|March 11, 2013|
Previously published on February 27, 2013
As many businesses will be acutely aware, the preparation of merger control notifications to the European Commission (the "Commission") under the EU Merger Regulation (the "EUMR") in respect of M&A transactions requires a considerable amount of effort by in-house teams and external legal and economic advisers and results in significant costs in terms of professional fees and management time.
As detailed below, the Commission is currently proposing small but significant changes to its notification rules to ensure that these financial and administrative burdens are only imposed when absolutely necessary.
By way of background, the EUMR uses monetary turnover thresholds to determine whether a notification must be made in respect of an M&A transaction. While this provides parties with a great deal of certainty regarding the need to make a filing, it also means that the rules catch transactions which could not, by any stretch of the imagination, have a real impact on competition (e.g. acquisitions by parties which have no, or minimal, overlapping operations with their targets).
In recognition of this fact, the Commission has a long-standing system of simplified notifications for transactions meeting certain criteria which help to demonstrate that a transaction is unlikely to result in a "significant impediment of effective competition" in the European Union.
Transactions benefiting from the simplified procedure do not require a full notification (known as "Form CO") - merging parties can instead submit a "Short Form CO" notification to the Commission. In short, the information requirements for a "Short Form CO" are less burdensome as much less information needs to be submitted, in particular as regards information on the economic market(s) affected by the transaction.
At present, transactions benefit from the simplified notification procedure in circumstances where:
neither party operates in the same market (i.e. absence of a horizontal overlap) or in a market which is upstream or downstream of a market in which the other party to the transaction operates (i.e. absence of a vertical relationship); or
the parties operate in the same market (i.e. existence of a horizontal overlap), but their combined market share is less than 15%; and/or where one of the parties operates in a market which is upstream or downstream of a market in which the other party operates (i.e. existence of a vertical relationships), but none of their individual or combined market shares at either level is 25% or more.1
The Commission's reform proposals would increase both market share thresholds referred to above by 5%. This means that transactions involving (i) competitors with a combined market share of less than 20%; and/or (ii) parties with vertical relationships but individual or combined shares of less than 30% in each relevant market would qualify for the simplified notification procedure. In addition, the Commission is proposing to update and streamline the merger notification forms which must be used for EUMR notifications. While its plans are vaguer in this respect, the Commission has indicated that such modifications will further reduce the administrative burden for parties submitting notifications.
From a procedural perspective the proposed amendments could be implemented by the Commission with relative ease as they would not require legislative acts by other EU institutions or the EU Member States. The Commission has indicated that it will issue a public consultation on its proposed amendments in the spring of 2013. Implementation of any final decision is currently expected by the end of the year.
Uninitiated observers might be tempted to decry the Commission's proposals as amounting to "small beer" or simply "tinkering around the edges" of the EUMR. That, however, would be a significant disservice to the Commission. A root and branch review of EUMR notifications is not currently feasible. The Commission considers the current regime to be broadly successful and is currently seeking to streamline the review of nonproblematic transactions in an effort to reduce the administrative burden on businesses and the Commission itself (so that it can focus its resources on transactions which have a real impact on competition). These are noble objectives which should enure to everyone's benefit.
On the Commission's own estimates, the adoption of the reform proposals would result in an additional 10% of EUMR merger filings qualifying for the simplified procedure.2
More importantly, the Commission estimates that an EUMR filing under the simplified procedure reduces the number of in-house man hours and external legal fees incurred by merging parties by approximately 33-50% - an estimate which is in line with GTM's own experience. As a result, if implemented, the Commission's limited reform of the EUMR notification regime would be a welcome development of substantial value to a large number of parties involved in M&A transactions. Proving that good things can come in small and unassuming packages.
1 In addition, the following types of transactions also qualify for the simplified procedure: (i) acquisitions of sole control of a target over which the acquirer already has joint control; and (ii) in the case of joint ventures, if the joint venture has no, or negligible, actual or foreseen activities in the European Economic Area.
2 Currently, approximately 60% of all EUMR filings benefit from the simplified procedure.