Europe – smoother sailing for many but a word of warning for some

The European Commission is increasingly looking to streamline its review of cases that have little impact on competition, meaning faster approvals for stand-alone financial investments. At the same time, the EC is keen to ensure transactions which harm competition do not slip under the radar potentially bringing added scrutiny to bolt-on strategies.

The European Commission has repeatedly emphasised a desire to simplify its review process in straight-forward cases. In September 2020, Margrethe Vestager flagged the goal to refine EC practice to further limit the number of non-simplified cases and reduce the amount of information required in pre-notification.

This has already resulted in the proportion of cases falling within the simplified procedure increasing over the past three years (78% of cases between 2018-2020 compared to 71% of cases between 2015-2017). We have also seen this drive for simplification manifest itself in a couple of other important ways:

  1. pre-notification in relation to straight-forward cases is proceeding quickly and formal decisions being issued well before the statutory 25 working-day deadline. It is thus increasingly possible to complete the process in around 1 month meaning EC approval is becoming less of a timetable disadvantage (and closer to the timing for HSR approval in the US).
  2. the criteria to establish when a joint venture is considered full-function (and therefore notifiable) are being applied more strictly. This has meant that investments in existing (or prospective) infrastructure projects (e.g. wind or solar farms) are less likely to be treated as notifiable at EU-level.

But, while straight-forward cases are getting simpler, Vestager’s speech also highlighted the EC’s plan to find ways to address harmful deals that technically fall below the mandatory notification requirements.  From mid-2021, the EC plans to reverse its approach to begin accepting referrals (under Article 22 of the EU Merger Regulation) from Member States even where merger control thresholds are not met.

The EC has long been concerned that acquisitions of nascent competitors (so called “killer acquisitions”) with low (or no turnover) but which pose strong potential competition may go unchecked. To address this gap, the EC plans to use this procedure in co-operation with Member States to call-in mergers for review.

This has significant implications for bolt-on acquisitions in that:

  1. buyers now face the prospect of an investigation post-closing with the EC having the power to order divestments or unwind the transaction entirely;
  2. if a referral request is made prior to closing, the suspension obligation will apply and the parties will be prohibited from closing until approval is obtained.

Bidders will therefore increasingly need to consider how to address these risks in their SPA. As a minimum, this will likely involve adding a provision providing for conditionality where the parties are notified of a referral request. Beyond this, and pending further guidance from the EC on how the process will be applied, it is inevitable that bidders will have to live with a residual intervention risk thereby making detailed feasibility analyses all the more important. 

 

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