The 2023 EU Merger Simplification Package – Cutting Red Tape… Really?
On 20 April 2023, the EU Commission adopted a new legislative package aimed at simplifying its procedures for reviewing transactions under EU merger control rules. Under the new rules, the Commission seeks to assess more cases under the simplified procedure and reduce overall reporting requirements by 25%. The new rules will apply as of 1 September 2023.
The merger simplification package consists of a revised Implementing Regulation, a revised Notice on Simplified Procedure (“Commission Notice”) and a Communication on the transmission of documents.
The main changes of the merger simplification package
The Commission has added new categories of transactions that can benefit from the simplified procedure. As was the case before, the market share thresholds need to be met under all plausible market definitions. Not only on-market overlaps are relevant but also pipeline overlaps (and vertical relationships relating to pipeline products).
New categories principally benefiting from simplified treatment
The new rules introduce two new categories of transactions that can generally benefit from simplified treatment relating to vertical relationships (para 5(d)(ii)(bb) and (cc) of the Commission Notice):
- The individual or combined upstream market share of the parties is below 30% and the purchasing share of upstream inputs is below 30% (under the previous Commission notice of 2013: downstream product markets (para 5(c)(ii)).
- The individual or combined upstream and downstream market shares of the merging parties are below 50%, the market concentration index (so-called ‘HHI delta’) is below 150, and the company with the smallest market share is the same in the upstream and downstream markets. This category aims to capture small increments of pre-existing vertical integration.
The other categories of transactions eligible for simplified treatment essentially remain the same as before (para 5 of the Commission Notice). However, in the case of an acquisition of joint control of a joint venture (“JV”) the requirements have been increased compared to the previous Commission notice of 2013:
- The JV must have an expected turnover of less than EUR 100 million in the EEA in the next three years following notification (in addition to having no current turnover that would exceed this threshold) (para 5(a) of the Commission Notice). If the threshold is exceeded “significantly”, the Commission may not allow for a simplified procedure. [1]
- Also, the parties must not have planned to transfer any assets to the joint venture at the time of the notification (wording under the previous notice: assets transferred to the joint venture at the time of the notification) (para 5(a) of the Commission Notice).
In addition, the following categories of cases may be reviewed under a super-simplified procedure not requiring pre-notification (para 26 of the Commission Notice): the acquisition of joint control over extra-EEA JVs and transactions where there is no horizontal overlap between any of the parties to the transaction or any vertical relationships.
Additional new categories that may benefit from simplified treatment (flexibility clause)
Furthermore, the Commission will have the discretion to allow for additional new categories of cases to be treated under the simplified procedure (paras 8 and 9 of the Commission Notice):
- For horizontal overlaps where the combined market shares of the merging parties are 20-25%.
- For vertical relationships where the individual or combined upstream and downstream market shares of the merging parties are 30-35%;
- For vertical relationships where the individual or combined market shares of the merging parties do not exceed 50% in one market and 10% in the other vertically related market; and
- For joint ventures with turnover and assets between €100-150 million in the EEA.
It is worth noting that as part of Form CO, the Commission is willing to limit information requirements for markets that would fall within the scope of the flexibility clause. [2]
Exclusions from the simplified treatment
The new Commission Notice includes a broad “non-exhaustive” list of “examples” under which the application of the simplified procedure “may be excluded”. These apply to both categories of transactions – those that generally benefit from simplified treatment and those for which the Commission has the discretion to allow for a simplified procedure if the relevant conditions are met.
This general mechanism is not new but two categories have been added:
- “Significant minority shareholdings” of one party in a company active in the same market as the target or in a vertically related market need to be disclosed (para 15 of the Commission Notice).
- Other competitively valuable assets such as raw materials, IP rights, infrastructure, a significant user base or commercially valuable data inventories (even in the absence of overlaps) (para 16 of the Commission Notice).
In addition, a list of “special circumstances” under which the Commission is less likely to apply the simplified procedure has been included (almost entirely taken from the Commission’s horizontal and non-horizontal merger guidelines). [3]
Other aspects
New notification forms
For transactions eligible to the simplified procedure, a new Short Form CO partly consisting of multiple choice questions with a “tick the box” style will be required. The new Short Form CO requires additional and targeted information on cross-directorships, significant non-controlling shareholdings above 10%, the role of innovation and information on the product pipeline.
The ‘regular’ Form CO has also been changed. Certain information requests from the current Form CO will no longer be required. In particular, information requirements on “Cooperative agreements”, “Trade between Member States and “imports from outside the EEA”, and “trade associations” and, similar to the Short Form CO, new information requirements have been introduced. These relate mostly to non-controlling shareholdings in any of the parties to the concentration (Section 3.7), the collection and storage of data that can be used for quantitative economic analysis (Section 5.5), an estimate of total capacity and information on overlaps involving pipeline products (Section 8). The market definition section format has changed (Section 6). Parties now need to include summary tables on all market definitions for affected markets. The Commission has also provided more detailed guidance for parties intending to request waivers from providing certain information or data.
Electronic submissions
The new rules introduce the fully digital transmission of documents, notably the fully digital submission of notifications. By default, digital signatures will have to be used for Form COs. [4] Previously, the Commission was asking Parties to submit an original hard copy of Form CO – hand-signed. [5]
Observations
The addition of additional categories of cases that may qualify for the simplified procedure is certainly welcomed. It is also important that the Commission recognizes that certain categories of cases should not have to go through pre-notification and be cleared in a very short time period, especially situations involving joint control of two firms over the JV that has no business activities in the EU. In such situations, it is difficult to explain to clients that they would have to even notify such a transaction at the EU level (as there is no theory of harm). Having “tick the box” categories in the notification forms should also help to simplify the preparation of the filings. The Commission has also taken into account aspects that have played a more prominent role in its substantive assessment in recent years such as innovation, pipeline overlaps, and cross-ownership.
However, in our view, the Commission has missed the opportunity to truly simplify the parties’ self-assessment as to whether the deal will be reviewed under the simplified procedure. It could have done so by more definitively stating that certain categories will by default be reviewed as simplified matters. Instead, the catalogue of situations where the simplified procedure will not (or may) not be used has become longer compared to before, adding rather a vague terminology such as “significant non-controlling shareholding”; “competitively valuable assets”. It, therefore, continues at times to be challenging for parties to reliably predict the exact timeline needed for the process, in particular as more significant delays can be expected if the Commission decides to switch from the simplified to the normal procedure during the proceedings.
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[1] Under the old notice, the expectation that the JV would significantly surpass the turnover threshold in the next three years gave the Commission discretion to carry out an assessment under the normal procedure, see para. 14.
[2] See section 7 of Annex 1 to the Commission implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings and repealing Commission Regulation (EC) No 802/2004 (the “Implementing Regulation”).
[3] The old Commission notice had referred to these circumstances without listing them expressly, see para 11.
[4] See article 22 of the Implementing regulation. Only signature using at least one Qualified Electronic Signature (QES) complying with the requirements set out in Regulation (EU) No 910/2014.
[5] Some case teams would not request a hard copy of the Form CO, therefore, simplifying the submission process for the Parties.
