Mission Impossible: Teresa Ribera’s Mission Letter and the Future of EU Merger Review
Executive vice president Vestager’s historic tenure as EU Competition Policy Commissioner is coming to an end. EVP Vestager’s tenure as EU competition policy commissioner is nearing its end. She will leave behind a full agenda for her successor, including the first major overhaul of the Commission’s basic antitrust procedures in over 20-years, finalizing controversial guidelines on exclusionary violations under Article 102 TFEU, and defending enforcement actions under appeal. But Commission President Von der Leyen’s mission letter to Teresa Ribera Rodriguez, her nominee for Executive Vice President for a Clean, Just and Competitive Transition (the Mission Letter), does not mention any of these tasks.
Instead, Ribera is mandated to “modernize the EU’s competition policy to ensure it supports European companies to innovate, compete and lead world-wide and contributes to our wider objectives on competitiveness and sustainability, social fairness and security.” More broadly, Ribera’s Mission Letter calls for a “new approach to competition policy” to support Europe’s “new industrial policy.” The new industrial policy, dubbed the Clean Industrial Deal, aims to “unlock investment, create lead markets for clean tech and put in place conditions for companies to grow and compete” to meet the “goals set out in the European Green Deal.”
What does this ambitious mandate mean for EU merger control? The Mission Letter instructs Ribera to review the Commission’s horizontal merger guidelines (HMG) and to address the risks of “killer acquisitions.” Revised HMGs should “give adequate weight to the European economy’s more acute needs in respect of resilience, efficiency and innovation, the time horizons and investment intensity of competition in certain strategic sectors and the changed defense and security environment.” The treatment of “killer acquisitions” is top-of-mind following the European Court of Justice’s September 3 rejection of EVP Vestager’s strategy of using Article 22 EUMR referrals to capture sub-threshold transactions, in Illumina Grail.
Horizontal Merger Guidelines
The HMG – adopted in 2004 — are clearly overdue for an update. In the past 20 years, the Commission’s toolkit for merger reviews has seen many advances, including novel theories of harm, increased scrutiny of digital marketplaces, and a better understanding of platform economies. The Commission has also looked at topics that were only briefly or not addressed at all in HMG, such as innovation and sustainable development. The HMG therefore clearly require updating to reflect these developments, as well as related Commission initiatives like the 2024 market definition notice.But the Mission Letter surely doesn’t highlight the HMG for revision simply because they are out of date. The Mission Letter calls for substantive changes to the way the Commission evaluates mergers under EUMR. What could change?
The mission letter says that the future HMG must give “adequate consideration” to mergers. . . The Draghi Report
is a key element of the Mission Letter. It is often referred to as a touchstone. The Draghi report, in its comprehensive assessment of European competitiveness, highlights that “the economy has shifted to more innovation-heavy sector where competition is often based on digital technology… where both size and innovation are crucial to compete instead of just low prices.” How might this realignment manifest in the revised HMG?Innovation defense. The Draghi Report recommends introducing an “innovation defense” as a “key element
of a new approach to competition policy supporting a new Industrial Deal” to “emphasize the weight of innovation and future competition” in merger reviews. The Draghi Report recommends that an “innovation defence” be introduced as a “key component” of a new approach in competition policy to support a new Industrial Deal. It also states that the Commission should account for “substantiated efficiencies” when reviewing mergers, which would allow the Commission to approve a transaction if the efficiencies generated outweigh any potential harms. The Commission has never approved a transaction that would have been anti-competitive if it were based on the efficiency defense. It remains to be seen whether this potential greater openness towards innovation-related efficiencies leads the Commission to approve transactions that are deemed anticompetitive. The Draghi Report states that this “innovation defence” cannot be used “to justify further concentration by already dominating companies or in cases where concentration poses a substantial risk of entrenching an existing dominant position”. It also states that short-term innovation benefits linked to increased scale should be weighed up against the merging parties and competitors’ future incentive to innovate. More guidance – and potentially greater flexibility – can be expected in relation to dimensions that are difficult to quantify and verify (e.g., market power based on intellectual property rights, sustainability-related benefits, or shifting future market dynamics). Also following a suggestion in the Draghi Report, the HMG and the Remedies Notice could allow for verifiable commitments (e.g., investments) to be accepted by the Commission, not only to address potential impediments to competition but also to buttress innovation-related efficiencies.[]Resilience objectives. In the Mission Letter, “resilience”, as one of the goals to be considered in the updating of the HMG, is mentioned. The current HMG does not mention resilience-related considerations, such as supply chain vulnerabilities and global risks. The Draghi Report acknowledges the inclusion of security and resilience criteria into competitive assessments as one of the most radical reforms proposed in competition policy. The Draghi report suggests that parties operating in sectors with a high level of security (e.g. security, defense, and energy) could have a separate assessment of security and resilient conducted by a non-competition department, since the assessment of resilience and security is different from the analysis on competitive effects. This assessment would then feed into the EUMR analysis, in a similar way to efficiency considerations or the development of remedies. The Commission may consider that the harm to consumers is greater if, in addition, a proposed transaction increases supply chain vulnerability and harms competition. However, in an increasingly complex EU regulatory landscape – with increased foreign direct investment screening and a new foreign subsidies regulation hurdle – it is debatable whether adding a new “resilience” review by yet another Commission body would help make the EU more efficient and competitive.
Changed defense and security environment. The Mission Letter also calls for a revision of the HMG to reflect the changes in the European defense and security environment. How should the HMG be revised to reflect this changed environment?
The current HMG do not mention defense and security. The EUMR only addresses defense and security indirectly; under Article 21 EUMR, the EU has exclusive jurisdiction to review concentrations with a Union dimension, and Member States are precluded from applying their legislation to such transactions, with limited exceptions, including “public security.”
Changes to the defense and security environment since the HMG were adopted include expanded EU competencies in foreign affairs and defense, the continuing war in Ukraine and Russian threats against EU Member States. In order to reflect these changes, the merger review context may again include an expansion of efficiency defense. The revised HMG, for example, could allow the Commission approve transactions that are otherwise anti-competitive if they are deemed to improve the defense or security of the EU.
Time Horizons. The Mission Letter also calls for changes to the HMG that would give greater weight to time horizons, investment intensity and competition in certain strategic areas. The Commission usually assesses the impact of notified transactions within a relatively short time frame, such as 3 to 5 years. The Mission Letter suggests that a revised HMG could give the Commission the flexibility to consider longer-term time horizons for relevant industries. This may be particularly important for the evaluation of efficiencies related to future innovation, security and resilience as well as, potentially, other non-price considerations, like sustainability-related objectives set out in the Clean Industrial Deal and European Green Deal. According to the Mission Letter “killer acquisitions”, raise the risk that foreign companies will eliminate future sources of competition. In its 2021 guidance, the Commission adopted a new review approach for concentrations without an EU dimension. This was to capture “killer acquisitions”. This judgment, although a loss, did not affect the Commission’s ability to accept referrals for sub-threshold transaction that meet the notification criteria in one or more Member State, such as Adobe/Figma. (The Commission examined the transaction under a potential competitive perspective. Another area where the 2004 HMG would benefit from an updated, but one not specifically linked to killer transactions.) In any case, a growing number of Member States have broad jurisdiction to review transactions that do not meet local turnover thresholds.
How might Ribera implement her mandate to strengthen EU protections against killer acquisitions? The Mission Letter does NOT call for any changes to the EUMR jurisdictional thresholds. A change of this kind would require an EUMR amendement, which could be controversial and time-consuming. In January 2024, the Commission introduced a new EU regulation
regarding the review by Member States of foreign direct investments (FDI). The proposed changes would harmonize the Member State FDI reviews and strengthen the Commission’s coordination powers. However, the proposed regulation is likely to undergo significant revisions under the new European Parliament prior to adoption. President Von der Leyen may envisage changes to further strengthen the EU FDI screening framework to address the competitive effects of killer acquisitions that involve key sectors and/or impact EU defense and security.
Conclusion
Mission letters that Commission Presidents send to their nominees for competition commissioner are typically short on details. They rarely contain technical documents like the HMG. The Mission Letter, however, could signal significant changes in EU merger policy, calling specifically for a revision of the HMG 2004. We can expect to see new thinking, and perhaps more flexibility, in the application efficiency defenses. Changes may include a greater focus on sectoral factors (e.g. additional requirements for assessing a transaction’s effect on resilience and security, or more flexible timelines for R&D-heavy markets) and a greater focus on parallel objectives of Clean Industrial Deal (e.g. supporting innovation, security, and resilience). It remains to be seen whether these considerations will reflect primarily in the expansion of the efficiency defence or in other aspects of merger review assessments (e.g. the development of remedies and updating the Commission’s Toolkit for Competitive Assessments). They could include a more comprehensive treatment of non-price factors outside of the efficiency defense context such as market definitions and theories of harm. The Commission should not only consider the role of innovation but also sustainability. Officials have described
that this is becoming increasingly important to its merger review practices. The Commission should not limit its review only to the HMG. Its 2008 non-horizontal merge guidelines
are also due for an update. The process of reviewing and updating complex documents such as the HMG and NHMG can take several years. If the Commission starts this process in 2025 new versions may not be adopted until as late as 2027. The Commission has options to move more quickly. In 2023, the Commission, for instance, published a call to evidence
relating to guidelines on the application Article 102 TFEU in relation exclusionary abuses. This process is likely to lead to the adoption guidelines in 2025. Parallel to this, the Commission has updated its 2008 guidance
regarding its Article 102 TFEU Enforcement Priorities, with immediate effect. The Commission could also publish a nonbinding document explaining how it will implement the Mission Letter in its merger enforcement policies without waiting for the final adoption of the HMG and hopefully the NHMG. Ribera will be asked probing questions about the issues raised above during her confirmation hearings in November 2024 at the European Parliament. Stay tuned!
