Hitting a brick wall? The review of below-threshold mergers in the EU
Transactions that do not trigger any (mandatory) merger control filing keep attracting the spotlight in the EU on multiple fronts: the use of the referral mechanism under Article 22 of the EU Merger Regulation, national competition authorities (NCAs) using abuse of dominance rules, and NCAs requesting, and receiving, more call-in powers below filing thresholds.
Abuse of dominance rules
Back in March, we discussed the implications of the CJEU’s Towercast judgment. The judgment confirmed that acquisitions by dominant companies falling below (EU and national) filing thresholds, and that are not subject to an Article 22 referral, may nevertheless be reviewable under abuse of dominance rules both before and after closing.
There were, however, question marks over the extent to which authorities would use Article 102 TFEU to pursue mergers falling outside the nexus of the EU’s and Member States’ merger control powers. Advocate General Kokott, in particular, observed that a number of significant practical limits on the use of Article 102 to police mergers remained, namely that it could not be used to subsequently unwind mergers reviewed by authorities, it only concerned firms with an existing dominant position and, in any case, it was unlikely to result in transactions being unwound given the primacy of behavioural remedies and principle of proportionality under Article 102.
The Belgian competition authority’s (BCA) investigation into Proximus’s acquisition of edpnet indicates the willingness of at least some authorities to use their newfound/re-found powers. Opened within a week after the publication of Towercast on 16 March 2023, the BCA also adopted interim measures to ensure that edpnet remained operationally and commercially independent. The crux of its case was that the merger concerned the incumbent provider of copper and fibre networks in Belgium (Proximus), and the main alternative telecommunications operator providing wholesale and retail broadband internet access services in Belgium (edpnet).
Proximus subsequently sold edpnet to another company active in the Belgian telecoms sector (Citymesh) with the BCA terminating its investigation. However, the investigation, and outcome, show that Towercast has potential practical implications for dominant firms’ M&A activity which falls outside the EU’s (wide) jurisdictional merger control net. The outcome – the sale of edpnet – is also an illustration that divestiture may still be a practical outcome in such cases, notwithstanding the high bar for structural remedies under Article 102.
The Article 22 referral mechanism
Meanwhile, developments under Article 22 EUMR are not standing still.
The Illumina/Grail saga, which we discussed previously, will come to a head at a hearing on 12 December before the Grand Chamber of the CJEU, showing the issues at stake. The case also shows the reach of the EC’s powers under Article 22 for called-in mergers with no revenue nexus to the EU. Not only did the European Commission (EC) block the transaction, it also imposed the largest-ever fine for gun jumping and ordered the transaction to be unwound.
The EC has, in the meantime, “seriously considered” some 50-60 potential below-threshold Article 22 candidates, some of which were not notifiable anywhere in the EU. However, an actual referral is still rare. So far, only two transactions have followed in the footsteps of Illumina/Grail. This also means that a referral is not a fait accompli when the transaction parties receive a (standardised) information request.
Recently, the EC announced two more referrals where the case was not notifiable anywhere in the EU. The first, Qualcomm/Autotalks, is a tech case involving V2X communications technology (vehicle to everything), causing a leading communications chips manufacturer to acquire an allegedly emerging close competitor. It seems to fall neatly within the parameters of the EC’s Article 22 Guidance Paper. At the invitation of the EC, 15 Member States asked the EC to review the transaction (7 Member States submitted a referral request and 8 Member States joined the requests).
The second case, EEX/Nasdaq Power, falls more outside the scope of the Guidance Paper and deals with financial trading in countries where the deal was not notifiable. The NCAs in Denmark, Finland, Sweden, and Norway asked for a referral up (Norway, as an EEA Member State, cannot request but can join a referral).
New tools in NCAs’ toolboxes
Finally, NCAs within the EU are not sitting still. Article 22 referrals mean that transactions are referred to the EC for review, which may be inappropriate where markets (and the associated potential competition concerns) are local or national. At the same time, as indicated above, relying on Towercast sets a high bar.
Therefore, some NCAs are in favour of more extensive (legislative) powers to intervene against below-threshold mergers. The NCAs in Iceland, Ireland (since 27 September 2023), Italy, Norway and Sweden already have call-in powers. The Chairman of the Dutch competition authority (ACM) recently advocated in favour of a call-in tool in a blog post, including increased attention on bolt-on acquisitions/roll-up strategies by private equity firms (similar to what we have seen in the UK and US).
The introduction of such a tool requires a careful balancing act between regulatory costs and legal uncertainty, on the one hand, and the protection of effective competition on the other. Measures to mitigate the former are short deadlines for the NCAs to intervene (the ACM suggests three months), or the possibility for transaction parties to obtain certainty in advance (through an informal briefing paper procedure), as the EC has also done for Article 22 referrals (see our previous blog post).