deadlines.
• In the unlikely event that a member state has adopted a clearance decision before a referral request occurs, the clearance
decision would remain in force and the case would be referred by the remaining member states only.
• Reform of Article 4(4). The Commission proposes clarifying the substantive thresholds for pre-notification referrals from the
Commission to a member state under Article 4(4). In order to encourage the use of that provision, the Commission proposes
adapting the substantive test in Article 4(4) so that parties are no longer required to claim that the transaction may "significantly
affect competition in a market" in order for a case to qualify for a referral. It would suffice to show that the transaction is likely to have
its main impact in a distinct market in the member state in question.
The Commission considers removing the perceived "element of self-incrimination", implicit in acknowledging a significant affect on
competition, may lead to an increase in the number of Article 4(4) requests.
• Reform of Article 9. Although the referral mechanism under Article 9 is generally believed to function effectively. The Commission t
considers that there may be room for further flexibility regarding the Commission's deadline for rejecting referral requests in the case
of Phase II proceedings. At present the Commission has 65 working days from the date of notification to make a referral or adopt a
statement of objections. The 65 working days deadline can be problematic for the Commission as normally it will still be in the
course of investigating at that time and it may typically still have to decide on whether to take the case forward and to adopt a
statement of objections.
Therefore, the Commission is suggesting tolling the 65 working days deadline from the start of the Phase II proceedings. This will
ensure that its investigation is well advanced at the time when it has to decide upon a referral. This would bring that deadline in line
with the deadline for remedies in Phase II.
The consultation on these proposed closes on 3 October 2014.
Notification of a concentration
All concentrations with an EU dimension, according to the terms of the Merger Regulation, must be notified to the Merger Registry of
the Competition Directorate prior to implementation of the concentration and following :
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• Conclusion of the agreement;
• Announcement of a public bid; or
• The acquisition of a controlling interest (Article 4(1), Merger Regulation).
In addition, the Merger Regulation permits notifications to be made where the undertakings can demonstrate a "good faith intention" to
conclude an agreement or to make a public bid (the intention to make a bid must have been publicly announced).
In a consultation in June 2013 on improving the effectiveness of the Merger Regulation, the Commission consulted on the possibility of
modifying Article 4(1) of the Merger Regulation in order to improve flexibility for notifying mergers that are implemented by way of
acquisition of shares via the stock exchange without a public takeover bid. If no public take-over bid is made or no such intention is
publicly announced, the current rules do not allow for notification before the acquisition of control on the basis of "good faith intention".
However, neither do the current rules do not allow for the implementation of control (exercising voting rights, etc.) once control has been
acquired, that is, after the acquisition of shares via the stock exchange without a public take-over bid, either. The Commission considers
that the existing rules could be complemented to find a suitable solution to address such a scenario.
Since 2004, the teams (or units) within the Competition Directorate that deal with merger control cases sit within the sector-specific
branches of the Directorate-General - one in each of: energy and environment; information, communication and media; financial
services; basic industries, agriculture and manufacture; and transport post and other services. In addition, a "case support and policy"
unit co-ordinates the review of mergers across each of these branches. The Merger Registry is the central point for submitting merger
notifications (see further the Practice note, Dealing with the Commission in merger cases (www.practicallaw.com/A14488)).
Notifications have to be made in a Form CO, or Short Form CO, as published by the Commission. The forms are annexed to the
Implementing Regulation.
The notification must be completed jointly by the parties to the merger or by those acquiring joint control, as the case may be. In the
case of the acquisition of sole control of one undertaking by another, the acquirer must complete the notification. In the case of a public
bid to acquire an undertaking, the bidder must complete the notification.
From 1 January 2014, the Commission has substantially reduced the number of paper copies of notifications that must be provided. In a
Communication, issued under the Implementing Regulation (as amended by Commission Implementing Regulation 1269/2013), the
Commission announced that the parties should provide:
• One signed original on paper.
• Three paper copies of the entire submission.
• Paper copies may be waived or extra copies may be requested by the case team. Two copies of the submission in CD- or DVD-
ROM format (the medium).
The Communication sets out requirements for electronic communications and the e-mail address for e-mail communications (see
Commission Communication on notifications under EU Merger Regulation (www.practicallaw.com/2-555-5545)). These requirements
apply not only to the Form CO and Short Form CO but also the Form RS (for reasoned submissions under Articles 4(4) and 4(5) of the
Merger Regulation). Form RM (for the submission of commitments) and also for submission of comments on the Commission's
objections.
Failure to comply with the obligation to notify concentrations gives rise to the possibility of invalidity and fines (see Completion in breach
and Fines).
Immediately after receiving the notification the Commission must publish details of it (Article 4(3), Merger Regulation), which it does in
the Official Journal and also on its website. The Commission will at the same time invite the comments of third parties on the
concentration (see further Third party interventions).
The Commission has published best practice guidelines for the submission of economic evidence and data collection in competition
cases, including merger cases (originally published for consultation in January 2010, with the final version published in October 2011).
The best practice guidance contains recommendations regarding the content and presentation of economic analysis, and guidance on
how to respond to Commission requests for quantitative data (see Legal update, Commission publishes final version of best practices
for the submission of economic evidence and data collection (www.practicallaw.com/9-509-2957)).
An overview of the Commission's merger control procedures is contained in the box, EU merger control procedure, below.
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The tactical importance of when to notify a merger to DG Competition was highlighted recently by two mergers in the hard disk sector.
The Seagate/Samsung (Case COMP/M.6214) and Western Digital/Hitachi (Case COMP/M.6203) mergers were filed only one day
apart. However, owing to the "first in" or "priority rule", the Seagate/Samsung deal, which was submitted first, was reviewed without
consideration of the competition issues raised by any subsequent notifications. By contrast, Western Digital and Hitachi's merger
application was considered in the context of the Seagate/Samsung merger, and given that these four companies constituted a large
portion of the overall market, this made approval for the merger harder to secure despite being lodged at almost the same time.
Moreover, Western Digital had even informally approached the Commission before Samsung, but because their notification came
second, the merger was reviewed under different market conditions to the Seagate/Samsung deal (see also Priority rule).
Pre-notification guidance, contacts and discussions
The Commission is co-operative in providing confidential guidance to parties in informal pre-notification contacts and indeed actively
encourages contact at the earliest opportunity. Such contacts may involve clarification as to whether the Merger Regulation applies and,
if it does, may be instrumental in avoiding an in-depth "Phase II" investigation (see Commission's review procedure), particularly if
difficult issues are involved as the process effectively gives the Commission more time to examine the case. It may also mean that the
parties are in a better position to offer undertakings in order to remove concerns which might otherwise have led the Commission to
initiate Phase II proceedings (see Remedies).
In addition, parties may use such discussions in order to obtain exemption from some of the information requests in Form CO.
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Pre-notification discussions are particularly useful for discussing uncertainty or differences of opinion over market definitions which,
depending on the parties' market positions as mentioned above, may substantially affect the amount of information to be provided in
Form CO.
The Commission prefers parties to submit a briefing memorandum at least three working days before a pre-notification meeting, and
prefers such meetings to take place at least one or two weeks before notification (or longer in more difficult cases). It is prepared to
review and comment upon a substantially complete draft Form CO and should be given at least five working days for such review. The
Commission has published Best Practice Guidelines to clarify its merger control review procedures (see box, Merger notifications: Best
Practice Guidelines). Where parties follow this procedure the risk of a notification being declared incomplete will be reduced (see
below).
For further consideration of tactical issues which may be relevant when dealing with the Commission (see Practice note, Dealing with
the Commission in merger cases (www.practicallaw.com/A14488)).
Confidentiality
The Commission will send copies of the notification as well as any other important documents made available during the investigation to
all the member states. In addition, in Phase II investigations (see Commission's review procedure), third parties who have an interest in
the case may be granted access to the Commission's non-confidential files. It is important, therefore, that business secrets are clearly
marked as such when notifications and any subsequent documents (such as draft undertakings) are submitted to the Commission. Non-
confidential summaries of confidential documents must be submitted.
Incomplete notification
Omissions or inaccuracies in the information provided in the Form CO (such as a failure to identify the parties' main customers or
competitors, as happened in Swedish Match/KAV (Case IV/M.997)) can result in the notification being declared incomplete.
The consequences of providing inadequate information are illustrated by the Sanofi-Synthélabo case, which concerned a joint venture
controlled by the Elf-Aquitaine Group and the L'Oréal Group (Case COMP/M.1397). The Commission, for the first time ever, invoked
Article 6(3)(a) of the Merger Regulation, and withdrew its earlier approval of the transaction on the basis that it had not been correctly
notified. Having received third party observations, the Commission concluded that the parties had failed to describe in the original
notification their respective activities in the area of stupefying active substances (i.e., morphine and derived active substances), and in
respect of which they had a dominant position in France. The decision to clear the joint venture was, therefore, based on incorrect
information.
In order to overcome the new competition concerns raised, the parties agreed to divest Synthélabo's activities in the area of stupefying
active substances, thus removing the overlap between the companies in this field. The Commission waived the obligation to suspend
the concentration pursuant to Article 7(4) of the Merger Regulation (see Derogation from suspension), taking into account the parties'
undertaking to divest and the effect of a delay on the parties. The Commission fined the parties EUR50,000 (the maximum possible for
incomplete notification at that time) in order to reflect the gravity of the case (see Fines).
Suspension
Where a merger meets the thresholds for notification under the Merger Regulation (or is referred to the Commission under Article 4(5))
the parties are forbidden from putting it into effect prior to receiving a clearance decision from the Commission (Article 7(1), Merger
Regulation).
There is an exception to this in the case of public bids which have been duly notified to the Commission (Article 7(2)). Such bids can
proceed, but only on the basis that the transaction is notified to the Commission without delay and if the bidder exercises the voting
rights attached to the securities in question, it does so only to maintain the full value of those investments and following a derogation
granted by the Commission under Article 7(3) of the Merger Regulation (see below).
The Schneider/Legrand (Case COMP/M.2283) and TetraLaval/Sidel (Case COMP/M.2416) cases involved transactions which were
public bids and had closed (as permitted for such bids) prior to the Commission reaching its decision under the Merger Regulation. Both
cases involved a public bid for a French company, and by law such bids must be unconditional. In both instances the Commission
prohibited the concentration and subsequently made orders for divestment (see box, Airtours/First Choice, Schneider/Legrand and
Tetra Laval/Sidel).
Derogation from suspension
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The Commission has the power upon request to grant a derogation from the obligation to suspend the concentration. In deciding upon
the request, the Commission will be take into account, amongst other factors, the effects of the suspension on the undertakings
concerned (for example, major financial risks) and the threat to competition posed by the concentration (Article 7(3), Merger
Regulation). However, in practice, the Commission remains rather reluctant to grant derogations.
Given that this is a derogation from the general obligation not to implement concentrations, the Commission considers that a request
under Article 7(3) should be granted only in exceptional and justified circumstances where the suspension would cause serious damage
to the undertakings concerned by the concentration or to a third party (for instance when the target is under an imminent danger of
bankruptcy).
Derogations have been granted in cases such as Mannesmann/Olivetti/Infostrada (Case IV/M.1025) and AOM/Air Liberté/Air Littoval
(Case IV/M.2008). In Mannesmann, the Commission allowed the parties to implement the first phase of the planned acquisition of joint
control over Infostrada by Mannesmann and Olivetti. This was after the initial notification was declared incomplete and, as a result,
delayed by nearly six weeks. It was clear that the transaction would have no impact on competition in the relevant market.
The Commission has also granted derogations under Article 7(3) in the context of auctions in which a bidder would have been
effectively excluded from the auction, because its acquisition of the target would have an EU dimension. For example, in
Cerberus/Torex (Case COMP/M.4763), the parties submitted that a refusal of the derogation would effectively exclude Cerberus from
the bidding process for Torex (which was insolvent) and in addition would have significant negative financial effects on Torex. The
Commission noted the possible adverse effects on other bidders but stated "it is appropriate to ensure that a bidder which has a
Community dimension – such as Cerberus – is not unduly excluded from the bidding in the absence of a threat to competition posed by
the concentration".
However, the derogation was granted solely insofar as it allowed Cerberus to take all actions that were reasonably necessary to restore
the viability of Torex as a going concern following signature of the share purchase agreement. These necessary actions included senior
appointments, provision of funding, contacting key customers to inform them of the change of ownership and introduction of cost-cutting
measures. Cerberus could not exercise any voting or other shareholder rights for any other purposes. Cerberus was required to appoint
an independent observer to ensure that the businesses of Torex was operated independently from Cerberus and that the terms and
conditions of the derogation were observed.
In Orkla/Elkem (Case COMP/M.3709), the Commission granted a derogation on the basis that the transaction triggered a duty for Orkla
to make a mandatory offer for all of the outstanding shares in Elkem under the 1997 Norwegian Securities Act, and that continued
application of the standstill obligation would result in a risk that someone might try to influence or manipulate the market price of the
Elkem shares in order to increase the mandatory offer price to be paid by Orkla. The Commission concluded that, whilst the suspension
obligation could seriously affect the financial interests of Orkla, no possible threat to competition caused by the operation had been
identified, and a derogation would not affect any legitimate right of any third party. In addition, the derogation was conditional on Orkla
not exercising any shareholders rights during the period of the Commission's review under the Merger Regulation.
Protection of workers' rights has also been considered to be a sufficient justification for derogation. In IPM/ERG Nuove Centrali/ISAB
Energy Services (Case COMP/M.4712), the transfer of insurance cover for the employees of the target had been made effective from 1
July, with the effect that employees would have been without insurance cover from that date until completion of the transaction. Delayed
completion also created a risk that employees would receive a late payment of tax refunds. The Commission concluded that in view of
the absence of any threat of harm to competition and the interest of the employees in being covered by insurance as well as the tax
implications, derogation could be granted.
The Commission has also been prepared to consider the harm that application of a standstill obligation would have on customers,
creditors and, indeed the financial stability of the economy as a whole. For example, in Santander/Bradford & Bingley (Case
COMP/M.5363), the Commission took into account the adverse impact that a financial failure of Bradford & Bingley, absent the
acquisition by a stable and reputable market player, would have on the stability of financial markets and so on third parties (including
Bradford & Bingley's customers) and on other players in financial markets in the UK and beyond.
Similarly, in BNP Paribas/Fortis (Case COMP/M.5384), the Commission granted a derogation to permit the early closing of the
acquisition by BNP Paribas of a 75% stake in Fortis's retail banking arm in Belgium and Luxembourg on the basis that the absence of
the derogation could have very significant effect on Fortis, its customers and creditors, as well as on BNP. The derogation was therefore
granted to enable BNP to intervene in some aspect of the management of the Fortis companies, to supervise certain aspects of its
business, and to monitor financial risks associated with Fortis' operations. It is notable that in this case, the Commission came to the
prima facie conclusion, when granting the derogation, that the transaction was not likely to significantly impede effective competition
within the EEA, yet its final decision identified serious concerns relating to the issuing of credit cards in Belgium and partly in
Luxembourg, where the merged entity would have become the largest player by far, such that clearance of the transaction was
conditioned on divestment of BNP Paribas' Belgian consumer credit subsidiary.
Particular issues arise in relation to the steps that may be considered to amount to implementation of a newly created full function joint
venture in breach of the Article 7 suspension obligation. For a discussion of these issues, see Practice note, EU Joint ventures:
Mandatory notification (www.practicallaw.com/1-107-3702).
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While the Commission has accepted derogation requests in most of the published cases in which they have been requested, it has also
rejected derogation requests in some instances:
• In Bertelsmann/Kirch/Premiere (Case IV/M.993), the Commission asked the parties to call an immediate halt to the marketing of
decoders for digitally broadcast channels, which it considered constituted partial implementation of the transaction, pending the
Commission's investigation.
• In Rhodia/Donau Chemie/Albright & Wilson (Case IV/M.1517), the Commission refused to grant a derogation on the grounds that the
concentration raised competition concerns and the companies had failed to show that serious harm would have resulted from
suspension of the merger.
• In France Télécom/Global One (Case IV/M.1865), derogation was refused as France Télécom had not shown that its situation was
any different from the situation of any other party who had acquired a new business and wanted to have control over it as soon as
possible.
• In SC Johnson/ Sara Lee (Case COMP/M.5969), the parties requested a partial derogation, in order to allow the transaction to close
in various non-EEA jurisdictions, pending the outcome of the Commission's review under the Merger Regulation. The Commission
refused, stating that:
• there was insufficient evidence that delayed closing of the transaction in Russia and Malaysia would have harmed the target's
business in those countries (for example, due to mismanagement by its current owners or loss of key personnel);
• the fact that the transaction had been subject to an unexpected Article 22 referral process could not be considered an exceptional
circumstance;
• it was irrelevant that the parties could have structured the acquisition in the form of a series of independent transactions such that
Sara Lee's activities outside the EEA would not have fallen under the Merger Regulation;
• and while the relevant markets were national in scope, the Commission did not have sufficient information to assess the extent to
which the target business's activities outside the EEA were integrated with those within it, and could not therefore assess to what
extent implementation of the concentration outside the EEA could affect competition in the certain EEA markets.
For details of further cases in which derogation requests have been considered by the Commission, see Legal update, Commission
publishes decisions on applications for derogation from suspension obligations (www.practicallaw.com/9-521-3389).
Completion in breach
Failure by the parties to comply with the suspension requirement, by implementing a concentration before the outcome of the
Commission's investigation, does not automatically affect the validity of the merger, as this will depend on the outcome of the
Commission's investigation. The parties will, however, be liable to fines (see below).
Fines
Parties can be fined up to 10% of the aggregate turnover of the parties concerned if they fail to notify a merger prior to implementation,
implement a merger in contravention of the suspension requirement or a prohibition decision, or fail to comply with a remedial
undertaking. Fines of up to 1% of aggregate worldwide turnover may also be imposed for submission of false or misleading information
or failure to respond to an information request or to comply with a Commission investigation (Article 14, Merger Regulation). Periodic
penalty payments of up to 5% of aggregate daily worldwide turnover can also be imposed (Article 15, Merger Regulation).
The Commission has only imposed fines under the Merger Regulation in a handful of cases.
In February 1998, the Commission imposed a fine for the first time under EU merger control when Samsung failed to notify in due time
its acquisition of AST Research (Case IV/M.920). A relatively small fine of EUR33,000 was imposed because the breach was not
intentional and the concentration had no damaging effect on competition. A.P. Møller were fined EUR219,000 in July 1999, for three
separate failures to notify mergers in due time, the earliest of which dated back to 1997 (Case IV/M.969 A.P. Møller). Again, the failure
to notify was unintentional and there had been no harm to competition.
The Commission has also fined Sanofi and Synthélabo EUR50,000 each for supplying incorrect information in relation to their merger
(Case COMP/M.1397 Sanofi-Synthélabo). This was the first time that the Commission imposed a fine in such a case and it was the
maximum permitted under the merger control regime in this situation at that time (they could now be fined up to 1% of aggregate
turnover). The companies failed to indicate in their notification that they were both involved in the same active substance area. Their
omission was discovered following complaints from competitors after the merger was cleared (see Incomplete notification).
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In December 1999, the Commission imposed fines in two separate instances even though in both cases the notification had been
withdrawn after the Commission had opened a Phase II investigation. In Deutsche Post/Trans-o-flex (Case IV/M.1447), the Commission
fined Deustche Post EUR50,000 for having for having failed to notify the acquisition in 1997 of a minority share in Trans-o-flex, a high-
speed delivery service provider. It further considered that the concentration notified in 1999 might not have led to Deutsche acquiring
control over Trans-o-flex, since its minority share could have led it to acquire control in 1997. In KLM/Martinair (Case IV.M.1328), the
Commission fined KLM for submitting incorrect information as to the activities of its subsidiary, Transavia. The Commission
subsequently discovered that Transavia operated flights to all Mediterranean destinations that were also served by Martinair, the
second largest Dutch airline. This overlap in activities had been omitted from the original notification.
In 2001, the Commission fined Deutsche BP EUR35,000 for negligently providing incorrect and misleading information in the Deutsch
BP/Erdölchemie case (Case COMP/M.2345). Deutsche BP had failed to disclose relevant co-operation agreements between the
Deutsche BP group and its competitors and also its presence in certain vertically related markets.
In July 2004, the Commission fined Tetra Laval EUR45,000 for each of two separate infringements of its obligation to provide complete
information (COMP/M.3255). First, Tetra Laval failed to provide information about relevant new technology in its Form CO. Second, it
failed to provide this information in response to a further information request. The infringements occurred in the context of the
Commission's first investigation of Tetra's acquisition of Sidel (COMP/M.2416 Tetra Laval/Sidel). The information that Tetra failed to
provide was subsequently relevant to the Commission's ultimate conditional clearance of this transaction.
In June 2009, the Commission decided to fine Electrabel EUR20 million for acquiring control of Compagnie Nationale du Rhone (CDR)
without having received prior approval from the Commission under the EU Merger Regulation. The Commission found that Electrabel
had acquired de facto control of CDR in December 2003. However, the acquisition of CDR was not notified until March 2008 (following
discussions with the Commission from August 2007). The Commission found that Electrabel had acted negligently in breaching the
notification obligations (as a large and experienced company it ought to have known that the 2003 transaction was a notifiable
concentration) and that this amounted to a serious breach. However, in setting the fine, the Commission also took into account the fact
that the transaction did not give rise to competition concerns and that Electrabel subsequently informed the Commission about the
transaction voluntarily.
The high level of the fine imposed in this case reflects the seriousness with which the Commission views failure to notify. In announcing
this decision, the then Competition Commissioner Neelie Kroes stated that "implementing a transaction which has not received the
clearance foreseen in EU law constitutes a serious breach of the Merger Regulation. This decision sends a clear signal that the
Commission will not tolerate breaches of this fundamental rule of the EU merger system".
Electrabel lodged an appeal with the General Court, seeking either the annulment of the Commission's decision or a reduction in the
fine imposed. It claimed, in particular, that the Commission's decision contained contradictory reasoning as to whether the infringement
amounted to a failure to notify or advance implementation of the concentration (Case T-332/09 - Electrabel v Commission). However,
on 12 December 2012, the General Court dismissed the appeal in its entirety (see Legal update, General Court dismisses Electrabel
appeal regarding implementation of merger without prior approval (www.practicallaw.com/7-523-1030)).
The General Court held that the Commission had been correct to find that Electrabel had acquired de facto sole control of CDR. It noted
that a minority shareholder may be considered to hold de facto sole control of a company within the meaning of the EU merger rules if it
is virtually certain of obtaining a majority at future shareholder meetings because the remaining shareholders are widely dispersed.
The General Court also held that early implementation of a concentration, in violation of EU law, is liable to bring about significant
changes in the competition situation and is therefore not a mere formal or procedural infringement. The fact that Electrabel's acquisition
of control was ultimately found not to raise any competition issues was not a decisive factor for determining the gravity of the
infringement. In addition, the fact that the infringement was committed through negligence was not a sufficient reason for reducing the
fine. In July 2014, the ECJ dismissed a further appeal by Electrabel (Case C-84/13 - Electrabel v Commission; Legal update, ECJ
dismisses Electrabel appeal against General Court judgment on fine imposed for implementing merger without prior
approval (www.practicallaw.com/8-573-0867)).
In July 2014, the Commission fined Marine Harvest EUR 20 million for implementing the acquisition of Morpol prior to its notification to
and clearance by the Commission, in breach of Articles 4(1) and 7(1) of the EU Merger Regulation. The transaction was notified to the
Commission in August 2013 and the Commission conditionally approved the acquisition in September 2013. However, the Commission
considered that Marine Harvest acquired control of Morpol in December 2012, when it acquired a 48.5% stake in the company (see
Legal update, Commission fines Marine Harvest for acquiring control of Morpol prior to clearance (www.practicallaw.com/0-575-5927)).
Marine Harvest has lodged an appeal against this decision (Case T-704/14 - Marine Harvest v European Commission) (see Legal
update, Marine Harvest appeal against fine for breach of notification requirements (www.practicallaw.com/7-588-6265)).
The Commission can also fine a company who is not a notifying party in merger proceedings for failure to supply accurate information.
In July 2000, the Commission imposed a fine of EUR50,000 on Mitsubishi for providing incomplete information in relation to the
investigation of the Ahlström/Kvaerner case (Case IV/M.1431). A periodic penalty payment totalling EUR900,000 (based on a then
maximum daily penalty of EUR25,000) was also imposed on Mitsubishi for the two-month period between the date of request of the
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information and the date that the investigation was closed. This was the first time that the Commission has fined a third party for
furnishing incomplete information in a merger investigation. It was also the first time the Commission imposed a periodic penalty
payment under the EU merger control regime.
In October 2014, having issued a statement of objections in February 2014, the Commission d closed proceedings brought against
Munksjö and Ahlstrom in relation to the alleged provision of misleading information in the notification of their merger (see Legal update,
Commission closes investigation into alleged provision of misleading information in merger notification by Munksjo and
Ahlstrom (www.practicallaw.com/3-586-1605)). The Commission had been concerned about discrepancies between market share
estimates provided in the merger notification and information in the parties' internal documents. However, in response to a statement of
objections, the parties provided contemporaneous evidence explaining these discrepancies and showing valid reasons for their
reassessment of market shares.
The Commission closed the infringement proceedings on the basis that it has now received the necessary information. However, it
warned that any discrepancies between the information provided in the merger notification and that contained in the merging parties'
internal documents should always be justified by the parties in a timely manner.
Commission's review procedure
The Commission's review procedure is, potentially, a two-stage process.
Initial investigation: Phase I
The Commission has up to 25 working days from the notification in which to make its initial assessment of the proposed transaction
(Article 10(1), Merger Regulation). The period is increased to 35 working days if the parties have submitted undertakings for
consideration (see Remedies), or if the Commission receives a request from a member state for transaction to be referred back to its
NCA (see Referral back to member states).
The Commission must within the 25/35 working day period either:
• Decide that it does not have jurisdiction, on the basis that the concentration falls outside the scope of the Merger Regulation (in
which case the parties should consider whether further notifications, at national level are required);
• Clear the concentration, on the ground that it does not raise serious doubts as to its compatibility with the internal market; or
• Open an in-depth (Phase II) investigation (see below), where it finds that the concentration does raise serious doubts as to its
compatibility with the internal market (Article 6(1)(c)).
Simplified procedure
Concentrations that satisfy the criteria for clearance under the simplified procedure (see Simplified procedure for certain concentrations)
will be declared compatible with the internal market at the end of the 25 working day review period applicable to Phase I. The
Commission issues a decision in short-form with summary information relating to the parties, the nature of the transaction and economic
sectors concerned, and specifies under which ground(s) of the Notice on Simplified Procedure the decision has been taken. There is no
press release, but the clearance is announced in the Commission's Midday Express.
In its Notice on Simplified Procedure, the Commission has reserved the discretion to revert to the standard procedure in certain
circumstances where the simplified procedure is unsuitable, for example, in the case of:
• Difficulty in defining the relevant market or determining the parties' market shares.
• Where certain special circumstances (specified in the Horizontal Merger Guidelines) exist, such as:
• Where the market is already concentrated.
• Where the proposed concentration would eliminate an important competitive force.
• Where the proposed concentration would combine two important innovators.
• Where the proposed concentration involves a firm that has promising pipeline products.
• Where there are indications that the proposed concentration would allow the merging parties to hinder the expansion of their
competitors.
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• Concentrations which increase the parties' market power even if there is no overlap in the activities of the parties. For example,
where at least two parties to the concentration are present in closely related neighbouring markets, particularly where one or more of
the parties to the concentration holds individually a market share of 30 % or more in any product market in which there is no
horizontal or vertical relationship between the parties but which is a neighbouring market to a market where another party is active
• Where issues of co-ordination between the parent companies of a joint venture arise.
• Following substantial concerns raised by member states or third parties, or a request from a member state to have the concentration
referred back under Article 9 of the Merger Regulation.
• Where the simplified procedure has been used because the transaction involves a change from joint to sole control, the Commission
may revert to the normal Phase I procedure where the acquiring company and the joint venture are direct competitors with
substantial combined market shares and the removal of the other joint venture parent will remove a degree of independence held by
the joint venture.
• Where neither the Commission nor the competent authorities of member states have reviewed the prior acquisition of joint control of
the joint venture in question.
In-depth investigation: Phase II
When the Commission does open in-depth proceedings it has a basic period of 90 working days in which to complete its investigation
and come to its conclusion on the merger (Article 10(4), Merger Regulation). This basic period can be extended. Where the parties offer
undertakings for consideration on or after the 55th working day from the initiation of the Phase II proceedings, the 90 working day time
period will automatically be extended to 105 working days. In addition, either the 90 or 105 working day period may be extended by a
further period of 20 working days at the parties' request (the request must be made within 15 working days from the initiation of
proceedings) or by the Commission, with the agreement of the parties (Article 10(3), Merger Regulation).
At the end of the 90 working day period (subject to extensions) it may:
• Clear the concentration(with or without undertakings as to, for example, structural changes or behavioural obligations (see
Remedies)); or
• Prohibit the concentration.
Where the Commission prohibits the concentration, it may require divestment or order any other action which it considers appropriate to
restore conditions of "effective competition". In Kesko/Tuko (Case IV/M.784), for example, the transaction had already been
implemented by the time the Commission issued its prohibition. In order to undo the transaction, the Commission ordered the
divestment of the consumer goods business of Tuko OY to a viable competitor and the appointment of an independent administrator to
supervise the operation and management of the business to be transferred.
In January 2002, the Commission ordered divestitures in two further cases involving completed acquisitions: Schneider/Legrand and
Tetra Laval/Sidel. Both Commission decisions were overturned on appeal (see box, Airtours/First Choice, Schneider/Legrand and Tetra
Laval/Sidel).
In some cases, the parties may withdraw a notification and abandon their merger plans altogether following the initiation of a Phase II
investigation. It is not unusual for the Commission to publish the reasons that would have led it to prohibit the merger had it not been
abandoned (see Commission press releases concerning Ahlström/Kvaerner (above) and Alcan/Péchiney (Case IV/M.1715)) However,
complete abandonment of a transaction will in general prevent the issue or publication of a formal decision.
In WorldCom/Sprint (Case IV/M.1741), the companies informed the Commission of their intention to withdraw their notification of the
deal the day before the prohibition was adopted. The Commission still took a formal decision, taking the view that it could only accept a
withdrawal if the deal was no longer legally binding. The General Court has annulled this decision, taking the view that the
Commission's power to take a decision ceases when an agreement is abandoned, even if the parties continue negotiations with a view
to concluding an agreement in a modified form (Case T-310/00 MCI v Commission [2004] ECR II-3253).
The Commission has published an information note (DG Competition Information note on Art. 6 (1) c 2nd sentence of Regulation
139/2004 (abandonment of concentrations)) available on the Competition Directorate's website, setting out the situations in which it will
be satisfied that the concentration has, in fact, been abandoned such that it is not required to reach a final decision. The Commission
notes that merely withdrawing the notification will not be sufficient. Similarly, minor amendments to the arrangements (such as the
agreed date of implementation) which do not affect the quality and nature of the change of control will not be sufficient to show
abandonment. In general, the Commission will require that the proof of abandonment corresponds in terms of factors such as legal
form, format and intensity to the initial act which made the concentration notifiable in the first place (for example proof that there is a
legally binding cancellation of the transaction agreement).
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The General Court considered this issue again in an appeal by Schneider against a decision by the Commission to open a Phase II
procedure but then to close the case almost immediately afterwards when Schneider sold the relevant business (Legrand) to a third
party (Case T-48/03 Schneider Electric SA v Commission, Order of the General Court, 31 January 2006, [2006] ECR II-111). The
General Court found that, after Schneider transferred ownership of Legrand, the notified concentration could only be regarded as having
been abandoned. It was not relevant that Schneider had not formally withdrawn its notification. The General Court considered that the
sale of Legrand was sufficient to deprive the Commission's investigation of any further purpose. The notification by the Commission of
the closure of the case was an inevitable consequence of the factual circumstances which removed the purpose of the investigation.
Schneider appealed the General Court decision to the ECJ. However, in March 2007, the President of the ECJ issued an order
dismissing Schneider's appeal, finding it in part unfounded and in part inadmissible (Case C-188/06P, Schneider Electric SA v
Commission, Order of 9 March 2007). The ECJ confirmed the General Court's conclusion that the decision to initiate Phase II
proceedings under Article 6(1)(c) of the Merger Regulation is merely a preparatory act and is not an actionable decision.
Time limits
If the Commission fails to take a decision within the Phase I or Phase II binding time limits mentioned above, the concentration is
deemed to have been cleared (Article 10(6), Merger Regulation).
Time may, however, be extended in a number of circumstances:
• Phase I investigations. The basic 25 working day period can be extended if the Commission deems that the parties have submitted
incomplete or incorrect information or if it requires them to furnish substantial additional information. The Commission will declare a
notification incomplete if the Form CO omits information or contains inaccurate information (see Incomplete notification). In this case,
the 25 working day period will start to run from when the Commission has received the additional information. If it becomes apparent
that the Commission has serious doubts about the transaction, the parties may choose to withdraw the original filing. This enables
the parties to restructure the deal and to re-notify the transaction in order to overcome the Commission's objections. The advantages
of withdrawing a notification and re-notifying are twofold: it avoids the Commission placing conditions on the parties and avoids the
Phase II investigation. The Phase I period will then start to run from the date of re-notification.
This happened, for example, In BP/Amoco (Case IV/M.1293) and Industri Kapital/Persop (Case IV/M.1963), which was re-notified
and cleared subject to undertakings (Industri Kapital/Perstop (II) (Case IV/M.2396)).
• Phase II investigations. The 90 working day period (with any extended period) can also be suspended while the Commission
awaits a response to a request for further information where it is made by way of decision. The period can also be suspended while
the Commission carries out an investigation which it has ordered by way of a decision pursuant to Article 13 of the Merger
Regulation (Article 10(4), see Powers of investigation).
Again, if it appears that the Commission is likely to prohibit the transaction, the parties may choose to withdraw the notification on
the basis of the deal being restructured or abandoned.
Priority rule
Where two or more mergers in the same sector are notified to the Commission in close proximity, the Commission operates on a "first
in" or "priority" rule basis. The effect of this priority rule has recently been demonstrated in the context of two merger notifications in the
hard disk sector (Case COMP/M.6203 - Western Digital Corporation/ Hitachi Global Storage Technologies Holdings and Case
COMP/M.6214 - Seagate Technology/ The HDD Business of Samsung). Notified only one day ahead of Western Digital/Hitachi, the
Seagate/Samsung review benefited from the priority rule at the expense of Western Digital/Hitachi.
Under the priority rule, the Commission's review of Seagate/Samsung disregarded the subsequently notified Western Digital/Hitachi
deal. However, in its review of Western Digital/Hitachi, the Commission took into account the effects brought about by the
Seagate/Samsung transaction. Indeed, on 19 October 2011, the Commission cleared the Seagate/Samsung merger unconditionally,
noting in its press release that the merging entity would continue to face competition from, inter alia, Western Digital and Hitachi.
However, on 23 November 2011, the Commission approved, but only subject to conditions, the Western Digital/Hitachi transaction.
Not only were the two transactions notified only one day apart, but Western Digital was understood to have engaged with the
Commission informally before Samsung notified its deal, which had not been public beforehand. The fairness of a rule that has no
formal basis in the Merger Regulation has therefore been questioned, even though it has been consistent Commission practice.
Advisory Committee
Representatives of the member states in the Advisory Committee on Concentrations must be consulted by the Commission in Phase II
cases. The role of the Advisory Committee is to provide a means by which member states can express their views to the Commission
on certain important aspects of the Commission's investigations under the Merger Regulation. The Commission is required to "take the
utmost account" of opinions delivered by the Advisory Committee (Article 19(6), Merger Regulation).
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Powers of investigation
Information requests
The Commission has power to request information (Article 11, Merger Regulation). The Commission may by simple request or by
decision require the notifying parties and any other undertaking to provide all necessary information. Failure to respond to an
information request made by decision can lead to penalties. Further, an information request made by decision, under Article 11(3) of the
Merger Regulation, will lead to the suspension of the time limits for the Commission's merger review (Article 10(4) of the Merger
Regulation).
In February 2009, the General Court dismissed an appeal by a party to a merger against a Commission decision under Article 11(3) that
requested further information during the course of a Phase II investigation (so suspending the deadline for the Commission's decision)
(Case T-145/06 - Omya AG v Commission, judgment of 4 February 2009; see Legal update, CFI dismisses appeal against information
request issued during a Phase II merger investigation (www.practicallaw.com/0-384-9052)). The General Court concluded that the
merging party (Omya) had not demonstrated that the information requested (which related to the correction of previously provided data)
could not reasonably be considered by the Commission to be necessary at the time that it adopted the decision. Omya had not shown
that the information originally provided was materially correct or that the corrected information was not necessary for the Commission's
assessment. Further, the Commission had not misused its powers in requesting the information and there had been no breach of
Omya's legitimate expectations.
In its judgment, the General Court noted that the requirements of speed which characterise an investigation under the Merger
Regulation must be reconciled with the objective of effective review of concentrations. Such effective review requires that the
Commission conduct its reviews with great care and requires that the Commission obtains complete and correct information. The
Commission is subject to the principle of proportionality in exercising its powers under Article 11 of the Merger Regulation. Therefore it
should not impose disproportionately burdensome information provision obligations on undertakings. However, the Commission does
not infringe the principle of proportionality by suspending the procedure until the required information has been communicated to it.
Dawn raids
The Commission also has other wide-ranging powers of investigation (including powers to conduct interviews) and may carry out on-the
-spot investigations by entering and sealing premises, taking documents and seeking explanations (Article 13, Merger Regulation). The
Commission may exercise these "dawn raid" powers at any time prior to notification, as well as during Phases I and II. The powers in
the Merger Regulation are now the same as those which apply under Regulation 1/2003 in respect of suspected infringements of
Articles 101 and 102 (see Competition regime, Dawn raids (www.practicallaw.com/A14489)).
The first occasion on which the Commission used its powers to carry out a "dawn raid" in relation to a merger was in the
Skanska/Scancem case (see box, Skanska/Scancem case).
In December 2007, the Commission announced that it carried out unannounced inspections of two S PVC producers in the UK under its
revised powers under Article 13 of the Merger Regulation. The inspections were conducted on the grounds that the Commission had
reason to believe that the companies may have violated Article 7(1) of the Merger Regulation (Commission MEMO/07/573).
More recently, the Commission conducted dawn raids in relation to the Caterpillar/MWM merger (Case COMP/M.6106) on the grounds
that the Commission had reason to believe that the parties may have: (i) provided misleading information in response to requests for
information (contrary to Article 11 of the Merger Regulation); (ii) provided misleading information in the notification of the proposed
concentration and/or withheld information relevant to the competitive assessment in this case; and (iii) implemented the notified
concentration before it has been cleared by the Commission (contrary to Article 7(1) of the Merger Regulation). The merger was
ultimately unconditionally cleared by the Commission after a Phase II review.
Econometric evidence
The Commission has increasingly recognised the importance of sophisticated econometric techniques in competition cases which, in
addition to criticism levied at the Commission's econometric analysis following the high profile overruling by the General Court of three
Commission decisions led to the appointment of a Chief Competition Economist to oversee the Competition Directorate's activities
(Airtours/FirstChoice (M.1524, Case T-342/99 ECR [2002] II-2585), Schneider/Legrand (M.2283, Case T-77/02 ECR [2002] II-4201) and
Tetra Laval/Sidel (M.2416, Case T-80/02 ECR [2002] II-4519)) (see box, Airtours/First Choice, Schneider/Legrand and Tetra
Laval/Sidel).
Following the appointment of a Chief Competition Economist, the Commission has been increasingly using economic data in its
assessment of mergers to support the construction of its legal cases. The cases of Ryanair/Aer Lingus (COMP/M.4439) and
Unilever/Sara Lee Body Care (COMP/M.5658) provide useful examples of the types of economic data that the Commission has relied
upon in merger cases:
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• Ryanair/Aer Lingus I. Despite the availability of extensive qualitative evidence, the Commission opted to conduct three sets of
empirical analysis (passenger surveys, price correlation analysis and price regression analysis) with the aim of providing further data
on the absence of airport substitutability and the closeness of competition between the merging parties. The Commission
economists were able to do this because the available data was complete, accurate and adequate for the methodologies used. The
econometric analysis showed that prices were significantly higher in markets in which only one of the two carriers were present. This
result was consistent with the qualitative evidence which suggested that Ryanair and Aer Lingus were close competitors and that the
transaction would adversely affect a significant number of passengers (in particular, it would have eliminated Ryanair on more than
30 routes on which 14 million passengers fly each year). The Commission therefore decided to prohibit the merger and, following an
appeal to the General Court, this finding was upheld, with the General Court noting that the economic evidence was useful, even if
not necessarily mandatory.
However, not all cases will necessarily be suitable for sophisticated quantitative econometric analysis as in the Ryanair/Aer Lingus
case. For example, the Commission was unable to replicate the same level of sophisticated economic analysis in the first
Olympic/Aegean (Case COMP/5830), which was ultimately prohibited by the Commission. This was because not all the necessary
data was available ( insufficient quality, no historical data, no variability in the data to identify references for comparison, etc) to
implement the empirical methodologies. As a result, the Commission economists were only able to conduct a modest analysis.
However, this merger was subsequently approved, following a second Phase II investigation, in October 2013, on the basis of further
evidence about the impending financial failure of Olympic (Case COMP/M.6796 Olympic/Aegean II).
• Unilever/Sara Lee. In this case, the Commission opted to conduct a merger simulation in order to estimate the likely price increases
in deodorant markets post merger. The Commission's merger simulation covered eight markets, and the results showed price
increases of between 1% and 6%, but with higher increases for certain brands and sub-segments. This is a notable case as it is the
first time in many years where the Commission chose to object to a merger after a Phase II investigation on the basis of, among
other pieces of information, a merger simulation conducted by its own economists. Ultimately, in order to remedy the Commission's
concerns, Unilever had to offer to divest Sara Lee's Sanex Brand.
Previously the Commission had referred to a merger simulation in Kraft/Cadbury (COMP/5644). However, in that case the
Commission carried out its own economic analysis. It did not use its own merger simulation, but rather refered to a merger
simulation undertaken by the parties which provided further evidence that the transaction was unlikely to give rise to significant price
increases and/or competition concerns in the market for chocolate tablets in the UK.
These cases indicate that, alongside qualitative data, economic evidence is increasingly an essential tool in the Commission's
assessment process, especially with regards to its task of predicting the likely effects of a merger on price. The Commission has not yet
explicitly, however, employed metrics such as the Upward Pricing Pressure (UPP) or Illustrative Price Rise (IPR) tests to assess
closeness of competition and predict merger effects, unlike the UK competition authorities, for example, which are in the practice
increasingly using such techniques, in particular in retail merger cases, looking at fascia issues in certain local areas (for example,
Asda/Netto, Unilever/Alberto Culver, Zipcar/Streetcar). It remains to be seen to what extent the Commission will utilise such techniques
and concepts in future cases.
To further the use of economic evidence in future merger cases, in October 2011, the Commission published Best Practices for data
collection and submission of economic evidence in merger cases (see Legal update, Commission publishes final version of best
practices for the submission of economic evidence and data collection (www.practicallaw.com/9-509-2957)).
The Best Practices are largely a codification of existing practice and provide practical advice on the generation and communication of
economic and econometric analyses to make sure that each analysis submitted to the Commission fully states the economic reasoning
and the observations on which it relies, and explains the relevance of its findings for the case, and the robustness of the results. A key
emphasis of the Best Practices is that parties intending to submit economic data should inform the Commission as early as possible so
that discussions concerning the empirical approaches and the relevant data can take place. These discussions will allow the
Commission to explain which data will be relevant, and how best for the parties to present it. To date, the Best Practices have helped
parties present improved submissions, assisted the Commission in gathering quantitative data and limited the scope of data requests.
Remedies
Formal undertakings (also referred to as "commitments") may be given by the parties in order to meet specific competition objections
raised by the Commission in the investigation and so obtain clearance of the transaction. Undertakings can be given either in Phase I,
so that the Commission does not have to launch a Phase II investigation, or during the Phase II investigation.
Undertakings should be submitted within specified time limits, which are usually strictly adhered to by the Commission:
• Where undertakings are submitted in Phase I, the time period within which the Commission must take a decision is extended from
25 to 35 working days (Article 10(1), Merger Regulation). To provide the Commission with sufficient time to examine undertakings
offered, they must be submitted within 20 working days from the date of notification.
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• Where undertakings are submitted in Phase II, the time period within which the Commission must take a decision is extended from
90 to 105 working days (Article 10(3), Merger Regulation). To provide the Commission with sufficient time to examine undertakings
offered, they must be submitted within 55 working days from the date of initiation of Phase II proceedings.
To avoid a Phase II investigation, the parties must identify early on where potential competition problems may arise and, where there
are areas in which the parties' businesses overlap, be ready to make an "up-front" offer to divest overlapping businesses.
If deadlines are not respected, the Commission will generally only consider remedies in the limited situation that they offer a clear-cut
solution to the competition problem and do not require further market testing. In Airtours/First Choice (Case COMP/M.1524), for
example, the Commission refused to consider the revised package of undertakings suggested by the parties as these had been
proposed out of time. However, in SEB/Moulinex (Case COMP/M. 2621), the Commission did accept undertakings offered after the
expiry of the Phase I deadline. The General Court confirmed that the Commission had the right to accept late undertakings as the time
limit is imposed on the parties and not on the Commission (Case T-114/02 - Babyliss v Commission [2003] II-1279 and Case T-119/02
Philips v Commission [2003] II-1433).
The possibility of furnishing formal undertakings to the Commission to allay competition concerns is also subject to practical
considerations. In particular, the consent of third parties may be required for significant divestments, for example where trustees have
been appointed as a result of previous financial transactions (such as bond issues).
Companies can be fined up to 10% of their aggregate worldwide turnover by the Commission for failing to comply with an undertaking
once it has been given and this can form the basis of a decision by the Commission to revoke a conditional clearance decision (Articles
8(6)(b) and 14(2)(d), Merger Regulation).
Notice on remedies
The Commission adopted a notice on remedies to competition problems raised by mergers and acquisitions (OJ 2001 68/3) in
December 2000. Following a study in 2005 (see further Legal update, Commission publishes study on past merger
remedies (www.practicallaw.com/0-201-4694)) and consultation in April 2007 (see Legal update, Commission consults on revised
Remedies Notice (www.practicallaw.com/6-312-5952)), the Commission adopted a revised Notice on remedies and Implementing
Regulation in October 2008 (OJ 2008 C267/1)) (the Remedies Notice) (see Legal update, Commission publishes new Remedies Notice
and amendments to Implementing Regulation (www.practicallaw.com/8-383-7955)). The Remedies Notice provides guidance on the
types and form of remedies acceptable to resolve competition problems as well as the important substantive and procedural issues that
notifying parties should consider when proposing remedies to obtain regulatory clearance.
The Commission also maintains best practice guidelines for divestiture commitments, consisting of a model text for divestiture
commitments and a model text for trustee mandates (updated in December 2013 and available on the Competition Directorate's
website). The Commission's aim in publishing the best practice guidelines and model texts was to make the negotiation of remedy
undertakings within tight timetables easier. The model texts contain the standard terms that should be included in all divestment
undertakings (the divestiture process and the obligations of the parties) and the role and function of the trustee. The fact that these
model texts are designed for a standard divestment commitment does not mean that the Commission will not be prepared to negotiate
more complicated forms of commitment in appropriate cases (paragraph 21, Remedies Notice).
The Commission has maintained its position that it is for the parties to the merger to put forward suitable remedies that eliminate
competition concerns entirely and have to be comprehensive and effective from all points of view. Further, the Commission maintains
the view that structural commitments are generally preferable. However, it does not rule out the possibility that other types of
commitments may also be capable of preventing the identified significant impediment to effective competition. This has to be examined
on a case-by-case basis.
The Remedies Notice sets out:
• The general principles under which remedies can be proposed and implemented in merger proceedings.
• An overview of the main types of remedies that have been accepted in merger cases to date (for example, divestiture provisions,
termination of exclusive agreements and licensing arrangements to provide access to infrastructure and key technology).
• The procedure for the submission of commitments. When offering Phase I or Phase II commitments, the undertakings concerned
must submit the information and documents prescribed by a Form RM (as set out in the Implementing Regulation).
• The specific requirements for the implementation of remedies in Phase I and Phase II proceedings.
• The major elements for implementing divestiture commitments, including the appointment of a trustee for oversight, preservation of
assets and/or activities to be divested, and Commission approval of the potential purchaser.
The two principal aims underlying the Remedies Notice are to make sure that the remedies proposed by the parties to a transaction:
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• Fully resolve the competition concerns raised by the Commission and thereby eliminate the creation or strengthening of a dominant
position. Remedies must, therefore, be clear-cut and must entirely remove the competition concerns.
• Are fully implemented effectively and within a short period. They should not require additional monitoring once they have been
implemented.
Accordingly, the Commission on the whole favours structural remedies (for example, divestment of assets or shares, termination of
exclusive distribution agreements or severance of vertical links with customers) over behavioural remedies (for example, requirements
to grant access to products on equal terms) as the latter require continual monitoring and are often more complex to draft.
It is for the merging parties to propose ways to address the competition problems identified by the Commission and to show that the
remedies offered eliminate the problems and restore effective competition. The General Court confirmed in the EDP case that it is for
the parties to propose adequate remedies in due time with a view to solve fully the competition concerns identified by the Commission
(Case T-87/05 EDP-Energias de Portugal SA v Commission [2005] ECR II-3745).
However, the General Court also held in the EDP case that, in so far as the burden of proof is concerned, a concentration modified by
commitments is subject to the same criteria as an unmodified concentration. It follows that the Commission carries the burden of proof
that the conditions for a prohibition of the concentration are met, irrespective of whether remedies have been offered.
The following are examples of some of the difference types of remedies which are referred to in the Remedies Notice or have been
acceptable to the Commission in the past.
Up-front buyer remedy
The Commission has drawn on the US experience in applying remedies. This includes the "fix-it-first" approach to remedies in cases
where the viability of the divestiture package depends to a large extent on the identity of the purchaser of the businesses or assets
being divested (see Remedies Notice, paragraph 50). An "up-front buyer" remedy effectively transfers the risk of a failed remedy to the
merging parties by preventing the parties from completing the concentration until a binding sale agreement with a purchaser approved
by the Commission has been concluded. This differs from other divestment undertakings where, although the divestment must be made
to a suitable purchaser and approved by the Commission, the parties are given a period of time after clearance of the transaction to find
such a purchaser and are not barred from completing.
Up-front buyer remedies have been used in a number of cases including Post Office/TPG/SSPL (Case IV/M.1915), Nestlé/Ralston
Purina (Case COMP.M.2337) and Hexion / Huntsman (Case COMP/M.4835), although the Commission does not routinely insist on an
up-front buyer (compared to certain NCAs such as in the UK).
The General Court has confirmed that the Commission is entitled to reject a potential purchaser of divested assets when it appears that
the purchaser will not be able to fulfil the objective of the remedies in ensuring the maintenance of effective competition (Case T-342/00
Petrolessence v Commission [2003] II-1161).
Crown jewels remedy
The possibility of accepting what the Commission informally refers to as a "crown jewels" remedy (or an alternative divestiture
commitment) is explicitly envisaged in the Remedies Notice (paragraphs 44 to 46) for cases in which the implementation of the parties'
preferred divestiture option might be uncertain or difficult. In such circumstances, the parties may be required to provide an alternative
solution, which has to be at least equally, if not more, effective than the preferred remedy in restoring effective competition. Such
alternative remedies are a means of facilitating the divestiture process and increasing the chances of finding a buyer for the business to
be divested. This type of remedy has been seen in previous cases, for example, AXA/GRE (Case IV/M.1453) and Industri Kapital/Dyno
(see Phase II undertakings). An up-front buyer solution was for the first time coupled with a "crown jewels" remedy, in the
Nestlé/Ralston Purina case (Case COMP/M.2337) (see box, Nestlé/Ralston Purina).
Temporary commitments
Remedies to give access to necessary infrastructure or key technology may be acceptable in specific circumstances where they are
considered sufficient to restore effective competition in the relevant market. This may even be on a temporary basis, especially in the
case of dynamic high-technology markets. For example, in AOL/Time Warner (Case COMP/M.1845) the parties offered a package of
structural and behavioural commitments aimed at breaking the links between Bertelsmann AG (the German media group) and AOL.
Those relating to the period up to Bertelsmann’s exit were of a temporary nature. In Vodafone Airtouch/Mannesmann (Case
COMP/M.1795), the Commission accepted an undertaking from Vodafone Airtouch to provide access to its roaming arrangements by
third party operators for a period of three years from the date of the Commission's decision.
Behavioural remedies and brand licensing
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Whilst the Commission typically prefers structural remedies over intellectual property (IP) licensing and behavioural remedies, in some
recent cases the Commission has been prepared to accept at least a form of behavioural remedy. For example, in Intel/McAfee (Case
COMP/M.5984), the Commission had concerns about the bundling of Intel's central processing units (CPUs) and chipsets with McAfee's
security solutions, including concerns about a lack of interoperability between CPUs, chipsets and security solutions. The Commission
accepted commitments to ensure the interoperability of the merged entity's products with those of competitors, including the provision of
information and a commitment not to actively impede competitors' security solutions from running on Intel CPUs or chipsets (and vice
versa).
Interoperability type remedies were also accepted by the Commission in Cisco/Tandberg (Case COMP/M.5669) and access and other
behavioural remedies were accepted in Deutsche Bahn/EWS (Case COMP/4746), where Deutsche Bahn agreed to fulfil EWS'
expansion plans in France over the next five years through investments in key assets and personnel and to provide fair and non-
discriminatory access to EWS facilities in France for third party rail operators.
Although the Commission has only accepted brand remedies in exceptional cases, it will generally prefer the divestiture of packages of
brands and supporting assets over the granting of an IP licence (especially where divestiture seems feasible). The potential breadth of a
significant brand remedy was acutely demonstrated in Unilever/Sara Lee Body Care in which the Commission allowed the merger with
a commitment to divest Sara Lee's Sanex brand of deodorants. Despite the fact that deodorant market competition concerns were
found in only seven member states, the remedy ultimately agreed with the Commission was EU-wide. The remedy also required
licensing the entire range of Sanex brand products, including the unaffected product markets of shower gels and hand soaps.
Review clauses
Irrespective of the type of remedy, commitments will usually include a review clause (although commitments need not necessarily
contain a formal review clause for the parties to successfully argue that the commitments should be waived (see Case IV/M.950 -
Hoffman-La Roche/Boehringer (OJ 2011 C189/31)). This may allow the Commission, upon request by the parties showing good cause,
to grant an extension of deadlines or, in exceptional circumstances, to waive, modify or substitute the commitments (paragraph 71,
Remedies Notice), although this will very rarely be relevant for divestiture commitments (paragraph 73, Remedies Notice).
The Commission will grant waivers only in exceptional circumstances, if it can be shown that:
• Market circumstances have changed significantly and on a permanent basis, with a sufficiently long time-span having passed
between the Commission decision and the request by the parties.
• Experience gained in the application of the remedy demonstrates that the objective pursued with the remedy will be better achieved
if modalities of the commitment are changed.
• Third parties have been consulted and the modification has been found not to affect the overall effectiveness of the remedy.
• Third party rights would not be affected by the waiver.
Phase I undertakings
Most of the cases in which Phase I undertakings have been accepted have been relatively simple and straightforward divestments of
overlapping businesses. This happened in Owens-Illinois/BTR Packaging (Case IV/M.1109), which was the first case in which the
Commission used its powers to accept undertakings in Phase I (following the formalisation of such powers in March 1998) and in
Neste/Ivo (Case IV/M.931), which concerned a concentration between two Finnish companies, IVO and Neste, who were both active in
the energy sector.
In July 2005, the Commission cleared the acquisition of Gillette by Procter & Gamble subject to the condition that Procter & Gamble
divest the whole of its battery toothbrush business (Case COMP/M.3732, Gilletter/Procter & Gamble). These conditions were
considered to be sufficient to remove the competition concerns resulting from the direct horizontal overlaps between the parties (which
would have given rise to market shares of over 50% in a number of member states). The Commission also concluded that no anti-
competitive conglomerate effects would arise by virtue of the merged entity's portfolio of products or its category management
strategies and so did not require remedies in this regard.
Nonetheless, a small number of cases have involved significant divestments of various business interests, such as in the case of Air
Liquide/ Messr Targets (Case COMP/M.3314), in which the Commission required divestment of business activities in Germany
representing EUR200 million in sales.
Other examples include Hoechst/Rhône Poulenc (Aventis) (Case IV/M.1378), Exxon/Mobil (Case IV/M.1383) and New Holland/Case
(Case COMP/M.1571). The latter case concerned the acquisition of the Case Corporation by New Holland (a wholly-owned subsidiary
of Fiat): both companies were active in agricultural machinery products. The undertakings given included the divestiture of various
product ranges and brands, including the assignment of intellectual property rights, which had the effect of significantly reducing the
market share of the merged entity in a number of markets where the Commission had identified competition concerns.
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In the Unilever/Bestfoods (Case IV/M.1990) case the parties made extensive concessions to resolve competition concerns. The
divestiture package, the total value of which was estimated at EUR500 million in terms of annual retail sales, also included appropriate
supply arrangements, manufacturing facilities, sales forces and intellectual property rights associated with the individual businesses.
The Commission stated that the divestiture package ensured that the respective purchasers would not only acquire the market share
attached with the portfolios but also their full brand value.
Licensing as a remedy in the pharmaceutical and related sectors has also become common practice, even in Phase I cases (see, for
example, Case IV/M.1846 -GlaxoWellcome/Smithkline Beecham). In such cases, the licence is typically exclusive, long-term and
includes both patent and trade mark rights. However, the Commission has shown itself willing to accept that divestment can also be
achieved through shorter-term licensing, as a means of divesting consumer brands, as demonstrated by the Nestlé/Ralston Purina case
(see box, Nestlé/Ralston Purina).
In Air France/KLM (Case COMP/M.3280), the Commission accepted a package of remedies including commitments to give up landing
and take-off slots and behavioural remedies requiring the parties not to increase the level of their offering on the affected air routes and
to enter into certain agreements with competitors. Although these remedies are more complex than is common in Phase I cases, in this
case the Commission had the benefit of precedents set in earlier cases concerning airline alliances, which had been considered under
Article 101 of the TFEU (formerly Article 81 of the EC Treaty). This decision was appealed by easyJet, but it was upheld by the General
Court in July 2006. The General Court held that the Commission had not erred in its assessment of the effects of the merger on the
markets concerned or in its appraisal of the suitability of the remedies to address the competition concerns identified (Case T-177/04 -
easyJet v Commission, judgment of 4 July 2006).
The Commission accepted a similar package of conditions in relation to its conditional clearance, in July 2005, of Lufthansa's
acquisition of Swiss, including behavioural undertakings as well as undertakings by the German and Swiss aviation authorities to refrain
from regulating prices on a number of routes (Case COMP/M.3770 -Lufthansa/Swiss).
ANother example of a case in which the Commission has accepted complex Phase I behavioural remedies in Alcatel/Finmeccania/
Alcatel Alenia Space + Telespazio (Case COMP/M.3680). In order to resolve concerns about the parties' near monopoly position in
relation to certain key satellite components, the Commission required the parties to licence certain technology to third parties and
required relevant equipment to be supplied at prices which do not exceed the benchmark price list prices charged for comparable
equipment. Customers are able to complain about pricing to the European Space Agency, which can make a binding arbitration award
on the price. This solution therefore addressed concerns about pricing without the regulator resorting to price control. It also shows a
willingness on the Commission's part to accept inventive solutions to reconcile the parties' commercial aims with competition policy.
Phase II undertakings
Although the majority of remedies accepted by the Commission, even in Phase II, follow the principle that simple, structural remedies
are the ideal solution, the Commission has shown a willingness to accept remedies which are somewhat more complicated than a
straight forward divestment.
For example, in the EdF/EnBw case (Case IV/M.1853), the Commission accepted a package of remedies, which included three
elements - two of which were relatively standard and an innovative third element. This third element of the EdF remedy sought to
address the competition concerns that had arisen in relation to so-called "eligible" customers in France, i.e. those whose electricity
supply is open to competition.
To resolve these concerns, EdF undertook to provide competitors with access to generation capacity located in France in the form of
virtual power plants (5000 MW) and back-to-back agreements to existing co-generation power purchase agreements with a maximum of
1000 MW. This was on the basis that a divestiture of power plants could not be envisaged as an appropriate solution, both for economic
reasons (it was very unlikely that newcomers would have taken the risk of acquiring such a plant) and legal reasons in the case of
nuclear plants. Under the terms of the commitments, the contracts for the virtual power plants were to be awarded through an open, non
-discriminatory public auction open to utilities and energy traders alike. The arrangements for access to generation capacity were
required to remain in place for a period of five years and could only be terminated on the basis of a reasoned request by EdF. It was
anticipated by the Commission that over that period the electricity market in France would have developed so as to allow sufficient
alternative supply sources to be made available. Similar considerations applied to the package of remedies accepted in
Verbund/Energie Allianz (Case COMP/2947), which raised competition concerns on the Austrian electricity market.
Crown jewel remedies have also been applied in Phase II cases. For example, in Industri Kapital/Dyno (Nordkem) (COMP/M.1813), the
Commission’s investigation revealed particular competition problems in two sectors: formaldehyde, a base chemical, and formaldehyde
based resins in Finland, and in plastic materials handling systems in the Nordic area. In order to remove these competition concerns,
Industri Kapital proposed to divest the formaldehyde and resin plant of Dyno in Kitee, Finland. In the event that this divestment did not
take place within the time period foreseen, Industri Kapital agreed, by way of a "crown jewel" remedy, to divest the alternative
formaldehyde and resin plant of Neste in Hamina, Finland. Industri Kapital also pledged to sell Dyno’s shares in Polimoon to an
independent purchaser or, alternatively, to divest its complete holding in Arca. The latter undertakings removed the link between Industri
Kapital (Arca) and Polimoon in the field of materials handling systems.
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In Newscorp/Telepiu (Case COMP/2876), the Commission accepted a complex package of behavioural remedies (in addition to a
divestment remedy), designed to lower barriers to entry to the Italian pay-TV market and open access to premium television content
(controlled by the parties). The undertakings required Newscorp to waive exclusive rights in relation to non-satellite broadcast of
blockbuster movies, football matches and other sport rights and to offer "wholesale" non bundled prices. Newscorp undertook to offer
improved terms to satellite operators to allow unilateral termination and shorter contracts and not to block cheaper access to delayed
release rights for films. Further, Newscorp accepted undertakings relating to the licensing and terms of licensing of technology for which
it was the "gatekeeper", including third party rights to use its own platform on fair, reasonable and non-discriminatory basis.
In September 2010, the General Court dismissed an appeal against the Commission's decision to grant conditional approval of the
Lagardere/Vivendi Universal Publishing (VUP) merger. The Commission concluded that the full merger of Lagardère and VUP (now
known as Editis) would produce a company that was seven times the size of its nearest rivals and would be dominant in a number of
markets in the French language publishing sector. In order to meet the competition concerns identified by the Commission, Lagardère
agreed to divest Editis and to retain only certain approved assets that comprise around 40% of the total Editis turnover.
However, the General Court annulled the Commission's decision to approve the purchaser of the divestment assets. The Commission's
decision approving the purchaser was adopted on the basis of the report of a trustee who was not independent (T-279/04 and T-452/04
Éditions Jacob SA v Commission, judgments of 13 September 2010; see Legal update, General Court upholds conditional approval of
Lagardere/VUP merger but annuls approval of purchaser of divestment assets (www.practicallaw.com/4-503-3201)).
The General Court's decision was appealed and, in March 2012, the Advocate General recommended that the General Court's
judgment be overturned (see Legal update, Advocate General opinion on independence of trustee in Lagardere/Natexis/VUP
merger (www.practicallaw.com/3-518-6671)). However, in November 2012, the ECJ dismissed the appeal and upheld the General
Court's judgment (Joined Cases C-553/10 P and C-554/10 P - Commission v Éditions Odile Jacob and Lagardère v Éditions Odile
Jacob; see Legal update, ECJ dismisses appeals against General Court judgments on Lagardere/VUP merger (www.practicallaw.com/6
-522-2757)).
Third party interventions
Following the notification of a concentration the Commission must (if it is within the scope of the Merger Regulation) publish details of it
in the Official Journal (Article 4(3), Merger Regulation). The Commission will use the Official Journal notice to invite third parties (such
as competitors, customers and suppliers) to comment on the transaction, usually within 10 days from publication of the notice. In
addition, where necessary, the Commission will request third parties to reply to specific questions during the course of the investigation.
The rights of third parties to be heard are contained in Article 18 of the Merger Regulation and also Articles 11 and 16 of the
Implementing Regulation.
In 2010, the Commission introduced the web-based application "eQuestionnaire" in its market investigations in merger cases.
Companies requested to provide information (at present only about notified mergers) will receive an e-mail informing them of the launch
of an investigation and inviting them to log on to eQuestionnaire using a unique access code. After first confirming their contact details
and the receipt of the request for information, companies can fill in the questionnaire directly online or can choose to export the
questionnaire to a text editor, complete the responses there and upload the replies into the application afterwards.
Third parties may also voluntarily submit comments to the Commission at any stage of the proceedings. Substantial criticism from third
parties is likely to trigger a Phase II investigation.
Third parties, and in particular competitors, have in a number of cases played an active and decisive role in merger procedures (see, for
example, Case IV/M.430 Procter & Gamble/VP Schickedanz and Case IV/M.623 Kimberly-Clark/Scott Paper). This may include
attending regular meetings with the Commission from the start of the proceedings, making detailed written submissions on the effect of
the merger (where necessary backed up with specially commissioned market and econometric studies), participating in the oral
hearings and extensive lobbying at both EU (through contacts with the Commissioners and their Cabinet) and national level (see
Advisory Committee). Third party comments, especially those of competitors, can also play a decisive role in determining the adequacy
of remedies proposed by the parties. The Commission will market test all remedies submitted to it with interested third parties.
A number of points concerning third parties rights' to be heard in merger proceedings were clarified by the General Court in
Kaysersberg SA v Commission (Case T-290/94 [1995] ECR 2247) which was an appeal against the Commission's decision in Procter &
Gamble/VP Schickedanz). The General Court underlined the need to reconcile respect for the rights of defence with the efficiency of the
proceedings. In particular, the obligation on the Commission to comply with strict time limits and the need for legal certainty required
sufficient flexibility in the proceedings, which might lead to shorter periods for the submission of observations by third parties.
The General Court considered the question of whether the Commission had exercised its duty of care in relation to third party
complainants in (NVV and others v Commission Case T-151/05, judgment of 7 May 2009). The General Court held that in its
assessment of mergers, the Commission must determine with the necessary care the elements of fact and law which are essential to
the exercise of its discretion by gathering all the necessary facts. This duty implies that the Commission must take account of the facts
and information provided to it by the notifying parties or by any third party active in the administrative procedure. In addition, it must
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seek to discover those facts through market investigations or requests for information. However, the General Court again confirmed that
this duty of care must be interpreted in a way which is compatible with the need for speed which characterises the general scheme of
the Merger Regulation and the Commission's obligations to meet tight deadlines (see Legal update,CFI dismisses appeal against
Commission decision in Sovion/HMG merger (www.practicallaw.com/7-385-9108)).
The General Court has also confirmed that consumer associations do have a right to be heard in merger proceedings, provided that the
merger concerns (even indirectly) products or services used by final consumers, and the consumer association has made an application
to be heard during the investigation procedure, as required by Article 18(4) of the Merger Regulation and Article 16 of the Implementing
Regulation. However, the General Court has found that the fact that a consumer association has expressed its wish to be heard in a
letter sent to the Commission prior to the notification of the merger is not sufficient to trigger the right to be heard. Having failed to
express its views after the notification of the merger, the General Court found that consumer association's rights to be heard were not
violated (see Case T-224/10, Association belge des consommateurs test-achats ASBL v European Commission, judgment of 12
October 2011; General Court rules that appeal by consumer body against EDF/Segebel merger was
inadmissible (www.practicallaw.com/4-509-1601)).
For further information on third party interventions in merger cases see Complaints under EU competition law: Complaints under the EU
Merger Regulation (www.practicallaw.com/A29378).. For practical guidance on issues to consider in deciding whether to make a third
party intervention see Intervening effectively in an EU merger control investigation (www.practicallaw.com/4-549-0845).
Access to documents
In June 2012, two judgments of the ECJ provided some clarity about the rights of third parties to seek access to documents submitted
by the parties notifying a merger to the Commission. The first case concerned the Commission's refusal to disclose documents to
Editions Odile Jacob in relation to the Lagardere/ Natexis VUP merger. The second case concerned the Commission's refusal to
disclose documents to Agrofert in relation to the PKN Orlen/ Unipetrol merger. In each case, the Commission had refused to provide the
third parties with certain requested documents. In refusing such access, the Commission had relied on exceptions in Regulation
1049/2001, regarding public access to Parliament, Council and Commission documents (OJ 2001 L145/43).
Regulation 1049/2001 sets out the principles on which Community bodies should provide access to their documents. Citizens of the EU
and any legal or natural person residing in a member state have a right of access to documents of the institutions subject to certain
exceptions:
• Disclosure would undermine the protection of:
• the commercial interests of a natural or legal person, including intellectual property;
• court proceedings and legal advice;
• the purpose of inspections, investigations and audits
unless there is an overriding public interest in disclosure (Article 4(2)).
• The document has been drawn up for internal use and relates to a matter which has not yet been taken, or relates to deliberations
and preliminary internal consultations and disclosure would seriously undermine the institution's decision-making process, unless
there is an overriding public interest in disclosure. Access to a document containing opinions for internal use as part of deliberations
and preliminary consultations within the institution concerned shall be refused even after the decision has been taken if disclosure of
the document would seriously undermine the institution's decision-making process, unless there is an overriding public interest in
disclosure (Article 4(3)).
In each case, on appeal by the third party, the General Court had annulled the Commission's decision, finding that it was required to
conduct an individual examination of each requested document to show that the refusal was justified by one of the exceptions in
Regulation 1049/2001.
The Commission appealed the judgments of the General Court in these two cases to clarify the relationship between the particular rules
on professional secrecy under the EU Merger Regulation and the disclosure obligations in Regulation 1049/2001. It was concerned that
the General Court's judgments interfered with its ability to conduct inquiries under the EU Merger Regulation and had a potentially
adverse effect on the rights of parties that submit documents as part of merger control proceedings to have confidential information
protected.
The ECJ overturned the General Court's rulings. The ECJ held that the General Court erred by failing to take account of the secrecy
rules in the EU Merger Regulation when considering the application of the exceptions to disclosure. The ECJ s recognised that there is
a general presumption that the disclosure of documents submitted to the Commission in the context of merger control proceedings (by
the parties or third parties) undermines the protection of commercial interests of those parties and also the purpose of the Commission's
merger control investigations.
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Therefore, the Commission may refuse access to requests for disclosure of such documents (whether the merger control case is open
or closed) in reliance of Article 4(2) of Regulation 1049/2001 without the need to conduct a detailed, individual examination of each
requested document. It would be up to the requesting party to argue that a particular document is not covered by that presumption or
that there is a higher public interest justifying disclosure. This, therefore, provides greater security to companies involved in merger
control proceedings that the sensitive information that they provide to the Commission will not be disclosed
In relation to internal Commission documents and legal advice, however, the ECJ emphasised the difference between cases where the
merger case is still potentially open (due to ongoing appeals) and cases where the Commission's decision is definitive. Where court
proceedings are pending there is a general presumption that disclosure would seriously undermine the Commission's decision-making
process and the protection of legal advice. However, in situations where the Commission's decision is final it must provide individual
justification for relying on the exceptions to disclosure based on protection of legal advice and protection of its decision-making.
See further Legal update, ECJ rulings on disclosure of documents relating to merger control proceedings (www.practicallaw.com/8-520-
1042).
Commission's assessment
The test: compatibility with the internal market
In assessing a concentration the Commission must determine whether it is compatible with the internal market (Article 2(1), Merger
Regulation).
For this purpose, the Commission must take into account:
• The need to maintain and develop effective competition within the internal market in view of, among other things, the structure of all
the markets concerned and the actual or potential competition from undertakings located either within or outside the EU (Article 2(1)
(a)); and
• The market position of the undertakings concerned and their economic and financial power, the alternatives available to suppliers
and users, their access to supplies or markets, any legal or other barriers to entry, supply and demand trends for the relevant
goods and services, the interests of the intermediate and ultimate customers, and the development of technical and economic
progress provided that it is to customers' advantage and does not form an obstacle to competition (Article 2(1)(b)).
Under the Merger Regulation a concentration which would significantly impede effective competition in the internal market or in a
substantial part of it, in particular as a result of the creation or strengthening of a dominant position must be declared incompatible with
the internal market i.e. prohibited (Article 2(3)). Conversely, a concentration which would not significantly impede effective competition
in the internal market or in a substantial part of it must be declared compatible with the internal market, i.e. cleared (Article 2(2)).
This replaced the original substantive test in the 1989 Merger Regulation whereby a merger that created or strengthened a dominant
position as a result of which effective competition would have been significantly impeded in the internal market or a substantial part of it
had to be declared incompatible with the internal market (the dominance test).
The original dominance test had two limbs:
• Whether the concentration creates or strengthens a dominant position; and
• If so, whether the result is that effective competition would be significantly impeded.
The current revised test, however, has a single test: whether the merger significantly impedes effective competition. Dominance is the
prime example of when there may be such a significant impediment to effective competition, but is no longer a pre-requisite for the
application of the test. The rationale for the change was to clarify that "the substantive test contained in the regulation covers all types of
harmful scenarios, whether dominance by a single firm or effects stemming from a situation of oligopoly that might harm the interests of
European consumers" (Commission press release IP/03/1261).
Commission practice and the case law of the ECJ had gone some way to extending the concept of dominance to situations of
"collective dominance" or oligopoly, where two or more of the market participants hold a position of joint dominance, but where the
merging entity does not hold a dominant position on its own (see Collective dominance). However, the leading cases in this area limited
the concept to situations where, due to particular market characteristics, the merger increases the possibility of tacit collusion between
those holding the collectively dominant position ("co-ordinated effects").
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However, the Commission believes that in oligopolistic markets harmful effects can sometimes arise where mergers result in the
elimination of important competitive constraints or a reduction in competitive pressure, even where the possibility of tacit collusion or co-
ordinated behaviour is not increased. It was not clear that such "non-co-ordinated effects" would have been caught by the original
dominance test, in the absence of the merged entity being a market leader. The revised substantive test therefore seeks to close this
gap by focusing on the anti-competitive effects of a merger, rather than the structure of the market.
The Recitals to the Merger Regulation make it clear, however, that a significant impediment to effective competition generally arises
from the creation or strengthening of a dominant position (Recital 26). Accordingly, the previous decisions of the Commission and the
case law of the ECJ and General Court will continue to provide precedent for the application of the revised substantive test and the
assessment of dominance.
To coincide with the entry into force of the Merger Regulation, the Commission published guidance on the assessment of horizontal
mergers (mergers between actual or potential competitors) (the Horizontal Guidelines) (OJ 2004 C31/5). These also emphasise the
continued importance of previous case law on dominance (see Horizontal Guidelines).
In November 2007, the Commission adopted guidelines on the assessment of non-horizontal mergers under the Merger Regulation.
The Non-horizontal Guidelines provide guidance on the Commission's assessment of mergers where the parties are active on distinct
relevant markets: vertical mergers or conglomerate mergers. They provide an overview of the type of general issues that arise, provide
guidance on the relevant market share and concentration levels that might give rise to concerns, and review the Commission's analysis
of the possible foreclosure effects or co-ordinated effects arising from non-horizontal mergers (see The Non-horizontal Guidelines).
Substantive assessment
In assessing whether a concentration will significantly impede effective competition, a key assessment is, as explained above, whether
the merger creates or strengthens a dominant position. In assessing dominance, the Article 102 case law (see Practice Article
102 (www.practicallaw.com/A14485)), as well as cases on dominance in the context of the Merger Regulation itself, will be relevant. As
in the case of dominance under Article 102, it is first necessary to define the relevant product and geographic markets.
Relevant market
The Commission will assess a concentration with respect to the relevant product market and the relevant geographic markets affected
by it (the general principles of market definition are summarised briefly here; for more detailed consideration see Competition regime,
Market definition (www.practicallaw.com/A14487)).
The relevant product market comprises all those products or services which are regarded as interchangeable or substitutable by the
consumer, by reason of the characteristics of the products, their prices and intended use. Thus the market includes the products that
form the subject matter of the concentration plus any other products that are generally regarded as substitutable. This is viewed
primarily from the demand side - that is, products to which customers may switch - but supply-side substitutability (capacity for the
production of other products that could easily be switched to the production of the relevant products) will also be taken into account.
The relevant geographic market is the geographical area in which the companies concerned are involved in the supply of products or
services, in which the conditions of competition are sufficiently uniform, and which can be distinguished from neighbouring areas
because, in particular, conditions of competition are appreciably different in those areas. Conditions of competition which would indicate
separate geographic markets include the existence of significant price differentials or transport costs, differences in customer
preferences, and trade barriers (such as licensing requirements or other differences in the regulatory environment).
The Commission will not rely on current competition conditions alone, but will also taken into account market changes anticipated in the
foreseeable future in its assessment of the relevant market (Case IV/M.1882 Pirelli/BICC). The key issue in Pirelli/BICC was the
definition of the geographic market, more precisely whether competition on the markets for the production and sale of power cables to
energy utilities was carried out at national or European level. The Commission recognised that the gradual liberalisation of electricity
markets combined with the EU's public procurement directives had profoundly changed the relationship between power utilities and
cable manufacturers. Therefore, the Commission did not rely just on past market data but took into account the changes which had
already occurred and which could be expected to occur in the foreseeable future in determining the definition of the geographic market.
The case illustrates that the Commission, where appropriate, will take due account of the emergence of European markets.
The Commission has published a detailed Notice on the definition of the relevant market (OJ 1997 C372/3), which is considered further
in Competition regime, Market definition (www.practicallaw.com/A14487).
For specific sectors (such as air transport, telecommunications, insurance, energy and pharmaceuticals), a review of the Commission's
previous decisions may also be useful in determining the relevant product and geographic markets.
Although a review of the Commission's previous decisions may also be useful, the Commission only comes to a firm conclusion on the
scope of the relevant product or geographic market if such a conclusion is necessary to determine whether or not to clear a transaction.
In most cases, the Commission assesses the transaction on the basis of the narrowest market definitions that it considers to be
plausible. If the transaction in question does not give rise to concerns on even these narrowly defined markets, it can usually be cleared
without any detailed economic analysis of the correct scope of the relevant markets.
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Therefore, while past decisions in a given sector may offer insights into the way that the Commission will segment markets for the
purposes of assessing transactions that raise no competition concerns, and whether prima facie concerns are likely to be identified by
the Commission on the basis of those markets, they may offer limited guidance on how the Commission would define markets for a
transaction raising substantial competition concerns. Moreover, even where the Commission does come to a firm conclusion on the
scope of a relevant market, this does not bind the Commission in future cases, as market conditions may change over time, or between
different geographic regions (see the judgment of the General Court in Coca-Cola Case T-125/97 [2000] ECR 1732).
Market shares and other factors
In assessing a concentration's compatibility with the internal market, the Commission will first take into account the market share which
the merged entity would have. A market share of below 25% will generally be presumed to be compatible with the internal market
(Recital 32, Merger Regulation). In its Horizontal Guidelines, the Commission states that market shares in excess of 50% may evidence
the existence of a dominant market position, particularly if the competitors’ market shares are low. However, other factors (such as the
number of competitors, capacity constraints and the nature of the market) may mean that combined shares of between 40–50%, or
even below 40%, will be seen to strengthen or create a dominant position.
High market shares, while generally triggering a Phase II investigation, will not necessarily lead to a decision of incompatibility (for
example, market shares of 80% were cleared in Alcatel/Telettra (Case IV/M.042) and Danish Crown/Vestjyske Stagterier (Case
IV/M.1313) and a market share of 60% was cleared in Swedish Match/KAV).
There may also be certain markets in which market shares have less relevance in indicating horizontal competition concerns. For
example, in Microsoft/ Skype (Case COMP/M.6281) , the Commission found that the consumer communications sector is a recent and
fast-growing sector, which is characterised by short innovation cycles. Market shares may, therefore, turn out to be ephemeral. In such
a dynamic context, high market shares are not necessarily indicative of market power or of lasting damage to the market resulting from
a merger. This approach was confirmed by the General Court (Case T-79/12 - Cisco Systems and Messagenet v European
Commission).
In addition, to market shares, the Commission will also consider other indicators of market concentration, such as the Herfindahl-
Hirschman Index (HHI) (see Practice note, How to conduct an HHI analysis (www.practicallaw.com/A28373)).
In order to assess the impact of the merger on competition in the relevant market in light of the relevant market structure (as indicated
by market share), the Commission will take into account the factors referred to in Article 2(1)(a) and (b) of the Merger Regulation (see
above) for example:
• The existence of potential new entrants to the market (if there is strong evidence of such entrants). In a case concerning the market
for the supply of steel and plastic strapping, the Commission found that the parties' combined market share of 40% in steel strapping
caused concern. The Commission, however, found that plastic strapping could be substituted for steel and, since entry into plastic
strapping was relatively easy, the likelihood of a new entrant in the plastic strapping sector was high if the parties raised their prices
(Case IV/M.970 - ITS/Signode/Titan).
The potential entrance by one of the parties to a concentration into the market of another party can, however, give rise to concerns.
For example, in EDP/ENI/GDP (Case COMP/3440), the Commission was concerned by the impact on competition of the removal of
GDP (the incumbent Portuguese gas supplier and EDP (the incumbent electricity supplier) as potential competitors to the other in
relation to gas and electricity. Dismissing an appeal by EDP against the Commission's decision prohibiting this merger, the General
Court found that the Commission did not make a manifest error of assessment when it considered that the concentration would
cause an important potential competitor (GDP) to disappear from all the electricity markets. The General Court agreed with the
Commission that this would strengthen EDP’s dominant positions on each of those markets, with the consequence that effective
competition would be significantly impeded (Case T-87/05 - EDP-Energias de Portugal SA v Commission).
• Low entry barriers to the market(s) in question.
• The availability of alternative products (albeit not substitutable products).
• The existence of countervailing buying power on the part of customers. For example, in a case concerning the merger of two
paper and board companies, the Commission found that, although the number of suppliers of liquid packaging board in the EEA
would be reduced to just three and that entry barriers were high, the merged company faced considerable countervailing buyer
power from their three main customers (the principle customer being Tetra Pak), with there being mutual dependence between
buyers and sellers (Case IV/M.1225 - Enso/Stora).
• The limited impact of the concentration on an entity's market position.
• The existence of vertical links may raise concerns. This point is illustrated in two cases where the merged companies were to
supply digital pay-TV services, but the Commission found that the concentrations would have created or strengthened dominant
positions in certain vertical markets, including technical pay-TV services, set-top box technology and access to cable networks and
therefore prohibited the joint ventures (Case IV/M.993 Bertelsmann/Kirch/Premiere; Case IV/M.1027 Deutsche
Telekom/Betaresearch).
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• In Kali und Salz (Cases C-68/94 and C-30/95 ECR [1998] 1375), the ECJ agreed with the Commission's application of the so-called
"failing company defence". According to this, a concentration is not incompatible with the internal market, irrespective of the
parties' market position, if one of the parties is a failing company which would be forced out of the market if the concentration were
not implemented, and if there are no other solutions (alternative purchasers) which are less anti-competitive than the concentration.
The Commission applied the "rescue merger" concept for the second time in BASF/Pantochim/Eurodiol (Case IV/M.2314), approving
the acquisition by BASF of Pantochim and Eurodiol notwithstanding the resultant high market share (in excess of 45%). BASF was
the only company to have made a firm offer and, in the absence of a buyer, the bankruptcy of Pantochim and Eurodiol would have
been unavoidable. The Commission concluded that the bankruptcy would have caused more damage to consumers than the merger
itself.
In Newscorp/Telepiu (Case COMP/M.2876), Newscorp argued that the conditions for the failing company defence were met and that
Stream, its subsidiary, would inevitably exit the market in the event of the merger being blocked. While the Commission considered
that the very strict legal requirements of the defence were not met, in approving the merger, it did take into account the chronic
financial difficulties faced by both companies, the specific features of the Italian market and the disruption that possible closure of
Stream would cause to customers.
During 2013, the Commission accepted a "failing firm" defence in two cases. In Nynas/ Harburg Refinery (COMP/M.6360), the
Commission was satisfied that, absent the merger, the previous owners would not continue to operate the Harburg refinery as it was
economically unsustainable. Nynas would operate the refinery on a different business model, requiring significant investment.
Further, there were no alternative buyers of the Harburg refinery assets. Therefore, the Commission concluded that the most likely
alternative scenario to the proposed transaction would be the closure of the Harburg refinery. As such, the reduction of the number
of competitors in the market would occur anyway and would not be caused by the acquisition itself.
In addition, in Olympic Air/ Aegean Airlines II (COMP/M.6796), the Commission accepted that Olympic Air should be regarded as a
failing firm, which would soon exit the market in the absence of the merger. The Commission had rejected this argument when it first
reviewed, and prohibited, this merger in 2011. However, due to the subsequent deterioration in the financial situation of Olympic,
and the situation the Commission was satisfied that the situation had changed.
• The creation or strengthening of a strong position in neighbouring markets may be important. In Wolters Kluwer/Reed Elsevier
(Case IV/M.1040), the Commission found that the proposed merger of two of the largest publishers of professional and specialist
information gave cause for concern due to the impact of the merger on various neighbouring markets, including academic journals
and books worldwide, professional books on law and taxation in various member states, and educational publishing for schools in
the UK. The Commission found that the combined strength of the parties across a wide range of neighbouring markets could give
rise to competition problems, in that the parties' size and copyright ownership had a foreclosure effect and would discourage market
entrants.
• The Commission is also prepared to assess the possible impact of a concentration on emerging or future markets. In
Vodafone/Vivendi/Canal+ (Case IV/JV.48), in relation to the creation of the Vizzavi Internet portal joint venture, the Commission's
investigation concluded that the joint venture would have led to competitive concerns in the developing national markets for TV-
based internet portals and in the developing national and pan-European markets for mobile phone-based internet portals. The
parties submitted commitments to ensure rival Internet portals would have equal access to the parent companies' set-top boxes and
mobile handsets. In Vivendi/Canal+/Seagram (Case IV/M.2050) the Commission approved the acquisition by French
telecommunications and media company, Vivendi, and its subsidiary, Canal+, of Canada's Seagram. The Commission found that the
transaction as notified significantly affected three markets, namely pay-TV, the emerging pan-European market for portals and the
emerging market for online music. Vivendi offered to give rival portals access to Universal's online music content for five years in
order to remove the competition concerns on the emerging pan-European market for portals and on the emerging market for online
music.
• The Commission will be concerned if a merger would lead to foreclosure of the market through ties with customers and/or
suppliers. In a case concerning the market in certain clinical chemistry testing products, the Commission found that the parties would
benefit from an "installed base" of instruments needed to perform the tests, leading to the risk that customers would become "locked
in" to purchasing the testing products from the parties due to their reliance on the parties for service, maintenance, and so on, of the
instruments. Although the Commission concluded that this situation would have created or strengthened a dominant position, the
concentration was cleared after the parties agreed to a number of undertakings (Case IV/M.950 Hoffmann-La Roche/Boehringer
Mannheim), which the Commission subsequently waived in May 2011 (OJ 2011/C 189/11).
• The so-called portfolio effect was considered in Guinness/Grand Metropolitan (Case IV/M.938). The Commission assessed the
effect of including strong brands belonging to separate markets in a range of drinks, and found that the inclusion of the brands could
give each brand in the portfolio greater strength on the market than if it were sold individually (the "portfolio effect"), thereby
strengthening the competitive position of the portfolio's owner on several markets. In the SEB/Moulinex case the General Court, for
the first time, confirmed the use by the Commission of a competitive analysis including an examination of the portfolio effects of a
merger (Cases T-114/02 and T-119/02, judgment of 3 April 2003). In WorldCom/MCI (Case IV/M.1069), the Commission found that
the "network externalities" effect (where the attraction of a network to its customers is affected by the number of other customers
connected to the same network) would have enabled the merged entity to behave independently of its competitors and customers,
and to degrade the quality of the internet-related services offered by its competitors.
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• The Commission assessed the Tetra Laval/Sidel merger on the basis of its conglomerate effects. Although the Commission did
identify certain horizontal and vertical overlaps between the activities of the parties, these would not on their own have resulted in
the creation or strengthening of a dominant position. The Commission found that Tetra Laval's dominance in one market could be
used to leverage its position in another distinct, but closely related market and blocked the merger. On appeal, the General Court
found that while the Merger Regulation allows for the possibility of finding that a dominant position could be created or strengthened
through leveraging the Commission must adduce convincing evidence to support such a finding. The General Court found that the
Commission had failed to reach the required level of proof and annulled the Commission's decision. This view has been upheld by
the ECJ (see also box, Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel).
The Commission's decision blocking the GE/Honeywell merger included an assessment of similar conglomerate issues. The
Commission concluded that there was a risk that the merged entity would be able to leverage the respective market power of the two
companies into the products of one another which would have the effect of foreclosing competitors, severely reducing competition in
the aerospace industry. The General Court upheld the Commission's decision to block this merger on the basis that direct horizontal
overlaps between the parties either created or strengthened dominant positions. However, the General Court found that the
Commission made a number of errors in its assessment of the impact of the conglomerate effects of the merger and had not shown
to the requisite standard of proof that the competitive harm foreseen by the Commission would arise (Case T-210/01 General
Electric v Commission [2005] ECR II-5575 and Case T-209/01 Honeywell v Commission [2005] ECR II-5527).
Following the Tetra Laval and GE/Honeywell) judgments the Commission set out a more cautious approach to conglomerate and
portfolio effects in its Non-horizontal Guidelines, in which it acknowledged that conglomerate mergers in the majority of
circumstances will not lead to any competition problems (see The Non-horizontal Guidelines). This caution may be demonstrated by
the recent Procter & Gamble/Gillette case (Case COMP/M.3732) in which the Commission concluded that, despite the large number
of well-known brands the merged entity would be able to offer, conglomerate effects were unlikely to arise due to continued strong
competition from other suppliers, as well as the ability and incentive for retailers to exercise countervailing power.
Similarly, in Pernod Ricard/Allied Domecq (Case COMP/M.3779) the Commission concluded that the merged entity's enlarged
portfolio was unlikely to have significant anti-competitive effects on competition, mainly because of strong competition from Diageo.
• In UPM-Kymmene/Haindl (Case COMP/M.2498) and Norske Skog/Parenco/Walsum (Case COMP/M.2499), the Commission
assessed the effects of "capacity co-ordination" in two merger cases involving the markets for newsprint and wood-containing
magazine paper. In the newsprint market the Commission found that the four largest companies (UPM-Kymmene/Haindl, Stora
Enso, Norske Skog/ Haindl-2 and Holmen), together, held approximately 70% of the market in terms of sales and 80% of the market
in terms of capacity. In the wood-containing magazine paper market, the Commission determined that the top three suppliers (UPM-
Kymmene/Haindl, Stora Enso and M-Real/Myllykoski) accounted for approximately 70% of the market in both sales and capacity.
The Commission observed that the transactions eliminated a significant competitor, Haindl, from the market and that Haindl's cost
structure differed from the other top suppliers. In the newsprint market, the number of competitors would be reduced from five to four
and in the wood-containing magazine paper market, from four to three.
The Commission considered whether the potential for co-ordination of investment in new capacity (in order to limit overall capacity)
or the co-ordination of output downtimes to support short term prices would allow co-ordination between the various competitors and
so support the conclusion that collective dominance would be created (see Collective dominance).
The Commission observed that possibilities for the co-ordination of investment in new capacity could not sustain the creation of tacit
co-ordination in the relevant markets. The co-ordination of output downtimes could lead to collusion so as to support the existence of
a collectively dominant position. However, in this case, the Commission found that the effects would be undermined by fringe players
in these markets who had the ability to increase production so as to make such co-ordinated action unsustainable (see also
COMP/M.6101 - UPM-Kymmene/Myllykoski, which was cleared at Phase II on the basis that, inter alia, the parties' competitors
would have significant spare capacity in relation to magazine paper (specifically the supercalendered paper segment) to react to any
attempts by UPM-Kymmene to raise prices, and demand for magazine paper was forecast to remain stable or even slightly decline,
so sufficient capacity would remain available).
Collective dominance
The Commission took the view that the pre-2004 merger control regime gave it competence to prohibit concentrations which created or
strengthened an oligopolistic market structure, even if the merged entity on its own would not have occupied a dominant position. This
view was confirmed by the ECJ in the Kali und Salz and Gencor judgments (Joined cases C-68/94 and C-30/95 [1988] ECR 1375).
Gencor also appealed against the Commission's decision in Gencor/Lonhro (Case IV/M.659) to prohibit the proposed joint venture
between the two parties, on the basis that the joint venture would create collective dominance consisting of the joint venture and
Amplats (see Case T-102/96 [1997] ECR 879). The General Court followed the ECJ ruling in Kali und Salz, holding that, on the facts of
the Gencor case, the Commission was entitled to conclude that the concentration would have led to the creation of a collective
dominant position, on the basis, amongst other factors, that the products were high value goods, sold throughout the world on the same
terms, that the products were characterised by homogeneity, that there was high market transparency, moderate growth rate and high
barriers to market entry for competitors.
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The substantive test to be applied by the Commission in assessing cases involving collective dominance was confirmed by the General
Court in the Airtours/First Choice judgment (Case IV/M.1524, appeal Case T-342/99 [2002] ECR II-2585). The General Court
emphasised that the Commission must ascertain "whether the concentration would have the direct and immediate effect of creating or
strengthening a [collective dominant] position which is such as significantly and lastingly to impede competition in the relevant market".
The risk to competition in the market could arise where, in view of the characteristics of the market, each company holding the position
of collective dominance would recognise their common interest in increasing prices in the market and would be able to adopt such a
common policy without engaging in collusion (i.e. there would be co-ordinated effects resulting from the merger).
The General Court ruled that a collective dominant position requires that the companies reach a common understanding about the
terms of co-ordination and that the following three conditions are met:
• The co-ordinating firms must be able to monitor whether the terms of co-ordination are adhered to (transparency).
• There must be some form of deterrent mechanism in the case of deviation.
• The reaction of outsiders, such as current and future competitors not participating in the co-ordination, should not be able to
jeopardise the results expected from the co-ordination.
In its analysis the Commission should take into account a range of factors, such as transparency in the market, product homogeneity,
market growth, innovation, barriers to entry and the possibilities for retaliation, as well as the position of smaller operators.
Although the General Court agreed with the Commission on the legal test to be applied it was extremely critical of the way in which the
Commission applied the test to the facts of the case. The outcome of the Airtours appeal was widely seen as a blow to the Commission
in this area. Airtours, now known as 'My Travel', lodged an action with the General Court claiming substantial damages from the
Commission. However, in September 2008, the General Court dismissed this action (see the box, Airtours/First Choice,
Schneider/Legrand and Tetra Laval/Sidel).
The Horizontal Guidelines set out the factors that the Commission will generally consider in assessing whether a merger in an
oligopolistic market will increase the likelihood that firms are able to co-ordinate their behaviour to adopt a course of action aimed at
selling at increased prices (without the need to enter into an agreement or concerted practice contrary to Article 101 of the TFEU) or
whether the merger may make such co-ordination easier, more stable or more effective for firms that were already co-ordinating.
The market conditions identified by the General Court in the Airtours case will be used by the Commission to assess the possibility of co
-ordination in an oligopolistic market. These conditions are more likely to be established in simple, stable and transparent markets
involving homogenous products.
In July 2004, the Commission completed its in-depth examination of a joint venture between Sony and Bertelsmann Music Group
(BMG). The Commission assessed the possibility that the joint venture would result in the creation or strengthening of a collective
dominant position in the national markets for recorded music. The Commission found that there was insufficient evidence of such
collective dominance and approved the merger unconditionally (Case COMP/M.3333). Although this case was considered under the pre
-2004 merger control regime, it was the first significant example of the application of the principles set out in the Airtours case in
practice (see box, Sony/BMG).
However, this case could be seen to demonstrate a more cautious approach by the Commission since the Airtours case. It can be
contrasted with EMI/Timewarner (Case COMP/M.1852), where the Commission's opposition based on arguments relating to collective
dominance led to the abandonment of the merger.
The Commission's clearance decision in Sony/BMG was appealed by Impala, a trade association representing independent music
companies (Case T-464/04 - Impala v Commission). On 13 July 2006, the General Court upheld Impala's appeal and annulled the
Commission's decision. The General Court did not challenge the Airtours tests, but found that the Commission had erred in its
application. In particular, the General Court found that the two main reasons why the Commission concluded that there was no
collective dominant position on the relevant markets (the lack of transparency and absence of retaliatory measures) were not
adequately supported by the Commission's reasoning or examination.
However, in July 2008, the ECJ set aside the General Court's decision. The ECJ found that the General Court had made errors in law in
finding that the Commission's decision was not adequately reasoned. It also found that the General Court had erred in its examination
of market transparency for the purposes of assessing collective dominance.
The ECJ set out its views on collective dominance, reframing, but not changing, the Airtours criteria. In particular, it noted that a
mechanical approach should not be taken to the criteria for establishing collective dominance. The verification of each of the criteria
(such as transparency) should not be done in isolation. It concluded that the General Court did not carry out its analysis of the parts of
the Commission's decision relating to market transparency by having regard to a postulated monitoring mechanism forming part of a
plausible theory of tacit co-ordination (see Legal update, ECJ sets aside CFI judgment on SonyBMG joint
venture (www.practicallaw.com/3-382-5436))
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After its reassessment, following the General Court's judgment, the Commission again unconditionally approved the Sony/BMG merger
in October 2007. The Commission again applied the Airtours principles, and concluded, after "one of the most thorough analyses of
complex information ever undertaken" that there was no evidence of co-ordinated behaviour in any of the relevant markets, either prior
to the merger or as a result of it. The merger would not, therefore, result in either the creation or strengthening of a single or collective
dominant position.
A merger in an oligopolistic market may also be found to result in a significant impediment to effective competition if it causes the
elimination of important competitive effects, even if there is little likelihood of co-ordination between the members of the oligopoly. The
assessment of such mergers will involve consideration of factors such as the extent of the direct competition between the parties to the
merger, the extent of competition from other market participants, the ability of customers to switch suppliers and barriers to entry and
expansion.
Merger control statistics
As at 1 April 2013, only 24 transactions had been blocked by the Commission out of over 5,000 notified cases (see also box, EU merger
control statistics). Of these 24 cases, three were concentrations that did not have an EU dimension but which had been referred to the
Commission by a member state (see Referral by member states). These figures do not, of course, take account of the number of
transactions that were abandoned following initiation of a Phase II investigation and before a negative decision could be adopted by the
Commission. The Commission did not block any of the transactions that it reviewed between November 2001 and November 2004. The
last merger that it blocked under Regulation 4064/89 was ENI/EDP/GDP (Case COMP/M.3440) in December 2004.
The Commission has only reached five prohibition decisions under the 2004 Merger Regulation (but four of these have been since
January 2011). It prohibited the proposed acquisition by Ryanair or Aer Lingus in June 2007 (COMP/M.4439; Ryanair/Aer Lingus , see
PLC Legal update, Commission prohibits the acquisition of Aer Lingus by Ryanair (www.practicallaw.com/0-369-7973)). Ryanair lodged
an appeal against this decision, which was dismissed in its entirety in July 2010 (Case T-342/07 - Ryanair v Commission). Ryanair
subsequently launched a new bid to acquire Aer Lingus, which was notified to the Commission on 24 July 2012 and which was referred
to a Phase II review on 29 August 2012. On 27 February 2013, the Commission again prohibited Ryanair's bid for Aer Lingus (see
Legal update, Commission prohibits Ryanair's acquisition of Aer Lingus for second time (www.practicallaw.com/2-524-4855)). Ryanair
has again appealed this decision.
In January 2011, the Commission prohibited the proposed merger between Olympic Air and Aegean Airlines (COMP/M.5830 -
Olympic/Aegean Airlines). The Commission concluded that the merger would result in the establishment of a quasi-monopoly on nine
domestic routes from Athens. It did not consider that there was a realistic prospect of new entry on a sufficient scale to constrain the
merged entity. Although the parties offered to divest slots at the relevant Greek airports, the Commission decided that such a remedy
would not be sufficient to resolve its competition concerns as there is no shortage of availability of such slots in Greece (see PLC Legal
update, Commission blocks merger between Olympic Air and Aegean Airlines (www.practicallaw.com/3-504-6077)). However, following
renotification and a second Phase II investigation, the Commission approved this merger in October 2013 on the basis of new evidence
that Olympic should be regarded as a "failing firm" which would soon exit the market in the absence of the merger.
In February 2012, the Commission prohibited the proposed merger between Deutsche Borse and NYSE Euronext. The Commission
concluded that the merger would result in the establishment of a quasi-monopoly in the area of European financial derivatives traded
globally on exchanges. The Commission found that exchange traded derivatives and over the counter derivatives belong to different
product markets and that there are major barriers to entry to these markets due to the fact that trading on the parties' exchanges is
exclusively linked to a clearing house and customers prefer to stay on exchanges where they can pool margin and thereby save
collateral. Although the parties offered to sell certain assets and to provide access to their clearinghouse for some categories of new
contracts, the Commission decided that such a remedy would not be sufficient to resolve its competition concerns. The parties did not
propose to divest sufficient assets so as to create an independent and significant competitor, nor did they propose full access to
clearing facilities to their competitors The Commission, therefore, concluded that the proposed merger would significantly impede
effective competition in the internal market or a substantial part of it (see PLC Legal update, Commission blocks merger between
Deutsche Borse and NYSE Euronext (www.practicallaw.com/9-517-7150)). Deutsche Borse has lodged an appeal against the
Commission's decision (Case T-175/12 - Deutsche Börse v Commission).
In January 2013, the Commission prohibited the proposed acquisition of TNT Express by UPS. The Commission found that the
acquisition would have reduced competition for intra-EEA express small package delivery services in 15 member states, where, in
some cases, DHL would remain the only viable competitor. It concluded that the merger would reduce choice for customers and be
likely to result in price increases. The Commission did not accept that efficiency benefits resulting from the merger would outweigh the
adverse impact on competition. UPS offered a package of remedies, including divestment of TNT's subsidiaries in the relevant member
states. However, the Commission was not satisfied about the effectiveness of the proposed remedy package due to doubts that there
would be any suitable purchaser who would be an effective competitor. UPS did not offer an "up front" buyer commitment that would
have required it to enter into a binding sale agreement prior to completing the merger (see PLC Legal update, Commission prohibits
acquisition of TNT Express by UPS (www.practicallaw.com/7-523-8423)).
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Assessment of ancillary restrictions
Certain ancillary agreements may be entered into by the parties to a merger as part of the overall transaction, such as restrictive
covenants, purchase and supply arrangements and intellectual property licences.
To the extent that such restrictions are directly related and necessary to the implementation of a concentration, they will be
characterised as ancillary restrictions.
The Commission changed its policy on ancillary restraints in June 2001 and adopted a new Notice (the 2001 Notice) (OJ 2001 C188/5),
replacing the previous 1990 notice. It announced that it would no longer assess in its merger decision whether the restrictions entered
into by the parties were ancillary. This change in policy was called into question by the General Court in its judgment in Lagardère
Canal+ v Commission (Case T-25/00). In this decision the General Court held that the Commission had an exclusive competence under
Articles 22(1) of the Merger Regulation to decide whether restrictions were ancillary to a merger. Where restrictions are notified to the
Commission on Form CO, the Commission is obliged to give a reasoned response as to the ancillary nature of those restrictions. The
General Court in Lagardère stated that to be considered ancillary a restriction must be economically necessary to the implementation of
a merger.
The current Merger Regulation clarified the Commission's approach to ancillary restraints. Article 6(1) contains wording whereby
ancillary restraints will be "deemed" to have been approved by the merger clearance decision. Such wording is intended to address the
issue raised in Lagardère and confirms the Commission's preferred policy as stated in the 2001 Notice. The Commission should,
however, at the request of the parties assess whether a restriction is ancillary to a merger where the case presents novel or unresolved
questions, not addressed in any previous decision or Commission Notice, that give rise to genuine uncertainty (Recital 21, 2004 Merger
Regulation).
In light of this change, the Commission adopted a new Notice on ancillary restraints (the 2004 Notice) (OJ 2005 C56/23). The 2004
Notice, on the whole, follows the format of the Commission's 2001 Notice and provides valuable further guidance as to when restraints
will be ancillary. Clauses which cannot be considered ancillary are not per se illegal, but they are not automatically covered by the
merger decision.
According to the Notice, to be treated as ancillary, restrictions must:
• Have a direct link to the establishment of the concentration.
• Be judged on an objective basis to be necessary to the implementation of the concentration (so that without them the concentration
could not be implemented, or could only be implemented under more uncertain conditions, or at a substantially higher cost, over an
appreciably longer period or with considerably less probability of success).
• Be proportionate, so that their duration, subject matter, and geographical field of application do not exceed what the implementation
of the concentration reasonably requires.
Ancillary restraints are to be distinguished from the contractual arrangements which constitute the concentration itself (such as
provisions relating to the transfer of shares), and which are the subject of the Commission's analysis under the Merger Regulation.
The Notice regards the following as ancillary where the concentration involves the acquisition of sole control:
• Non-compete obligations. Where the transfer includes both goodwill and know-how, the non-compete clause is justified only for a
period of up to three years and up to two years if the transfer of goodwill only is involved. Longer durations may still be justified in a
limited range of circumstances, for example, where it can be shown that customer loyalty to the seller will persist for more than two
years, or where the scope or nature of the know-how transferred justifies an additional period of protection.
The geographical scope of a non-compete clause must be limited to an area in which the vendor has offered the products or
services before the transfer. Furthermore, the presumption that the acquirer does not need to be protected against competition in
territories previously not penetrated by the vendor can be overturned if it is shown that such protection is required by the particular
circumstances of the case, for example, for territories the vendor was planning to enter at the time of the transaction, provided that
the vendor had already invested in such a move.
Non-compete obligations must be restricted to the products and services which comprise the main activity of the transferred
business/company. Non-compete obligations may bind only the seller, its subsidiaries and agents. The Commission does not
consider as ancillary those non-compete obligations imposed on others, for example resellers.
Further, clauses which limit the seller's right to purchase or hold shares in a company competing with the business transferred shall
be considered directly related and necessary to the implementation of the concentration under the same conditions as for non-
compete clauses, unless they prevent the seller from purchasing or holding shares for investment purposes only, where such a
share holding does not grant, directly or indirectly, management functions or material influence in the competing company.
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• Non-solicitation and confidentiality clauses. These are to be evaluated in the same way as non-competition clauses. However,
the scope of these clauses may be narrower than that of non-competition clauses, but they are more likely to be found to be directly
related or necessary to the implementation of the concentration. Moreover, the Commission states that confidentiality clauses
covering technical know-how can exceptionally be accepted for a period of over three years.
• Licensing of technical and commercial property rights and know-how. The Commission considers that licences (whether
exclusive or not) of patents, know-how and other intellectual property rights may be ancillary insofar as they relate to the existing
activities of the business or company being acquired. However, licences that encompass territorial restrictions will not generally be
regarded as ancillary (for example, those limiting the use of a manufacturing process to the geographic areas of activity of the
transferred business or company). Licences need not be limited in time and may be granted for the whole duration of the intellectual
property right concerned, or, in the case of know-how for the duration of its economic life.
• Purchase and supply agreements. The Commission has recognised as ancillary the conclusion of purchase and supply
agreements between the acquirer and the seller. These may be required to ensure the continuity of supply of products necessary to
the activities that may be retained by the seller or taken over by the acquirer, or the continuity of outlets for one of the two parties.
The duration of any such purchase and supply obligations must be limited to a period necessary for the replacement of the
relationship of dependency by autonomy in the market (the 2004 Notice provides that purchase or supply obligations aimed at
guaranteeing quantities previously supplied can be justified by a transitional period of up to five years). However, exclusivity
provisions contained in such purchase and supply agreements will not be viewed as ancillary.
• Service and distribution agreements. Service and distribution agreements will be assessed in a similar manner to supply
agreements.
Where the concentration involves the acquisition of joint control, the following will generally be considered ancillary:
• Obligations on the joint buyers to refrain from making competing offers.
• Sharing out of production facilities, distribution networks and trademarks among the joint acquirers, provided there is no co-
ordination of future conduct between them.
• Arrangements relating to the methods of implementing a break-up of the acquired business or company. In this regard, the principles
explained above in relation to purchase and supply arrangements for a transitional period should be applied by analogy.
These principles also apply in relation to joint ventures, subject to certain differences in their application (see Joint
ventures: (www.practicallaw.com/A14479)Ancillary restrictions (www.practicallaw.com/A14479)).
Appeals against merger decisions
Decisions of the Commission, including merger decisions, may be the subject of appeal to the General Court by way of application for
annulment under Article 263 of the TFEU (formerly Article 230 of the EC Treaty). Such an application may be brought by the addressee
of the decision or by any other person for whom the decision is of direct and individual concern.
The General Court has, however, dismissed an appeal against a decision by the Commission to open a Phase II investigation (Case T-
48/03 Schneider Electric SA v Commission, Order of the General Court, 31 January 2006, [2006] ECR II-111). The General Court
concluded that a decision under Article 6(1)(c) of the Merger Regulation is not an appealable decision as the decision to initiate a Phase
II procedure constitutes a simple preparatory measure which has as its only objective the commencement of an in depth investigation to
enable the Commission to gather the facts needed to reach a definitive decision on the compatibility of the merger with the internal
market. The fact that an Article 6(1)(c) decision prolongs the investigation and requires the undertakings involved to co-operate with the
Commission is a result of the procedural framework of the Merger Regulation. It does not amount to a decision which affects the legal
position of the undertaking.
The General Court has also held that a decision by the Commission not to refer a merger to a member state under Article 9 of the
Merger Regulation is not an appealable decision. Such a decision does not jeopardise procedural rights and judicial protection (Case
T-224/10, Association belge des consommateurs test-achats ASBL v European Commission, judgment of 12 October 2011; see
General Court rules that appeal by consumer body against EDF/Segebel merger was inadmissible (www.practicallaw.com/4-509-
1601)).
The General Court has also held that a Commission decision is not appealable solely on the basis that, from a third party's perspective,
the Commission should have referred a concentration for review by a NCA (Case T-315/10 - Partouche v Commission, judgement of 20
January 2012; see Legal update, General Court issues order dismissing Groupe Partouche appeal (www.practicallaw.com/9-518-
1901)). However, a third party is entitled to challenge the Commission's decision to allow a request for referral under Article 9 (Joint
cases T-346/02 and T-347/02, Cableuropa SA and Aunacable v Commission, see, Legal update, The CFI upholds Commission's
decision under Article 9 EC Merger Regulation (www.practicallaw.com/0-102-4707)).
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As was the case in Tetra Laval and Schneider, an appeal may benefit from the General Court's fast track appeal procedure. This
procedure is designed to eliminate several time-consuming procedural steps in the appeal process and enable the General Court to
render judgment much more quickly. Under the standard appeal procedures, the General Court takes up to three years to review
Commission decisions. The General Court handed down its judgments ten months after the appeals in Tetra Laval and Schneider were
lodged and only seven months after the appeal was lodged in the EDP case.
The expedited procedure was used in Impala's appeal against the Sony/BMG merger. However, the General Court took over 18 months
to issue its judgment. The General Court cast some criticism on the insistence by the appellant in using the expedited procedure,
despite the complexity of the issues involved. Further, the General Court found that the appellant had subsequently acted in a way that
had slowed the procedure down. Accordingly, the General Court ordered the appellant (who was successful on the substance of the
appeal) to bear 25% of its own costs (the losing party normally bears all the costs of the victor).
From the General Court, points of law may be appealed to the ECJ (see further the Practice note, Litigation before the European
Community Courts in competition and state aid cases (www.practicallaw.com/7-107-5010).
In March 1998, the ECJ for the first time annulled a Commission merger decision in the Kali und Salz case. The concentration was
ultimately re-notified to the Commission and cleared by it, on the basis that the conditions which had previously created a dominant
duopoly no longer existed. The parties will nevertheless have suffered financially as a result of the initial annulment. Subsequent cases
have addressed the extent to which the Commission is liable to compensate parties for such losses (see Damages actions).
The General Court, in Assicurazioni Generali/Unicredito, upheld the Commission's decision that the joint venture in question was not a
concentration, stating that the conditions for the existence of functional autonomy were not met in this case (Case T-87/96 [1999] ECR
203). In Coca Cola, the General Court ruled that a Commission decision containing a finding of dominance (but not prohibiting the
transaction concerned) did not produce legal effects and, therefore, could not be the subject of challenge under Article 230 of the EC
Treaty (now Article 263 of the TFEU) (Coca-Cola Case T-125/97 [2000] ECR 1732). This case concerned Coca Cola's acquisition of
Amalgamated Beverages, a joint venture between Coca Cola and Cadbury-Schweppes, which was cleared by the Commission in 1997.
Along with Airtours, the General Court's decisions overturning Commission decisions in Schneider/Legrand and Tetra Laval/Sidel were
highly critical of the standard of reasoning used by the Commission and its failure to accurately assess the evidence. In Airtours, the
General Court did reiterate that the Commission had a certain discretion, especially with regard to assessments of an economic nature,
and that the courts of the EU must take this discretion into account when carrying out a review. Despite this, the General Court was
willing to carry out a detailed review of the evidence on which the Commission's decision was based, finding that the Commission had
failed to prove its case on each of the issues considered. The ECJ has confirmed the approach taken by the General Court in most
respects in its judgment on the Commission's appeal in the Tetra Laval case (Case C-12/03 P -Commission v Tetra Laval BV, [2005]
ECR I-987) (see box, Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel).
The Commission has claimed that the judgments handed down in Airtours, Schneider/Legrand and Tetra Laval/Sidel make clear that,
contrary to the claims of the critics, decisions of the Commission are subject to a rigorous and effective judicial review. However, an
effective judicial review which comes too late to resurrect a failed merger will not necessarily satisfy those critics.
The General Court's judgment in the GE/Honeywell appeals confirmed the Commission's conclusions that the merger would create or
strengthen a dominant position in certain markets where horizontal overlaps occurred. These findings were sufficient for the merger to
be held to be incompatible with the internal market, despite the fact that the Commission had made a number of errors in its
assessment of the impact of certain vertical overlaps between the parties and the conglomerate effects of the merger. The General
Court again found that the Commission had failed to meet the relevant standards for proving such complex and uncertain competitive
harm.
The Commission had a run of some success before the General Court during 2005 and 2006. In addition to its overall success in
GE/Honeywell, the General Court upheld the Commission's decision in appeals against the Air France/KLM merger (T-177/04 easyJet
Airline Co. Ltd v Commission, judgment of 4 July 2006), the EDP/ENI/GDP merger (Case T-87/05 EDP-Energias de Portugal SA v
Commission [2005] ECR II-3745) and the Haniel/Cementbouw/JV (T-282/02 Cementbouw Handel & Industrie BV v Commission [2003]
ECR II-319).
However, in July 2006, the General Court again levied harsh criticism against the rigour of the Commission's analysis and reasoning in
its annulment of the Sony/BMG merger (see Sony/BMG). In its judgment, the General Court annulled a merger clearance decision for
the first time, following an appeal by an industry organisation, Impala, thereby requiring the Commission to carry out a fresh
investigation. In its first decision, the Commission had not found evidence of collective dominance as a result of the transaction and
had, therefore, cleared the joint venture between Sony and BMG.
In December 2007, Advocate General gave an opinion recommending that the ECJ should dismiss an appeal by Sony and Bertlesmann
against the General Court's judgment. The Advocate General's opinion did not discuss the substantive application of the tests for
establishing collective dominance. However, it provides a useful review of the extent of the investigation and reasoning which may be
required of the Commission when it authorises a concentration. The Advocate General emphasised that the same standards apply for
the clearance of concentrations under the Merger Regulation as for their prohibition (see Legal update, Advocate General recommends
that ECJ should uphold CFI judgment on Sony/BMG merger (www.practicallaw.com/9-379-9444)).
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In July 2008, the ECJ handed down its judgment. While agreeing with the Advocate General that the same standards apply for the
clearance of concentrations as for their prohibition, it found that the General Court had erred in a number of respects. In particular, it
had placed too much reliance on the Commission's provisional conclusions in the statement of objections. Further, it had erred by
requiring the Commission to apply particularly demanding requirements as regards the probative character of the evidence and
arguments put forward by the notifying parties in reply to the statement of objections. The ECJ also found that the General Court had
erred in its approach to assessing collective dominance.
The ECJ judgment does not approve the Commission's approach, but merely criticises the General Court's approach to its assessment
of the Commission's decision. The ECJ referred the case back to the General Court for reconsideration (see ECJ sets aside CFI
judgment on SonyBMG joint venture (www.practicallaw.com/3-382-5436)). However, the General Court later ordered that a further
ruling from it would be devoid of purpose due to the acquisition by Sony of the whole SonyBMG joint venture in 2008
The first judgments in appeals against the Commission's decisions under the current (2004) Merger Regulation upheld the
Commission's decisions. The first two substantive appeals related to Commission Phase I clearance decisions and were brought by
third parties. In Sun Chemical Group and others v Commission, the General Court upheld the Commission's application of the
Horizontal Merger Guidelines (Case T-282/06; see Legal update, CFI dismisses appeal against Commission merger clearance
decision (www.practicallaw.com/2-371-6980)). In NVV v Commission, the General Court upheld the Commission's analysis of market
definition and found that the Commission had appropriately taken into account the rights of third parties to be heard (Case T-151/05;
see Legal update, CFI dismisses appeal against Commission decision in Sovion/HMG merger (www.practicallaw.com/7-385-9108)).
Most significantly so far, in July 2010, the General Court dismissed Ryanair's appeal against the Commission's analysis and
assessment of Ryanair's proposed acquisition of Aer Lingus. This was the first merger blocked under the 2004 Merger Regulation. The
General Court dismissed in their entirety Ryanair's criticisms of the Commission's assessment of the closeness of the competition
between Ryanair and Aer Lingus and the impact of the proposed merger on that competition. It also endorsed the Commission's
assessment of market entry, its point-to-point route analysis and its consideration of claimed efficiencies. Finally, the General Court
found that the Commission had been entitled to reject commitments offered by Ryanair (Case T-324/07 - Ryanair Holdings plc v
Commission; see Legal update, General Court dismisses appeals against Commission decisions on Ryanair/Aer Lingus
merger (www.practicallaw.com/4-502-7163)). Ryanair , however, subsequently launched a new bid to acquire Aer Lingus, which was
notified to the Commission in July 2012. The Commission again blocked the merger and Ryanair has lodged a further appeal.
In December 2013, the General Court dismissed an appeal by third parties against the Commission's Phase I approval of the
acquisition by Microsoft of Skype. The General Court concluded that the Commission had not erred in finding that the merger did not
raise horizontal competition concerns in the consumer communications market, even though the merged entity would have high market
shares in one segment of this market. The consumer communications sector is a recent and fast-growing sector characterised by short
innovation cycles in which large market shares may turn out to be ephemeral. In addition, the General Court held that the Commission
had been correct to rule out possible harmful conglomerate effects in the enterprise communications market (Case T-79/12 - Cisco
Systems and Messagenet v European Commission; see Legal update, General Court dismisses appeal against Microsoft/ Skype
merger (www.practicallaw.com/8-551-5486)).
Damages actions
Article 268 of the TFEU (formerly Article 235 of the EC Treaty) gives the European courts jurisdiction in disputes relating to
compensation for damages provided for in Article 340(2) of the TFEU (formerly Article 288(2) of the EC Treaty). Article 340(2) of the
TFEU provides that "in the case of non-contractual liability, the EU shall, in accordance with the general principles common to the laws
of the member states, make good any damage caused by its institutions or by its servants in the performance of their duties".
In 2003, both Airtours (now My Travel) and Schneider Electric SA lodged actions with the General Court to seek damages from the
Commission following its prohibition of their mergers with respectively First Choice and Legrand. While it has always been
acknowledged that in cases where a Commission decision is annulled and loss has been suffered as a result of that decision, it may be
open to any of the parties to bring an action before the General Court for non-contractual liability of the EU institutions under Article 288,
these were the first cases in which it was attempted.
Rules for such applications are strict. The applicant will need to establish that the Commission acted unlawfully in adopting its decision,
that it suffered damage and that there is a direct causal link between the wrongful act and the damage suffered. The action must be
brought within a five-year period that runs from the moment when the wrongful act, actual loss and causal link have been identified by
the applicant.
The General Court handed down its judgment in the Schneider Electric damages action on 11 July 2007 (Case T-351/03 - Schneider
Electric SA v Commission). It ruled that the Commission must compensate Schneider SA partially for certain losses that it incurred as a
result of the Commission's prohibition of its acquisition of Legrand.
The General Court noted that it would not be in the EU interest for the Commission to be held liable for every error that it might make in
analysing a merger. The General Court recognised the complexity of merger control cases, the degree of appreciation required and the
tight time constraints under which the Commission operates. However, it considered that there should be a right to compensation for
damages which result from behaviour of the Commission that is clearly contrary to legal requirements, is prejudicial to the interests of
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third parties and is not objectively justifiable in the context of the Commission's normal activities. The limits of non-contractual liability
must, therefore, protect the Commission's discretion and margins of appreciation (which are necessary in conducting its role as a
competition regulator) but must also protect third parties from obvious and inexcusable failures by the Commission.
The General Court, therefore, concluded that the Commission's analytical errors in the assessment of the Schneider/Legrand merger
were not sufficiently manifest or serious to give rise to a right of liability. While not ruling out that sufficiently serious analytical mistakes
could give rise to liability, in this case the Commission's decision had not been annulled on the basis of such mistakes. However, the
Commission's procedural defects in the handling of the case had amounted to a sufficiently manifest and serious breach of Schneider's
rights of defence to give rise to liability (the Commission had relied in its decision on one objection that had not been put to Schneider in
the statement of objections). The General Court, therefore, concluded that the Commission bore a duty to remedy the damaging
consequences of its error.
The General Court rejected Schneider's claim for losses suffered as a result of the reduction in value of the Legrand shares between
their purchase and sale by Schneider. The General Court concluded that even if the Commission's decision had been lawful it cannot
be assumed that the merger would have been approved such that Schneider would have been able to retain all or most of Legrand
(possibly on the basis of agreed commitments). However, the General Court did find the Commission to be liable for the losses incurred
by Schneider in relation to:
• The expenses relating to the second merger control procedure following the General Court's annulment decision.
• The reduction in the sale price for Legrand which Schneider had to agree to due to the delay in completing the sale (while awaiting
the outcome of the ongoing proceedings). The General Court found that Schneider was liable for a third of this loss as it had
assumed the risk of acquiring Legrand prior to clearance in circumstances where it must have known that there was a risk of
prohibition.
This decision was significant in that it held the Commission liable for a serious procedural breach that denied a party of its rights of
defence. It emphasises the care that the Commission must take in how it conducts its analysis. However, the General Court's refusal to
find the Commission liable for analytical errors or to hold it liable for all the alleged losses provided some comfort for the Commission
(for a full summary of the Schneider damages case see Legal update, CFI holds that Schneider must be partially compensated for loss
resulting from prohibition of its merger with Legrand (www.practicallaw.com/2-372-0005)).
Given its precedential importance (as well as its financial implications) the Commission appealed the General Court's judgment in the
Schneider damages case to the ECJ. In particular, the Commission challenged the General Court's conclusion that the breach of
Schneider's rights of defence constituted a sufficiently serious breach of EU law to give a right to damages. Further, it claimed that the
General Court erred in considering that the reduction in price in the sale of Legrand was directly imputable to the Commission's illegality
and so could be recovered (see Case C-440/07 Commission v Schneider Electric SA; Legal update, Details published of Commission's
appeal against judgment on Schneider damages action (www.practicallaw.com/1-380-5788)).
In February 2009, the Advocate General gave his opinion on this appeal. The Advocate General concluded that the General Court had
not erred in finding that the Commission's procedural breaches were sufficiently serious to give rise to non-contractual liability.
However, the Advocate General considered that the General Court erred in finding that the Commission was liable for two-thirds of the
losses incurred by Schneider due to the need to accept a lower sale price for Legrand in order to defer transfer until after proceedings
before the General Court were concluded. He found that Schneider's loses in this regard did not arise directly, immediately and
exclusively from the Commission's unlawful act and, further, that Schneider had broken any causal link. The Advocate General
considered that the Commission should only pay compensation to Schneider to cover the costs that it incurred in dealing with the
Commission's second investigation into the merger (see Legal update, Advocate General's opinion on Commissions appeal against
Schneider damages action (www.practicallaw.com/4-384-8423)).
The ECJ handed down its judgment on 16 July 2009 (see Legal update, ECJ ruling in Commission's appeal against Schneider
damages action (www.practicallaw.com/4-386-6172)), reaching the same conclusion as the Advocate General. The ECJ concluded that
the General Court had not erred in finding that the Commission's procedural breaches were sufficiently serious breaches to give rise to
non-contractual liability. However, the ECJ also considered that the General Court erred in finding that the Commission was liable for
two-thirds of the losses incurred by Schneider due to the need to accept a lower sale price for Legrand in order to defer transfer until
after proceedings before the General Court were concluded. The ECJ therefore, annulled the General Court's ruling in this respect,
substituting its own judgment that the Commission should only pay compensation to Schneider to cover the costs that it incurred in
dealing with the Commission's second investigation into the merger. The ECJ ruled that the following must be deducted from the sum of
those costs:
• The total costs incurred by Schneider in cases before the General Court.
• The fees of legal, tax and banking consultants and other administrative costs incurred in carrying out the divestiture in accordance
with the conditions laid down by the Commission.
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• The costs that Schneider would necessarily have incurred in respect of the corrective measures relating to the issue that had not
been set out clearly in the statement of objections, which it would in any event have had to propose before the adoption of the
negative decision, if that decision had been adopted without any breach of its rights of defence.
In September 2008, the General Court handed down its much anticipated judgment in the MyTravel damages appeal. The General
Court held, as in its judgment in Schneider, that it cannot be ruled out in principle that manifest and grave defects underlying the
Commission's economic analysis of a merger could constitute breaches that are sufficiently serious to give rise to non-contractual
liability on the part of the Commission. However, the complexity of merger control situations and the margin of discretion available to the
Commission must be taken into account.
In the circumstances of the Commission's Airtours decision, the General Court concluded that the Commission did not commit a
sufficiently serious infringement of a rule of law in either its assessment of collective dominance or in its consideration of undertakings
offered by Airtours. Therefore, no non-contractual liability arose in this case.
In the MyTravel judgment, the General Court seems to have set a high standard for showing that errors committed by the Commission
amount to a sufficiently serious infringement of a rule of law for the purposes of establishing non-contractual liability. In particular, the
General Court emphasised that the General Court's consideration of whether there are such sufficiently serious infringements is a more
demanding exercise than its assessment of a decision in an action of annulment, where the Court need only examine the lawfulness of
the contested decision.
Therefore, even where the General Court has been highly critical of the Commission's assessment in a judgment annulling a merger
decision, this will not necessarily be sufficient to give rise to non-contractual liability for losses resulting from those errors. Regard must
also be had to the Commission's margin of discretion, the complexity of the merger situation and the time constraints imposed on the
Commission under the Merger Regulation. In this case, the General Court seemed to place considerable weight on the complexity of
the analysis relating to collective dominance in finding that the Commission's errors of assessment were not sufficiently serious
breaches (for a full summary of the MyTravel damages action see Legal update, CFI rejects MyTravel damages
claim (www.practicallaw.com/9-383-2472)).
International co-operation
The increasing frequency of international and even global mergers poses particular challenges in the field of competition enforcement
as these mergers are often subject to review by a number of different agencies. For example, many international mergers will be
reviewed by both the Commission and the US anti-trust agencies, (the US Federal Trade Commission (FTC) and the Antitrust Division
of the Department of Justice (DOJ)). Initially, competition authorities sought to react to these challenges by concluding bilateral
agreements with other key agencies. Increasingly, however, there is a trend towards involving a wider range of countries and agencies
in a multilateral approach to addressing the issues. This is best illustrated by the development of the International Competition Network
(ICN), described in more detail below.
In 1991, the Commission concluded an agreement, applicable since 1995, with the US government regarding the application of their
respective competition laws (OJ 1995 L95/47, as corrected in OJ 1995 L131/38). The aim is to promote co-operation between the
parties' competition authorities, including in the field of merger control.
The Commission will notify the US anti-trust authorities and invite their comments, as soon as it receives a notification of a merger
which may affect important US interests. The US has agreed to do the same when important EU interests may be affected. Further
contact with the US may follow, for example when the Commission decides to open a Phase II investigation, and further US comments
may be invited before a final decision is adopted.
The Commission is under a duty not to disclose to the US any information covered by its professional secrecy obligations (this would
include business secrets submitted in the Form CO or during the merger investigation), save with the express agreement of the parties
to the concentration or the source concerned in the case of third parties.
In March 1999, the Commission adopted a set of non-binding guidelines relating to administrative arrangements between the
Commission and the US anti-trust authorities. These guidelines provide a mechanism for US anti-trust officials to attend certain
Commission competition hearings as observers and, in turn, for Commission officials to attend meetings between the relevant parties
and the US anti-trust authorities. Such attendance is subject to satisfactory arrangements in respect of confidentiality and, in relation to
attendance at meetings of the US authorities, the appropriate consents.
Officials from the two sides on any particular transaction are able to discuss substantive issues such as appropriate product and, to a
lesser extent, geographical market definitions. They may also share complementary analyses of anti-competitive effect as well as
exchanges of views on the proposed remedies, so as to avoid conflicting decisions. In Guinness/Grand Metropolitan (Case No.
IV/M.938), for example, the parties agreed to discussions taking place between the anti-trust authorities on the proposed remedies.
Similarly, in WorldCom/MCI II (Case No. IV/M.1069) particularly close co-operation took place between the EU and US authorities in
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relation to remedies and other aspects of the case. Observers from each of the authorities attended key meetings in the other
jurisdiction and there were joint meetings between the US authorities, the Commission and the parties. The Commission and the DOJ
made simultaneous announcements of their intention to block the merger.
On 3 July 2001, the Commission blocked the proposed acquisition by General Electric Co. (GE) of Honeywell International Inc., on the
basis that it would have created or strengthened GE’s dominant position on several markets (General Electric/Honeywell, Case
IV/M.220). This was a controversial decision as the DOJ had approved the merger, subject to relatively minor commitments, and was
the most clear and controversial example of a significant difference in opinion between the authorities in recent years. The decision
attracted significant political criticism although the decision was subsequently upheld by the General Court (Case T-210/01 - General
Electric v Commission [2005] ECR II-5575 and Case T-209/01 - Honeywell v Commission [2005] ECR II-5527) (see Legal update, CFI
dismisses appeals by GE and Honeywell (www.practicallaw.com/1-201-7499)).
In response to this criticism the Commission in particular seems to have emphasised that more could have been done to improve co-
operation in that case and has pointed out that the difference in the timetables, with notification to the Commission often taking place at
a much later date than notification to the DOJ, reduces the potential for co-operation in the early stages.
Interestingly, however, in GE/Honeywell it is far from clear that any degree of co-operation between the authorities examining the case
would have made a difference to the final outcome. In all of the press coverage and commentary on both sides of the Atlantic, there was
nothing to suggest that the DOJ believed it made the wrong decision in clearing the merger, or that the Commission believed it made
the wrong decision in blocking the merger.
The decision did produce calls for increased co-operation, however, and in 2002 the European Commission and US competition
authorities jointly issued a set of best practices on co-operation in reviewing mergers. The best practices include guidance on issues
such as communication between reviewing agencies, co-ordination on timing of notification and review, collecting evidence and
remedies. The guidelines were revised in October 2011, building on experience gained in the significant number of trans-Atlantic inter-
agency merger investigations carried out since 2002..
The Commission has worked closely with the US anti-trust agencies in relation to a number of international mergers, including:
Sanofi/Aventis (Case COMP/M,3354), GE/Amersham (Case COMP/M.3304), Oracle/Peoplesoft (Case COMP/M.3216),
Reuters/Telerate (Case COMP/M.3692) and, more recently Thomson Corporation/Reuters Group (Case COMP/M.4726),
Cisco/Tandberg (Case COMP/M.5669); Intel/McAfee (Case COMP/M.5984); and UTC/Goodrich (Case COMP/M.6410).
The Commission has also entered into a number of other bilateral agreements, for example, with Canada in 1999 and an agreement
with Japan in 2003. A looser "dialogue" on competition policy and legislation (but not individual merger cases) has been in place with
the Chinese merger control regulator, MOFCOM, since 2004.
There have been increasing calls for a move towards multilaterism to cope with the challenges in the area of anti-trust enforcement
posed by global mergers. On 25 October 2001, the International Competition Network (ICN) was launched. The ICN aims to provide a
venue within which anti-trust officials from developed and developing countries can work to address practical enforcement and policy
issues of common concern. The ICN also aims to facilitate procedural and substantive convergence in anti-trust enforcement.
Membership of the ICN expanded from the initial four competition agencies to 80 members in less than a year and includes many of the
younger, developing competition authorities.
The first official meeting of the ICN was hosted by the Italian Anti-trust Authority in the Autumn of 2002. Discussions centred around the
proposed Guiding Principles for Merger Notification and Review, which was drafted by one of the ICN's working groups. At the ICN's
second annual conference in Mexico in June 2003 the ICN members adopted seven non-binding recommended practices. These
provide that competition authorities should:
• Only examine a deal if it has a real impact on their national market.
• Adopt clear and objective notification thresholds.
• Allow for flexibility in the timing of notification (the removal the one-week filing deadline under the 2004 Merger Regulation was
intended to bring the EU merger control regime fully in line with the ICN's recommendations).
• Require only the information strictly necessary for a proper assessment.
• Ensure that the investigation timetables are predictable and no longer than necessary.
• Provide for transparency in their laws, procedures and individual decisions.
• Periodically review their merger control systems.
In the third annual conference in April 2004, the ICN adopted four new recommended practices for merger notifications:
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• Conduct of merger investigations. Merger investigations should promote an effective, efficient, transparent and predictable merger
review process. Competition agencies should provide opportunities for discussions between the agency and merging parties;
provide the merging parties with an explanation of competitive concerns; avoid undue delay and unnecessary costs on merging
parties and third parties; and comply with applicable legal privileges and confidentiality practices.
• Procedural fairness. Competition agencies should provide merging parties with sufficient and timely information on the competitive
concerns that form the basis of a proposed adverse decision. Parties should have the opportunity to respond to such concerns and
third parties should be allowed to express their views. Review of agency decisions should also be possible.
• Confidentiality. Confidential information received during a merger investigation should be protected.
• Interagency co-ordination. Competition agencies should seek to co-ordinate reviews that raise competitive issues of common
concern.
The ICN has been focusing on the merger control process as it applies to multi-jurisdictional mergers and on the competition advocacy
role of anti-trust agencies, particularly in emerging economies. The network will continue to develop non-binding recommendations for
consideration by individual enforcement agencies. Where the ICN reaches consensus on particular recommendations, it will be left to
governments to implement them voluntarily (see also International merger notification (www.practicallaw.com/A14483): International co-
operation (www.practicallaw.com/A14483)).
Best Practices for multi-jurisdictional mergers
In November 2011, the Commission issued "best practices" for co-operation between NCAs in relation to multi-jurisdictional mergers,
which fall below the thresholds of the EU Merger Regulation but require notification in several member states (the Best Practices). The
Best Practices are intended to foster and facilitate information sharing between EU NCAs and provide clarity to merging parties and
others on how co-operation among NCAs will operate in merger cases that meet the requirements for notification or investigation in
more than one member state (multi-jurisdictional cases). The Best Practices were developed by the EU Merger Working Group and
cover the following:
• Objectives of co-operation. The Best Practices are intended to promote the achievement of the benefits of co-operation for the
NCAs concerned, for the merging parties and for third parties. Where the parties provide full and consistent information to the NCAs,
co-operation reduces burdens by facilitating the alignment of timing and the overall efficiency, transparency, effectiveness and
timeliness of the merger review processes. Co-operation between NCAs can reduce the risk of conflicting outcomes in cases that
raise serious or difficult analytical issues. In addition, it can contribute to obtaining coherent and consistent remedies.
• Scope of application of Best Practices. Co-operation, beyond the provision of basic case information, will not be necessary or
efficient in every multi-jurisdictional case (for example where it is clear early on that the merger does not raise significant competition
or procedural issues). However, where multi-jurisdictional mergers raise similar or comparable issues in relation to jurisdictional or
substantive questions, the NCAs concerned will decide on a case-by-case basis whether co-operation may be necessary or
appropriate. Co-operation may assist NCAs:
• in forming a view as to whether a transaction qualifies for notification or investigation under their national merger control laws;
• in relation to mergers which impact competition i in more than one member state, or where they affect transnational markets or
national or sub-national markets in multiple member states (if they are the same or similar from a product standpoint); or
• in designing and examining remedies in more than one member state or where remedies in one member state have cross-border
effects (the same remedy is designed to address competition issues in different member states or one remedy affects the
efffectiveness of a different remedy in another member state).
• Role of NCAs. NCAs receiving notification of a multi-jurisdictional merger will inform all other NCAs of this and provide updated
information to the NCAs concerned throughout the proceedings (including any decision to commence second phase proceedings,
remedies and any final decision). In those cases where closer co-operation is necessary or appropriate, the NCAs concerned may
liaise on their progress at key stages of their respective investigations. Where it is helpful to do so, the NCAs concerned may also
discuss their respective jurisdictional and/or substantive analyses. Such discussions may relate to market definition, assessment of
competitive effects, efficiencies, theories of competitive harm, and the empirical evidence needed to test those theories. NCAs
concerned will also, where it is helpful to do so, exchange views on necessary remedial measures or submitted remedies.
• Role of merging parties. Effective co-operation between NCAs requires the active assistance of the merging parties at all stages of
the review process. The parties play an important role in allowing beneficial alignment of procedures. Therefore, in multi-
jurisdictional cases (other than those where it is clear that co-operation is not likely to be beneficial) the merging parties are
encouraged to contact each of the NCAs concerned as soon as practicable and provide them with the following information:
• the name of each jurisdiction in which they intend to make a filing;
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• the date of the proposed filing in each jurisdiction;
• the names and activities of the merging parties;
• the geographic areas in which they are active; and
• the sector or sectors involved (short description and NACE code).
The provision of this information by the parties will not of itself be a trigger for co-operation among the NCAs concerned. The parties'
information will assist the NCAs concerned at an early stage to decide whether there might be a need for co-operation in the
particular case.
Much of the information may, if possible, be provided by the parties at the pre-notification stage. Where it is permitted by their
national law, it may be helpful for merging parties and the NCAs concerned to organise pre-notification contacts as early as possible.
It is also in the interest of the merging parties to coordinate the timing and substance of remedy proposals to the NCAs concerned,
so as to minimise the risk of inconsistent results. Joint pre-notification discussions or joint discussions on remedies between the
merging parties and the NCAs concerned may, where circumstances permit, be useful.
• Confidential information. While a certain degree of co-operation is feasible through the exchange of non-confidential information,
waivers of confidentiality executed by merging parties can enable more effective communication between the NCAs. The merging
parties (and third parties) are encouraged to provide waivers of confidentiality to all NCAs where the merger is reviewable, including,
where appropriate, at the pre-notification phase. The merging parties (and third parties) are encouraged to use the ICN model waiver
(this may be adapted to the specific circumstances of the case, but must allow effective information exchange).
Where a waiver is given, the NCAs may share the information without further notice to the parties, but must discuss with each other,
prior to exchange, how to protect confidential information. Confidential information and business secrets are protected under national
laws in all member states. Confidential information so exchanged must not be used for any purpose other than the review of the
relevant merger, unless the national law provides otherwise.
• Alex Nourry is a partner and Jennifer Storey is an associate in the London Antitrust Practice of Clifford Chance LLP.
Commission notices and guidance relating to mergers
• Commission Consolidated Jurisdictional Notice (OJ 2008 C95/1), which replaced
• Notice on the concept of full-function joint ventures (OJ 1998 C66/1).
• Notice on the concept of a concentration (OJ 1998 C66/5).
• Notice on the concept of undertakings concerned (OJ 1998 C66/14).
• Notice on the calculation of turnover (OJ 1998 C66/25).
• Notice on the definition of the relevant market for the purposes of EU competition law (OJ 1997 C372/5).
• Notice on remedies acceptable under Council Regulation 139/2004 and under Commission Regulation 802/2004 (OJ 2008
C267/1).
• Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between
undertakings (OJ 2004 C31/5).
• Best Practice Guidelines for divestiture commitments (available on the Competition Directorate's website).
• Notice on case referral (OJ 2005 C2005 C56/2).
• Notice regarding restrictions ancillary to concentrations (OJ 2005 C2005 C56/23).
• Notice on a simplified procedure for the treatment of certain concentrations (OJ 2013 C366/5).).
• Notice on the rules for access to the Commission file in cases pursuant to Articles 81 and 82 of the EC Treaty, Articles 53, 54
and 57 of the EEA Agreement and Council Regulation (EC) No 139/2004 (OJ 2005 C325/07).
• Note on abandonment of concentrations under Art. 6(1)(c) 2nd sentence of Regulation 139/2004 (available on the Competition
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Directorate's website).
• Guidelines on non-horizontal mergers (vertical and conglomerate mergers) (OJ 2008 C265/7).
• Decision on the function and terms of reference of the hearing officer in certain competition proceedings (OJ 2011 L275/29).
• Best Practices for the submission of economic evidence and data collection in cases concerning the application of Articles 101
and 102 of the TFEU and in merger cases (available on Commission website only).
• Best Practice Guidelines: Commissions Model Texts for Divestiture Commitments and The Trustee Mandate (available on
Commission website only).
Merger notifications: Best Practice Guidelines
The Commission originally published Best Practice Guidelines to deal with the increasing problem of incomplete and inadequate
information being provided in notifications. The reasons given by the Commission for this increase include poor drafting and
inadequacy of information, the submission of notifications too early (that is, before sufficiently clear legally binding agreements
are concluded) or by an insufficient number of parties, and the failure to identify potentially affected markets.
The Best Practice Guidelines were substantially revised and extended in 2004 to reflect concerns about the openness and
effectiveness of the Commission's review procedures, particularly following the annulment of three Commission decisions in 2002
(see box,Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel). The Guidelines provide, in brief, as follows:
• Contact with the Commission prior to formal notification is essential in all cases. The parties or their legal representatives
should make a written request (together with a full briefing paper). Following an initial meeting, the parties should provide the
Commission with a substantially complete draft Form CO. In simple cases it may be appropriate simply to provide a draft of
the Form CO prior to formal notification, with the Commission giving any comments over the telephone.
• At pre-notification meetings, the parties and the Commission should discuss what information is to be omitted from the Form
CO.
• Potentially affected markets should be discussed openly with the Commission. Supporting documents and background papers
should be provided to the Commission.
• Notifying parties and their advisers should ensure that the information contained in the Form CO has been carefully prepared
and verified.
• At meetings, cases should preferably be discussed with both legal advisers and business representatives.
• "State-of-Play" meetings will be held at key stages during the merger process.
• The parties will be granted early access to the Commission's file, in particular to key documents such as substantiated
complaints and market studies.
• Where the Commission believes it is desirable, "triangular meetings" with the Commission and third party complainants will be
held.
The Commission has also published best practice guidelines relating to the submission of economic evidence and data collection,
which should be following in making such submissions in merger cases (see Legal update, Commission publishes best practices
for the submission of economic evidence and data collection (www.practicallaw.com/9-501-1579)).
Skanska/Scancem case
The proposed acquisition of control of the Swedish concrete and cement producer, Scancem, by Swedish construction company
Skanska, was the first occasion on which the Commission has used its powers to carry out a dawn raid in relation to a merger
(Case IV/M.1157 Skanska/Scancem).
The Commission launched a dawn raid at the premises of the two companies in order to investigate the notifiability of the
transaction. The background to the investigation was that, in October, 1995, Skanska and the Norwegian company Aker had
each acquired 33.3% of the shares in Scancem and had concluded that, as this did not give Skanska and Aker joint control over
Scancem, the transaction was not notifiable. The Commission did not share this view and had informed the parties that it would
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monitor Scancem carefully. Then, in October 1997, Skanska increased its shareholding to 48%, which prompted the Commission
to launch the dawn raid. Skanska subsequently notified the increase in its shareholding, several months after the increase had
taken place. The Commission eventually cleared the concentration subject to undertakings, including undertakings in respect of
the 1995 transaction.
Nestlé/Ralston Purina
In Nestlé/Ralston Purina (Case COMP/M.2337), the Commission identified competition concerns in three national markets during
its Phase I investigation. In Spain, post-transaction, Nestlé would have held a dominant position and would have eliminated its
most prominent competitor in the markets for dry dog food, dry cat food and snacks and treats for cats. It was also found that in
Italy and in Greece the acquisition would have created competition concerns in the markets for dry cat food.
Nestlé offered two alternative remedies. The first alternative remedy offered by Nestlé consisted principally of the licensing of
Nestlé's Friskies and Felix brands in Spain, for use solely in Spain for a period of three years, including the goodwill and assets
and facilities used for those businesses. During the period of the licence, the purchaser would be obliged to re-brand the products
concerned, although Nestlé and Ralston Purina would be prevented from re-introducing or promoting the brands in Spain for a
certain period following either the termination of the license or upon the purchaser ceasing to use the brands.
If the first alternative remedy was not implemented by either a fixed date or the date on which the notified transaction closed, the
parties would be required to implement an alternative "crown jewels" remedy. This alternative involved the divestiture of Ralston
Purina's 50% shareholding in its Spanish joint venture with Agrolimen S.A. (Gallina Blanca Purina), including the right of the joint
venture to continue to be able to use all brands licensed to it by Ralston Purina for a period of up to three years on an exclusive
basis. This was considered to represent a crown jewels remedy because it consisted of a larger and more easily saleable
package compared with the licensing of Nestlé's Friskies and Felix brands.
In the event, the crown jewels remedy came into play with the disposal by Nestlé of Ralston Purina's 50% shareholding in the
joint venture to Agrolimen, although it is not clear whether this was because Nestlé chose not to pursue the first alternative
remedy or simply because it was unsuccessful in implementing it.
EU merger control statistics
Period: 21 September 1990 to 1 December 2013.
Notifications received 5,403
Phase I decisions
Merger Regulation not applicable 52
Clearance, unconditional 4718
Clearance with undertakings 228
Total 4,998
Phase II decisions
Clearance 54
Clearance with undertakings 102
Prohibitions 24
Orders to divest, etc. 4
Total 184
Notifications withdrawn 151
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* The 24 prohibited transactions are Aérospatiale-Alenia/De Havilland, MSG/Media Services, Nordic Satellite Distribution,
RTL/Veronica/Endemol, Saint-Gobain/Wacker-Chemie/NOM, Gencor/Lonrho, Kesko/Tuko, Blokker/Toys R' Us, Deutsche
Telekom/Betaresearch, Bertelsmann/Kirch/Première, Airtours/First Choice, Volvo/Scania, WorldCom/Sprint, SCA/Metsä Tissue,
GE/Honeywell, Schneider/Legrand, CVC/Lenzig, Tetra Laval/Sidel, ENI/EDP/GDP, Ryanair/Aer Lingus, Olympic Air/ Aegean
Airlines, Deutsche Borse/ NYSE Euronext, UPS/ TNT Express and Ryanair/ Aer Lingus III
Source: European Commission, Competition Directorate's website
Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel
In 2002, the General Court (formerly the European Court of First Instance (CFI)) overruled three Commission decisions which
had prohibited the mergers of Airtours/First Choice; Schneider/Legrand; and Tetra Laval/Sidel.
Airtours/First Choice: The Airtours/First Choice case (Case COMP/M.1264) involved a takeover bid for First Choice by Airtours.
The Commission prohibited the merger on grounds that it would create a collective dominant position in the UK market for short-
haul foreign package holidays between the merged entity and the other two large tour operators, Thomson and Thomas Cook.
The Commission concluded that there would be an incentive to tacitly restrict market capacity, leading to higher prices and the
marginalisation of smaller operators.
The General Court held that the Commission was entitled to consider collective dominance in its assessment of mergers and in
doing so must ascertain "whether the concentration would have the direct and immediate effect of creating or strengthening a
position of that kind, which is such as significantly and lastingly to impede competition in the relevant markets". However, the
General Court annulled the Commission's decision, finding that it had failed to prove that the merged entity would have an
adverse effect on competition (Case T-342/99 ECR [2002] II 2585). Airtours (now MyTravel) lodged an appeal claiming damages
from the Commission in respect of losses resulting from its inability to complete the merger but this was rejected by the General
Court in September 2008 (see Damages actions).
Schneider/Legrand: The Schneider/Legrand case (Case COMP/M.2283) involved Schneider's acquisition of French electrical
goods company, Legrand. The Commission prohibited the merger on the basis of serious competition issues that were raised on
the French market, which the Commission effectively translated into dominance on other national markets.
In its judgment, the General Court expressly stated that the Commission's economic analysis was vitiated by "several obvious
errors, omissions and contradictions in the Commission's economic reasoning". The General Court found that the Commission
had substantially changed the nature of its case between the Statement of Objections and the final Decision. As such, the parties
had not been in a position to offer adequate remedies, which amounted to a serious procedural irregularity and an infringement of
the parties' rights of defence (Case T-310/01 and T-77/02, judgment 22 October 2002). Schneider subsequently lodged a further
appeal against the Commission's decision to initiate proceedings following its re-examination of the merger (Case T-48/03). This
action was found by the General Court to be inadmissible on the basis that the decision to initiate a Phase II investigation was not
a decision that affected the legal position of Schneider (General Court order of 31 January 2006). Schneider appealed the
General Court's decision to the ECJ, but this appeal was dismissed in March 2007 (Case C-188/06 Schneider Electric SA v
Commission).
Schneider also lodged an action for damages against the Commission. On 11 July 2007, the General Court held the Commission
to be liable for part of Schneider's losses ( see Damages actions). The Commission appealed this judgment to the ECJ. The ECJ
found that the Commission should only be required to compensate Schneider for certain loss resulting from the expenses
incurred by Schneider in respect of its participation in the resumed merger control procedure.
Tetra Laval/Sidel: This case involved a merger between Tetra Laval, active in carton packaging and Sidel, active in PET
packaging. The Commission had prohibited the merger on grounds that it would lead to horizontal effects, vertical foreclosure and
conglomerate effects (Case COMP/ M.2416).
The General Court acknowledged that the Commission may investigate future conglomerate effects in the context of a merger
review. However, it found that the Commission had not established that the merger would create or strengthen a dominant
position and criticised the Commission's economic assessment as speculative, inadequately reasoned and unsupported by
cogent evidence (Case T-5/02 and T-90/02, judgment 25 October 2002).
Conclusion: The General Court has shown itself willing to engage in an effective review of the Commission's merger decisions.
Each of these three judgments raise fundamental questions about the way in which the Commission handles merger cases, in
particular highlighting deficiencies in the Commission's economic expertise and the Commission's burden of proof has also been
expressly raised in merger investigations. The Commission appealed the General Court's judgment in the Tetra Laval/Sidel case
(Cases C-12/03 and C-13/03), but on 25 May 2004, the Advocate General gave his opinion that the Commission's appeal should
be dismissed. However, he found that the General Court had been somewhat overzealous in the scope of its judicial review in
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some areas as it had substituted its views for those of the Commission without finding that the Commission had erred. On 15
February 2005, the ECJ rejected the Commission's appeal, finding that the General Court had not erred as to the scope of its
judicial review or the burden of proof imposed on the Commission.
Reform of EU merger control in 2004
On 11 December 2002, the European Commission revealed what it called: "the most far-reaching reform of its merger control
regime since the entry into force of the EU Merger Control Regulation in 1990."
The reform package comprised three parts.
• A revised Merger Regulation.
• Guidelines on the appraisal of mergers between competing companies (discussed in box, Horizontal Guidelines).
• A series of non-legislative measures intended to improve the Commission's decision-making process.
The Commission announced on 27 November 2003, that political agreement had been reached in relation to the text of the
proposed revised Merger Regulation. The Merger Regulation was formally adopted on 20 January 2004. The text was published
on 29 January 2004 (Regulation 139/2004, OJ 2004 L24/1).
Revised EU Merger Regulation
The changes introduced in the Merger Regulation include:
• Jurisdiction/Referrals: A more streamlined system of referrals from the member states to the Commission and vice versa
(Articles 9 and 22), including, amongst other things, the improvement of the substantive criteria for referrals and introducing
the applicability of the referral procedure at the pre-notification stage.
• Key concepts for analysis: Replacement of the old "dominance" test under the ECMR (see box, Horizontal Guidelines),
"concentration" under Article 3 (express inclusion of the criteria that a concentration requires a lasting change in control) and
the relevance of "efficiency" claims in merger investigations.
• Timing: A more flexible timeframe for the Commission's merger review process, including the possibility of notifying a merger
prior to conclusion of a binding agreement and the abolition of the seven-day notification deadline, which allows the parties to
better co-ordinate with filings in other jurisdictions). Introduction of a 25 working day time frame for basic reviews in Phase I, or
35 working days if remedies are offered. Introduction of a 90 working day time frame for basic reviews in Phase II. This is
automatically extended by 15 working days if remedies are offered (unless this is done early in the proceedings) and the
notifying parties are able to request a further extension of 20 working days in complex cases.
• Enforcement: A strengthening of the Commission's fact-finding powers and introduction of higher fines and periodic penalty
payments (these changes mirror the changes to the procedure introduced in 2004 in cases under Articles 101 and 102 of the
TFEU (formerly Articles 81 and 82 of the EC Treaty)).
Non-legislative measures
As a part of its reform package, the Commission took a series of non-legislative measures to improve the quality of its decision-
making process while enhancing the opportunity for merging companies' views to be taken into account throughout the review
process. Measures included:
• Best Practice Guidelines on the conduct of EU merger control proceedings which were published at the same time as the
Merger Regulation (see the box, Merger notifications: Best Practice Guidelines).
• The creation of a post of Chief Competition Economist who is directly attached to the Director General for Competition. The
Chief Competition Economist is involved in merger and other competition investigations.
• The appointment, for all in-depth merger investigations, of a review panel composed of experienced Commission officials. The
panel scrutinises the case team's conclusions at key points of the merger review.
• More staff to support the Hearing Officers have been appointed.
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Horizontal Guidelines
The Horizontal Guidelines aim to clearly and comprehensively articulate the substance of the Commission's approach to the
appraisal of horizontal mergers.
The Horizontal Guidelines set out the Commission's approach to assessing market shares and concentration levels. It then
considers the likelihood that a merger would have anti-competitive effects, in the absence of countervailing factors. Finally, it
considers factors that might have a countervailing effect (buyer power, entry and efficiencies) and considers the conditions for the
application of the "failing firm defence".
In the Horizontal Guidelines the Commission sets out in some detail the ways in which horizontal mergers may significantly harm
competition. The Commission identifies two main ways in which horizontal mergers may significantly impede effective competition
(resulting in increased prices, reduced choice and quality of goods and services, diminished technological innovation etc), in
particular as a result of the creation or strengthening of a dominant position:
• Non-co-ordinated effects: The merger eliminates important competitive constraints on one or more firms, which
consequently have increased market power. This can arise by virtue of single firm dominance or in oligopolistic markets (even
in the absence of single firm dominance or co-ordination).
• Co-ordinated effects: The merger changes the nature of competition so that firms that were not previously co-ordinating their
behaviour are now more likely to co-ordinate and harm effective competition (in particular, by raising prices). Alternatively, the
merger may make the conditions for competition easier or more effective for firms that are already co-ordinating.
The Horizontal Guidelines review in detail the market characteristics and circumstances (nature of rivalry, barriers to entry and
expansion, type of products, transparency of the market etc) that are relevant to an assessment in each case.
The guidance given on when a merger will be found to produce non-coordinated effects largely reflects the Commission's past
practice on analysing single firm dominance. Guidance on the analysis of co-ordinated effects in non-collusive oligopolies quite
closely follows the reasoning of the General Court in the Airtours case.
The Horizontal Guidelines address and elaborate on factors that may mitigate an initial finding of likely harm to competition,
including buyer power and ease of market entry. The Commission's approach to "efficiencies" in the assessment of mergers is
also set out in some detail for the first time. The Commission will consider efficiencies but the parties must show that the
efficiencies generated by the merger will outweigh any anti-competitive effects and that they will benefit consumers.
On 9 July 2007, the General Court handed down a judgment in which it considered the application by the Commission of the
Horizontal Guidelines for the first time (Case T-282/06 - Sun Chemical Group BV, Siegwerk Druckfarben AG, and Flint Group
Germany GmbH, v Commission). The General Court held that the Horizontal Guidelines do not set out a "checklist" of factors to
be applied mechanically in every case by the Commission. They provide that the competitive analysis in a particular case will
depend on an overall assessment of the foreseeable impact of the merger in light of all relevant factors and considerations. The
Horizontal Guidelines do not, therefore, require an examination in every case of all of the factors mentioned in them. The
Commission enjoys a discretion as to which factors to take into account (see Legal update, CFI dismisses appeal against
Commission merger clearance decision (www.practicallaw.com/2-371-6980)).
The Non-horizontal Guidelines
The Non-horizontal Guidelines provide guidance on the Commission's approach to assessing non-horizontal mergers:
concentrations where the undertakings concerned are active on distinct relevant markets. The Guidelines distinguish between
two broad classes of non-horizontal mergers:
• Vertical mergers: where the parties operate on different levels of the supply chain (for example, a merger between a
manufacturer and one of its distributors).
• Conglomerate mergers: where the parties are not in a purely horizontal or vertical relationship but are active in closely related
markets (for example, a merger between suppliers of complementary products or products that belong to the same product
range).
The Commission explains that non-horizontal mergers are generally less likely to create competition concerns than horizontal
mergers as they do not entail the loss of direct competition between the merging firms in the same market. Further, vertical and
conglomerate mergers provide substantial scope for efficiencies, due to the complementary nature of the products or services
involved. However, non-horizontal mergers may significantly impede effective competition by changing the ability and incentive to
compete on the part of the merging companies and their competitors in ways that cause harm to consumers (both intermediate
and ultimate consumers).
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The Commission states that (as an intitial indicator) it is unlikely to find concern in non-horizontal mergers where the post-merger
market share of the merged entity in each of the markets concerned is below 30% and the post-merger HHI is below 2000. It is
only likely to investigate such mergers "extensively" in special circumstances, such as where one of the following factors are
present:
• The merger involves a company that is likely to expand significantly in the near future, for example due to recent innovation.
• There are significant cross-shareholdings or cross-directorships in the market.
• There is a high likelihood that one of the merging firms would disrupt co-ordinated conduct.
• There are indications of past or ongoing co-ordination.
In that context, the Guidelines examine the situations in which vertical and conglomerate mergers may significantly impede
effective competition through either:
• Non-co-ordinated effects. These are mainly foreclosure: hampering or restricting a rival's access to markets or supplies
(input foreclosure) so reducing the ability and incentive to compete. Anti-competitive foreclosure arises where the merged
entity (and possibly some competitors) can profitably increase the price charged to consumers. The Commission examines
the factors that give the merging entity the ability or incentive to foreclose inputs or access to customers.
• Co-ordinated effects. These arise where the merger changes the nature of competition in such a way that it either makes
existing co-ordination easier or, makes new co-ordination more likely.
Sony/BMG
Under the transaction notified to the Commission on 9 January 2004, Sony and BMG had agreed to merge their recorded music
businesses (including the discovery and development of artists and the recording and marketing of their music) into a 50/50 joint
venture named SonyBMG. The Commission initiated Phase II proceedings in February 2004.
The Commission found that the main markets affected by the concentration were the national markets for recorded music. The
parties combined market share in each of the (then 18) EEA countries ranged between at least 15-20% and at most 30-35% (20-
25% on average). Given the presence of three other major record companies (Universal, Warner and EMI) and a varying number
of independent competitors in each country, the Commission concluded that there was no creation or strengthening of a single
dominant position.
However, in all member states except Greece the merger would result in a reduction of the number of major players from five to
four. In the five big EU markets (UK, France, Germany, Italy and Spain), the four remaining majors would control between 60%
(in Spain) and 90% (in Italy) of the market and had done so for a number of years. The Commission therefore assessed in detail
the possibility that the merger might create or strengthen a collective dominant position between the merged entity and the
remaining three major record companies. In doing so the Commission applied the tests established in the Airtours case.
First it considered whether there was any evidence that prior to the merger there had been a common understanding between
the five major record companies on price. The Commission reviewed the development of the average wholesale net prices on a
quarterly basis for the top 100 single albums of each major in the five largest member states (it also conducted a similar analysis
in the smaller states). On this basis it assessed in a number of ways whether there was any evidence of price parallelism
between the companies. It also considered whether any price co-ordination, on the basis of parallelism in average prices, could
have been reached in using list prices as focal points and whether the discounting practices of each company were aligned and
sufficiently transparent in order to allow efficient monitoring of any price co-ordination.
The Commission found in each country that, to a greater or lesser degree, there was some evidence of price parallelism but that
this was not conclusive of co-ordinated pricing behaviour in the past. It also concluded that there was insufficient evidence that
discounting was sufficiently aligned or transparent to facilitate co-ordination.
However, given that there were some indications of co-ordinated behaviour, the Commission further analysed whether the
markets for recorded music were characterised by features facilitating collective dominance:
• Product homogeneity. The Commission concluded that the heterogeneity in the content of albums, which has implications
on the prices charged, reduces transparency in the market and makes tacit collusion more difficult.
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• Transparency. The Commission found that substantial effort on an album by album level is required to identify the level of
discounts. This reduces transparency in the market. Although there are a number of devices in the market to facilitate
monitoring (weekly sales lists and retail prices), the Commission concluded that there was insufficient evidence that these had
enabled the companies to overcome the deficits in transparency relating to discounts.
• Retaliation. Possible methods of retaliation against a company that deviated from a common understanding about price
would be to exclude the deviator from conclusion of new joint ventures, to refuse to licence songs from the deviator's
compilations or to terminate existing joint ventures. However, the Commission found no evidence of any such retaliatory
action, or the threat of this or other action in response to deviation.
On this basis, the Commission concluded that there was not sufficient evidence to show that the merger would result in the
strengthening of an existing collective dominant position in the markets for recorded music in any of the EEA countries. Further, it
concluded that there was insufficient evidence that a reduction from five to four majors would facilitate transparency and
retaliation so such an extent that the creation of collective dominant position was anticipated.
The Commission also examined the existing vertical relationships between Sony BMG's recorded music and Bertelsmann's
downstream TV and radio activities in Germany, France, Belgium, Luxembourg and the Netherlands. The Commission was,
however, satisfied that the proposed joint venture did not rise any significant competition concerns. In addition, the Commission
also assessed the potential effects of the merger in the emerging market for online music licences and online music distribution,
but concluded that there were no serious competition concerns. The Commission granted unconditional clearance decision.
On 13 July 2006, the General Court annulled the Commission's decision following an appeal by a trade association, Impala
(Case T-464/04 Independent Music Publishers and Labels Association (Impala) v Commission, judgment of 13 July 2006).
The General Court reviewed whether the Airtours conditions had been properly applied by the Commission in determining
whether there was a pre-existing collective dominant position and whether a collective dominant position had been created or
enhanced. The General Court found that the Commission had made a manifest error of assessment in concluding that the
recorded music markets were insufficiently transparent to support co-ordination. It had not sufficiently justified its reliance on the
impact of discounting, the evidence relied on did not support the conclusions relied on and the Commission had failed to assess
important issues, such as the real impact of discounts on the transparency of prices.
The General Court also found that in assessing the pre-existence of a collective dominant position, the Commission had failed to
determine sufficiently the absence of retaliation. The General Court concluded that there must be proof of deviation from the
common course of conduct and actual proof of the absence of retaliatory measures.
In summary, the General Court held that the Commission's decision was inadequately reasoned and vitiated by manifest errors.
The Commission had relied too much on the absence of necessary conditions prior to the merger without conducting a full
prospective analysis of the impact of the merger on transparency and the prospects of retaliation.
Concerns were raised that the General Court's judgment could encourage a significant increase in competitor/customer
challenges to the Commission's clearance decisions. If this were to become commonplace or to be utilised by some as a tactic to
disrupt pro-competitive mergers, it would lead to greater uncertainty for companies and increased cost to the Commission merger
control process.
Sony and Bertelsman appealed the General Court's judgment to the ECJ (Case C-413/06 - Bertelsmann AG and Sony
Corporation of America). On 13 December 2007, Advocate General Kokott recommended that the ECJ dismiss the appeal. The
Advocate General considered that the General Court was correct to find that the Commission had failed to state adequate
reasons and had committed a manifest error of appraisal. The General Court had not applied excessively high standards of proof
on the Commission or exceeded its powers of review. The Advocate General examined the standards of review applied by the
General Court and the standards of proof to be applied by the Commission. She found that the same standards apply for the
clearance of concentrations under the Merger Regulation as for their prohibition. While the Advocate General did criticise the
General Court in certain respects, she did not consider that these errors were sufficient to vitiate the General Court's judgment
(see Legal update, Advocate General recommends that ECJ should uphold CFI judgment on Sony/BMG
merger (www.practicallaw.com/9-379-9444)).
On 10 July 2008, the ECJ handed down its judgment, reaching a different conclusion in a number of respects to the Advocate
General. The ECJ set aside the General Court judgment on the basis that the General Court made a number of errors law,
although it rejected the appellants' arguments that there is a general presumption that a notified concentration is compatible with
the internal market and that an approval decision can never be annulled for inadequate reasoning.
The ECJ found that the General Court placed too much reliance on the conclusions in the Commission's statement of objections.
Further, the General Court placed too high an investigatory standard on the Commission and erred in relying on confidential
documents which the Commission could not have relied on. The General Court also misconstrued the legal criteria applying to a
collective dominant position: it failed to analyse market transparency in the light of a plausible theory of tacit co-ordination. Finally,
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the General Court erred in finding that the Commission had failed to provide an adequate statement of reasons. The ECJ referred
the case back to the General Court for reconsideration (see Legal update, ECJ sets aside CFI judgment on SonyBMG joint
venture (www.practicallaw.com/3-382-5436)).
In the meantime, on 3 October 2007, the Commission announced that, after a further in-depth investigation, it had again
approved the Sony/BMG merger unconditionally. The Commission again applied the Airtours test to consider whether the merger
created or reinforced a collective dominant position of the major record producers in all EEA national markets (SonyBMG,
Universal, Warner and EMI) for recorded music in physical format and the licensing of recorded music in digital format.
The Commission concluded that its qualitative and quantitative analysis, its consideration of third party submissions and its
overall in-depth analysis provided no evidence of co-ordinated behaviour in any of the relevant markets, either prior to the merger
or as a result of it. The Commission, therefore, concluded that the merger would not result in either the creation or strengthening
of a single or collective dominant position. Impala lodged a further appeal against this decision (Case T-229/08 - Impala v
Commission).
In September 2008, the Commission approved the proposed acquisition by Sony of Bertelsmann's 50% share in SonyBMG,
paving the way for Sony to acquire sole ownership of the joint venture (COMP/M.5272 - Sony/ SonyBMG). As a result, in June
2009, the General Court ordered that Impala's appeal against the first Commission decision (which was referred back to the
General Court by the ECJ) is devoid of purpose, and that there is no need to adjudicate on it. Due to the Commission's
September 2008 decision to approve the acquisition of the whole of Sony BMG by Sony Corporation, a judgment by the General
Court would no longer be of practical interest to Impala. Similarly, in September 2009, the General Court ruled that Impala's
appeal against the Commission's second (October 2007) decision to approve the SonyBMG joint venture was devoid of purpose.
Case COMP/M.3333 Sony/BMG, Commission decision of 19 July 2004 and 3 October 2007.
2014 White Paper - proposed changes to make Merger Regulation more effective.
In July 2014, following a consultation in June 2013, the Commission published a White Paper on making EU merger control more
effective (see Legal update, Commission White Paper on making EU merger control more effective (www.practicallaw.com/8-573
-9189)).
The main measures proposed relate to:
• Bringing acquisitions of non-controlling minority shareholdings within the scope of the Merger Regulation (see Proposals for
reform: extension to non-controlling shareholdings).
• Reforming the systems for case referrals between the Commission and member state authorities (Proposals for reform).
The Commission is also proposing the following streamlining and simplifying measures, requiring amendment to the EU Merger
Regulation itself:
• Extra-EEA ioint ventures. The Commission suggests amending Article 1 of the Merger Regulation so that a full-function joint
-venture, located and operating outside the EEA and without any effects on EEA markets, falls outside the Commission's
competence, even if the turnover thresholds are met.
• Exchange of confidential information between Commission and member states. The Commission is considering refining
Articles 19(1) and (2) of the Merger Regulation to ensure that when member states refer cases to the Commission and vice
versa, under Article 22 and Article 9 respectively, the authority that continues the investigation can use the information already
obtained by the authority that referred the case. In addition, it should also clarify that the Commission's ability to exchange
case-related information with national competition authorities (NCAs) includes information obtained by the Commission during
the pre-notification stage.
• Block exemptions: extending the transparency system to certain types of simplified merger case. The Commission is
considering exempting certain categories of mergers from the prior notification requirement. The exemption would include
certain categories of cases currently falling under the simplified procedure, such as cases leading to no "reportable markets"
due to the absence of any horizontal or vertical relationship between the parties. The Merger Regulation could confer this
power upon the Commission, and the Commission could define the exemption’s scope in the Merger Implementing
Regulation.
A possible replacement procedure, in the event of such an exemption, would include extending the targeted transparency
system (for minority shareholdings) to cover the exempt transactions. The Commission would, therefore, be informed by an
information notice and would be free to investigate a case. If it decided not to, the transaction could be implemented after
three weeks without the need for a clearance decision.
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• Notification of share transactions outside the stock market. Under Article 4(1) parties may notify a transaction before a
binding sale and purchase agreement is concluded or a public takeover bid is launched, provided they demonstrate a "good
faith intention" to do so. The Commission is considering modifying Article 4(1) to provide more flexibility for notifying mergers
that are executed through share acquisitions on a stock exchange without a public takeover bid.
It may be useful to adapt the criterion of "good faith intention" in order to allow the parties to notify before the level of
shareholding required to exercise (de facto) control is acquired. The acquiring party can demonstrate a clear commitment to
carry out the acquisition by preparing everything necessary (internally and externally) to proceed immediately.
• Clarification of methodology for turnover calculation of joint ventures. The Commission considers that Article 5(4) of the
Merger Regulation should be amended to explicitly articulate the methodology for the calculating a joint venture's relevant
turnover (as currently set out in the Commission's Consolidated Jurisdictional Notice).
• Time limits. The Commission has granted deadline extensions under Article 10(3) of the Merger Regulation in over 50% of
Phase II cases over the past ten years. In some cases, the available time is barely enough for a thorough quantitative
analysis, even with an extended deadline, largely due to the time needed to collect data from the parties and possibly third
parties. The Commission is, therefore, considering introducing greater flexibility by increasing the maximum number of
working days by which the Phase II deadline may be extended under Article 10(3)(2), for example from 20 to 30.
In addition, it could be clarified that Article 10(3)(1)’s automatic 15 working day extension for Phase II deadlines is triggered in
all cases where commitments are offered following a statement of objections and that the exception to the automatic
extension for commitments that are offered before 55 working days only applies if commitments offered are sufficient to
remove the concerns identified without the need for a statement of objections.
• Unwinding of concentrations with regard to minority shareholdings. The Commission is considering modifying Article 8
(4) of the Merger Regulation to align the scope of the Commission’s power to require dissolution of partially implemented
transactions incompatible with the internal market with the scope of the suspension obligation (in Article 7(4)).
This would address the situation, for example, whereby the Commission could not require Ryanair to divest its prior non-
controlling minority shareholding in Aer Lingus, despite blocking the acquisition. The modified Article 8(4) would address such
a scenario by clarifying that when a partially implemented concentration is prohibited, the Commission may order full
divestiture of the acquired stake, even if it would not confer control.
This would align with the proposed reform extending merger control to certain acquisitions of non-controlling minority
shareholdings. If, following the complete dissolution of a prohibited concentration under Article 8(4), the acquirer had a
minority stake in the target company, the acquisition would need to be assessed under the new proposed regime for non-
controlling minority shareholdings.
• Staggered transactions. Article 5(2)(2) of the Merger Regulation establishes that, for the purpose of the turnover calculation
of the undertakings concerned, one or more transactions which take place within a two-year period between the same
persons or undertakings are treated as a single concentration. This prevents circumvention of EU merger control through
staggered transactions.
While the Commission generally assesses the transaction as a whole, this practice raises questions in cases where the first
transaction was notified and cleared by a NCA. The Commission should therefore consider how to tailor the scope of Article 5
(2)(2) to only capture cases of "real" circumvention.
• Qualification of "parking transactions". Article 3(1) defines a concentration as an operation bringing about a lasting change
in the control of the undertakings concerned. In certain instances, however, an undertaking is "parked" with an interim buyer
(such as a bank) on the basis of an agreement that the target will at a later stage be sold on to an ultimate acquirer. The
interim acquirer thus acquires the shares or assets on behalf of the ultimate acquirer, who may also bear the financial risk, in
order to facilitate the ultimate acquisition by the latter. The Merger Regulation should clarify that such "parking transactions"
should be assessed as part of the acquisition of control by the ultimate acquirer.
• Effective sanctions against use of confidential information obtained during merger proceedings. Article 17(1) of the
Merger Regulation provides that information acquired in merger proceedings may only be used for the purposes of the
relevant investigation. However, when private parties and their legal and economic advisors obtain commercially relevant
information about other private parties from the Commission (for example, through access to the file or from third parties
taking part in oral hearings), the Commission currently lacks an effective mechanism for enforcing the limited use obligation.
Therefore, the Merger Regulation should be amended to allow appropriate sanctions against parties and third parties that
receive access to non-public commercial information about other undertakings for the exclusive purpose of the proceeding but
disclose it or use it for other purposes.
• Commission's power to revoke decisions in case of referral based on incorrect or misleading information. According
to Articles 6(3)(a) and 8(6)(a) of the Merger Regulation, the Commission may revoke a decision clearing a merger if that
decision was obtained by deceit or is based on incorrect information for which one of the parties is responsible. However, the
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Merger Regulation does not explicitly confer an analogous revocation power for falsely-obtained Article 4(4) referrals to
member states. Therefore, the Merger Regulation should be amended to clarify that referral decisions based on deceit or false
information, for which one of the parties is responsible, can also be revoked.
The consultation on the White Paper is open until 3 October 2014. The Commission will then decide what, if any, legislative
action to take.
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