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Freshfields Transactions

| 5 minutes read

EU merger control simplification package: cutting or increasing the red tape?

In brief

On 20 April, the European Commission (Commission) adopted a merger control simplification package including a revised implementing regulation and notification templates. The press release announcing it states that the “Commission further cuts red tape for merging businesses”, but in reality things are more nuanced. The new package will in certain instances even increase red tape for merging businesses, especially for investors with large portfolios. The new rules will apply as of 1 September 2023.

A number of very welcome changes to the notification rules include the generalised use of electronic means for submission of notifications (and related documents) and for signing documents, the extension of the category of cases which can be notified under the ‘simplified’ procedure, and the introduction of a new category of ‘super-simplified’ cases (which require no pre-notification contacts).

At the same time, a number of changes will result in additional red tape for investors. A list of questions relating to the so-called ‘safeguards and exclusions’ – reasons for the Commission to require parties to switch to the regular procedure (some of which have also been included in the regular notification) – now has to be answered by parties in the notification form. These include questions on cross-directorships and non-controlling shareholdings and various other questions on the parties’ activities. These are likely to increase the burden on notifying parties and in particular investors with large portfolios, who need to take into account the activities of all of their portfolio companies (not just the companies directly (or indirectly) involved in the transaction).

In greater detail

The Commission’s simplification package consists of three main documents, including four notification templates: (i) a revised Merger Implementing Regulation (including the template notification forms for the Form CO, Short Form CO, Form RS and Form RM; (ii) a revised Notice on the Simplified Procedure (the Notice); and (iii) a Communication from the Commission on the transmission of documents. Whereas most of the changes made to the Implementing Regulation seem to codify the Commission’s practice (and do not appear controversial), some of the changes to the Notice are more fundamental (and appear to cast the Commission’s jurisdictional net even wider).

We set out our initial thoughts on some of the key changes below.

1. The safeguards and exclusions

Perhaps the most controversial change to the rules is the introduction of a tick-the-box section regarding the so-called ‘safeguards and exclusions’, which contains examples of circumstances in which the Commission can require parties to switch from the simplified procedure to the regular procedure. For each relevant market (activity) which falls under one of the categories of the Notice (i.e. markets which qualify for simplified treatment and which are thus not ‘affected’), parties will now have to answer a series of ‘yes’ or ‘no’ questions; and in case of an affirmative response, they will need to disclose additional information. While a number of these questions are relatively straightforward and non-controversial, there are a number which raise some concern and which will have a significant impact on the preparation of some merger notifications. Some examples:

  • Whether the parties have significant (10% or more) non-controlling shareholdings or cross-directorships in companies active in the same market as any of the other parties involved in the transaction or in vertically related markets;
  • Whether the parties have competitors that have a significant (10% or more) non-controlling shareholding in any of the undertakings concerned;
  • Whether one of the parties has plans to expand in product markets and/or geographic markets in which the other party is active or which are in a vertical relation with products in which the other party is active;
  • Whether the relevant market share thresholds are exceeded in terms of capacity under any plausible market definition;
  • Whether the parties are important innovators in the overlapping markets; and
  • Whether the individual or combined market shares in production chains with more than two levels, are 30% or higher in any of the levels of the value chain (in terms of value, volume or capacity).

These questions appear particularly burdensome for investors with large portfolios, who (may) need to answer (some of) these questions for their entire portfolio, in certain instances without a clear nexus to the transaction. Additionally, for each question answered in the affirmative, the parties will have to explain why the concentration should still be treated under the simplified procedure and need to “provide all relevant details”, which could also prove burdensome. As indicated, some of the questions similarly need to be addressed in the normal Form CO.

2. The flexibility clause

A positive change is the introduction of the ‘flexibility clause’, which allows the notifying parties to request treatment under the simplified procedure even if the conditions of Article 5 of the Notice are not met, but only if two other conditions are met: (a) the parties’ combined market share remains below 25% for horizontal overlap; and (b) the parties’ individual and combined market shares in a vertical relationship meet at least one of the following conditions: (i) they are lower than 35% in the upstream and downstream markets; and (ii) they are lower than 50% in one market while all of the parties’ individual and combined market shares in all the other vertically related markets are less than 10%.

In addition, the Commission may also review a concentration under the simplified procedure (despite not meeting the conditions of Article 5 of the Notice) if, in a joint control scenario: (a) the annual turnover of the JV and the contributed activities (if any) is less than EUR 150 million in the EEA; and (b) the total value of asset transfers to the JV in the EEA at the time of notification is less than EUR 150 million.

Certain concentrations which previously required a notification under the regular procedure (because they just exceeded the relevant market share thresholds but clearly did not result in competition concerns), could at the Commission’s discretion now be treated more efficiently, under the simplified procedure.

3. Super-simplified procedure

The Notice also introduces a new category of concentrations which can be formally notified without any pre-notification contacts, referred to as the ‘super-simplified procedure’ (noting that Notifying Parties technically always have the right to formally notify without pre-notification contacts). This has the potential to significantly reduce the review period of the simplest cases, such as extra-EEA JVs which have to be notified to the Commission as a result of the two (or more) parents’ activities in the EEA, but which have no (competitive) effect on the EEA. By forgoing the pre-notification phase, the review period of such cases could in certain instances be reduced by almost half.

4. Transmission of documents

Article 22 of the new Implementing Regulation states that the transmission of documents to and from the Commission shall normally take place digitally. In its accompanying communication, the Commission specifies the format in which notification and related documents should be submitted. This is a very welcome change which will allow for a more efficient notification process for parties and the Commission alike.

What’s next?

The new rules will enter into effect on 1 September 2023, from which moment electronic notifications will become the standard, and parties will have to submit the new notification forms for their concentrations. Time will tell how burdensome some of these new requirements are; until then, investors should prepare for these new rules and the various responses they will have to provide in respect of their portfolios.

Please contact us or your usual contact in our Antitrust, Competition and Trade team if you would like to discuss this update further. To read more about these and other antitrust developments, refer also to our Global antitrust in 2023: 10 key themes report.

The press release announcing the new merger control simplification package states that the “Commission further cuts red tape for merging businesses”, but in reality things are more nuanced


antitrust and competition, europe, global, global financial investors, governments and public sector, joint ventures, merger control, mergers and acquisitions, private equity, private m&a