European Commission streamlines merger review process

The package consists of: (i) a revised Merger Implementing Regulation (which contains the Form CO (notification form for a standard procedure) and the Short Form CO (notification form for a simplified procedure) as well as the Form RS to request referral and the Form RM to submit remedies), (ii) a revised Notice on Simplified Procedure and (iii) an updated Communication on the transmission of documents.

The new rules will enter into force on 1 September 2023.

When announcing the changes, Executive Vice-President Margrethe Vestager noted that “the new rules also make the notification process significantly easier for the parties to the benefit not only of companies and advisors but also of the Commission, which will be able to focus its resources on the most complex cases”.

This alert details the key changes to the rules.

Expanding and clarifying mergers that qualify for the simplified procedure

The simplified procedure is intended for certain categories of non-problematic transactions. The EC does not conduct a comprehensive market investigation, the proceedings are faster and the parties are not required to provide as much information.

Under the revised rules, two new categories of vertical merger would fall within the simplified procedure. This is where under all plausible market definitions:

• the individual or combined upstream market share of the parties is below 30% and their combined purchasing share is below 30%
• the individual or combined upstream and downstream market shares of the parties are below 50%, the HHI delta is below 150 and the smallest undertaking in terms of market share is the same in the upstream and downstream markets

In addition, at the parties’ request, the EC will have discretion in certain circumstances to treat under the simplified procedure transactions which do not fall under any of the default simplified treatment categories.

These so-called “flexibility clauses” cover transactions involving:

• horizontal overlaps where the combined market share of the parties is 20-25%
• vertical relationships where the individual or combined upstream and downstream market shares of the parties are 30-35%
• vertical relationships where the individual or combined market shares of the parties do not exceed 50% in one market and 10% in the other vertically related market
• joint ventures with turnover and assets between EUR100 and 150 million in the EEA

The EC does, however, have the ability to remove the benefit of simplified treatment in individual cases. The EC has now provided a clearer and more detailed non-exhaustive list of circumstances (“safeguards and exclusions”) in which it may take that path or decide not to apply a flexibility clause. These include cases where, for example: there is difficulty in defining the relevant markets; one party has significant non-controlling shareholdings in markets where another party is active; or a third-party raises substantiated competition concerns.

Streamlining the review process for simplified cases

In welcome news, the revised rules introduce “super-simplified” treatment for (i) joint ventures with no current or expected EEA turnover and no planned transfer to them of assets within the EEA and (ii) all cases where there are no horizontal overlaps or vertical relationships between the merging parties’ activities.

Parties will be able to notify these transactions directly, without pre-notification discussions with the EC, and will not have to complete all the sections of the Short Form CO.

Streamlining the review of non-simplified cases

The new rules also provide modifications to the information requirements in relation to non-simplified cases

For example, they add instructions on how to request waivers from the requirement to provide certain information and identify sections of the Form CO which are suitable for such requests.

Revising the filing forms

The forms for notifying transactions, submitting commitments, and requesting referrals have been changed and streamlined.

The new rules introduce a “tick-the-box” format, in particular for the Short Form CO but also (to a certain extent) for the Form CO, including multiple choice questions and tables instead of open text questions. These changes have the potential to reduce the time to prepare notifications.

What may however prove burdensome is a new tick-the-box section regarding “safeguards and exclusions” in the Short Form CO, designed to identify simplified cases where a normal review may be more appropriate. The new section includes questions such as whether any of the parties have significant non-controlling shareholdings (ie above 10%) or cross-directorships in companies active in the same markets as any of the other parties or in vertically related markets, and whether the parties are important innovators in overlapping markets. Some of these questions have also been included in the Form CO. The parties may have to provide additional information if any answers are affirmative. Private equity investors with large company portfolios may in particular find providing the additional questions on group structure and relationships resource-intensive and time-consuming.

The revised Form CO removes the requirement to provide certain categories of information (eg on trade between Member States and imports from outside the EEA). However, it requires new types of information, including information on horizontal overlaps and vertical relationships involving pipeline products, and on data (including its source) that parties collect in the ordinary course of business and that could be useful for quantitative economic analysis.

Where remedies potentially involve a “carve out”, the revised Form RM requires additional information on the business from which the business to be divested would be carved out.

Introducing electronic notifications

Following a temporary period of accepting and encouraging notifications in digital format during the Covid-19 pandemic, the EC has opted to establish a permanent system for electronic transmission of documents, including notification forms.

Documents submitted through digital means and requiring a signature must be signed using at least one Qualified Electronic Signature in line with the eIDAS Regulation.

Less (or more) red tape?

Any revisions to merger control rules that are designed to streamline the review process and reduce the burden on merging parties are welcome.

However, it is not clear that all of the revised rules will help to achieve that objective.

Indeed, some new sections (such as “safeguards and exclusions”) may trigger additional information requests and raise further issues for the EC to consider.

In addition, the reform does not take any steps to improve the most burdensome requirements, such as the provision of relevant information under all plausible market definitions and internal documents.

Only time and use will show the extent to which the revisions facilitate the merger review process. In the meantime, investors should prepare for these new rules and also for the potential information requests that the new rules may trigger.