Recent market developments have resulted in a gradual increase of concentrations involving companies generating little or no turnover at the moment of the transaction but with high competitive potential in the internal market. By way of consequence, a number of transactions which could potentially have an impact on competition have not been reviewed by the Commission or by any Member State authority. This includes in particular concentrations involving nascent competitors and innovative companies, including in the digital, pharmaceutical, biotechnology and certain industrial sectors.
The European Commission considers that a more frequent use of the existing tool of referrals under Article 22 of the EU Merger Regulation can help capture concentrations which may have a significant impact in the internal market. To this end, it published a Communication on the application of the referral mechanism set out in Article 22 (“Article 22 Guidance”).
Article 22 of the EU Merger Regulation allows Member States to request the Commission to examine mergers that do not meet the EU turnover-based thresholds but affect trade between Member States (first criterion) and significantly threaten to affect competition within the territory of the Member State(s) making the request (second criterion).
The Article 22 Guidance aims to encourage and accept more referrals under Article 22 of the EU Merger Regulation, notably where the transaction does not meet the national merger control thresholds. The Article 22 Guidance describes the categories of cases which may constitute suitable candidates for a referral in situations where the transaction is not notifiable under the laws of the referring Member State. It also sets out the criteria that the Commission may take into account in exercising its discretion to accept such referrals.
By way of illustration, the categories of cases that will normally be appropriate for a referral under Article 22 of the EU Merger Regulation may include cases where the undertaking is a start-up or recent entrant with significant competitive potential that has yet to develop or implement a business model generating significant revenues; is an important innovator or is conducting potentially important research; is an actual or potential important competitive force; has access to competitively significant assets (such as infrastructure, data or IP rights); and/or provides products or services that are key inputs/components for other industries. In its assessment, the Commission may also take into account whether the value of the consideration received by the seller is particularly high compared to the current turnover of the target.
The Commission will cooperate closely with the competent authorities of the Member States to identify concentrations that may constitute potential candidates for a referral under Article 22 of the Merger Regulation. Merging parties may voluntarily come forward with information about their intended transactions. In such cases, the Commission may give them an early indication that it does not consider that their concentration would constitute a good candidate for a referral. Third parties may also contact the Commission or the national competition authorities and inform them of a concentration that, in their opinion, could be a candidate for a referral.
If a referral request is being considered, the Commission will inform the parties to the transaction. However, the suspension obligation set out in Article 7 of the Merger Regulation will only apply as from the date on which the Commission informs the undertakings concerned that a request has been made, to the extent that the concentration has not been implemented on that date.
The Article 22 Guidance therefore significantly broadens the referral system, empowering the Commission to review transactions that fall below any revenue-based threshold on the basis of two substantive and less predictable criteria. This means that merging companies where one of the parties has little turnover can no longer exclude merger control filing requirements and will need to consider carefully whether their transaction is likely to raise competition issues.
Please contact Pierre de Bandt or Jeroen Dewispelaere for further information about this case and/or for general legal advice relating to competition law.