On April 20, 2023, the European Commission adopted a number of measures to simplify and streamline its merger review procedure. The changes are intended to speed up the review of transactions that are unlikely to raise competition concerns, thereby allowing the Commission to focus its resources on the most relevant cases. The new rules will enter into force on September 1, 2023.
With these new measures, the Commission (i) expands and further clarifies the scope of transactions that can benefit from the simplified merger control procedure; (ii) introduces a “tick-the-box” notification form for such cases; (iii) streamlines the notification of non-simplified transactions; and (iv) establishes an electronic merger filing system.
i. Which transactions will now benefit from the simplified procedure?
The simplified merger control procedure allows for a quicker review process because it significantly reduces the amount of information the merging parties need to provide and because the Commission does not conduct a market investigation. It is thus less burdensome for the parties and shortens the duration of the merger control workstream as part of the deal timeline.
The Commission has broadened the scope of the transactions that can benefit from this simplified procedure, which will now apply to any of the following categories of transactions:
- Where none of the parties to the transaction are engaged in activities in the same product and geographic market (i.e., no horizontal overlap) or in markets that are upstream or downstream to each other (i.e., no vertical relationship);
- Where the parties have horizontal overlaps, if:
- Their combined market share is lower than 20%; or
- (NEW) Their combined market share is lower than 50% and the increment of the Herfindahl-Hirschman Index (HHI) resulting from the transaction on the market is below 150 (while the Commission previously had discretion on this point, it will now become the general rule);
- Where the parties have vertical relationships, if:
- Their individual or combined market share is lower than 30% on the upstream and the downstream markets;
- (NEW) Their individual or combined market share is lower than 30% on the upstream market, and the parties active in the downstream market hold a purchasing share of less than 30% of upstream inputs; or
- (NEW) Their individual or combined market share is lower than 50% on both the upstream and downstream markets, the increment of the HHI resulting from the transaction on both markets is below 150, and the company with the smaller market share is the same in the upstream and downstream markets;
- Where the parties acquire joint control of a joint venture which has no or no significant activities in the European Economic Area (EEA), which is deemed to be the case if:
- The joint venture has no current or expected turnover in the three years following notification within the EEA and the undertakings have not planned to transfer any assets within the EEA to the joint venture at the time of the notification; or
- The current annual turnover of the joint venture and the turnover of the contributed activities as well as the expected annual turnover in the three years following notification is less than €100 million in the EEA and the total value of asset transfers to the joint venture in the EEA at the time of notification is less than €100 million.
- A party acquires sole control of a company over which it already has joint control.
Furthermore, the Commission has introduced a “flexibility clause.” The clause gives the Commission discretion to treat certain cases under the simplified procedure, even where they do not fulfill the requirements listed above. For the “flexibility clause” to apply, the following conditions must be fulfilled:
- For horizontal overlaps – the combined market share of the parties is 20-25%;
- For vertical relationships – the individual or combined market share of the parties in the upstream and downstream markets is 30-35%, or the market share does not exceed 50% in one market and 10% in all other vertically related markets;
- For joint ventures – the turnover of the joint venture and the value of the asset transfers to the joint venture are each between €100 million and €150 million in the EEA.
In addition, the new rules provide a more extensive list of situations in which transactions may not qualify for the simplified procedure even if they otherwise meet the above listed criteria (the so-called safeguards and exclusions section in the new notification form). Examples include: where the parties are important innovators in overlapping markets, where the concentration would eliminate potential competition, and where a competitor holds more than 10% of the shares in one of the parties. In situations such as these, the Commission will assess on a case-by-case basis whether the simplified or normal procedure should be applied.
ii. New notification form in simplified procedures and formal introduction of a “super-simplified” procedure
In order to make the simplified procedure faster and less burdensome, the Commission has revised the notification form for simplified cases (the Short Form CO), turning it into a “tick-the-box” form with multiple-choice questions and standard tables for the jurisdictional and competitive assessment. In addition, a “super-simplified” procedure will now apply, inter alia, to situations where parties do not have any horizontal overlaps or vertical relationships, or to the creation of an extra-EEA joint venture. The advantage of a super-simplified procedure is that parties can notify those transactions directly and skip the – sometimes lengthy – pre-notification discussions with the Commission.
iii. Changes in the notification form for normal procedures
The Commission has also updated the form used for the notification of transactions in the normal procedure (the Form CO). The revised form streamlines the information required for the notification, among others, with the following changes:
- A “tick-the-box” section (similar to that in the simplified procedure) for markets for which the Commission has decided to invoke the “flexibility clause”;
- More definitions and instructions are provided, e.g., as regards waiver requests, as well as more standardized tables for the provision of information;
- Some previously required information will no longer be necessary, e.g., information regarding cooperative agreements, imports from outside the EEA, trade within the EU, and trade associations;
- At the same time, new information requirements have been added. This includes information relating to pipeline products and capacity shares, and the description of data that the notifying parties collect and store as part of their regular business operations and which would be useful for quantitative economic analysis (e.g., information on sales or bids, profit margins etc.).
iv. New electronic merger filing system
As from September 1, 2023, all notifications of transactions must as a general rule be submitted electronically to the Commission. There will no longer be a requirement to submit paper copies and CD-ROMs. In response to the Covid-19 pandemic, the Commission had already largely suspended the obligation to submit hard copies, although it still required the submission of one original, signed paper version. It will now move entirely to the electronic format.
These reforms are to be welcomed as they should speed up the merger review procedure for the vast majority of transactions which do not raise any competition concerns. Cases falling under the simplified procedure accounted for at least 77% of the notifications to the European Commission each year since 2018, and the reforms are expected to slightly further increase this share. In short, broadening the scope of cases that benefit from a simplified review procedure is good news.
However, it remains to be seen whether all the changes will fully achieve their goal. While tick-the-box style notification forms may generally reduce preparation time, the collection of some of the newly required information (for example, as regards details about cross-directorship in companies active in the relevant markets) may not be straightforward, especially for private equity investors. The assessment of such information may also trigger additional requests for information and discussions with the Commission.
A “super-simplified” procedure is also not totally new, although it is only now for the first time explicitly included in the Commission’s notice on simplified procedure. Already in 2013, the Commission published a memo suggesting direct notifications in cases of extra-EEA joint ventures. However, even in these clear cases, (limited) pre-notification contacts with the Commission appear to have remained standard practice, with case handlers using the pre-notification phase to send requests for information to the parties. The question therefore arises whether the new rules will change this way of operating and effectively result in direct notifications without any pre-notification.
Finally, as regards the normal review procedure, the new measures do not offer any relief as regards the provision of relevant information on all plausible market definitions and internal documents, information which parties usually find the most burdensome to gather.