NEW EUROPEAN MERGER
CONTROL REGULATION
By:
Jeffrey I. Zuckerman
Washington
The Council of the European Communities has amended its Merger Control Regulation of 1989. The amendments will take effect on March 1, 1998, and will change both the scope of transactions that must be notified to the European Commission in Brussels and the procedure that the Commission will follow in assessing such transactions. There will be four major changes:
1. The amendments will lower the thresholds that determine whether the European Commission must be notified concerning a transaction.
The 1989 Merger Control Regulation requires notification to the Commission before "concentrations" of firms where (i) the combined aggregate worldwide turnover of all the parties ("undertakings" in European Commission parlance) is more than ECU 5,000 million (approximately U.S.$5.55 billion), and (ii) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than ECU 250 million (approximately U.S.$277.5 million), unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State. When the amendments take effect, Brussels also will have to be notified of concentrations where (i) the combined aggregate worldwide turnover of all the undertakings concerned is more than ECU 2,500 million (approximately U.S.$2.775 billion), (ii) in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than ECU 100 million (approximately U.S.$111 million), (iii) in each of at least three of the Member States where point (ii) applies, the aggregate turnover of each of at least two of the undertakings concerned is more than ECU 25 million (approximately U.S.$27.75 million), and (iv) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than ECU 100 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.
The Merger Regulation (Article 21(2)) provides that where the European Commission has jurisdiction over a transaction, no Member State may apply its national legislation on competition to that transaction. Thus, by increasing the number of transactions subject to Brussels' jurisdiction, this amendment will reduce the number of transactions requiring multiple notifications to EU Member States, and increase the amount of "one-stop-shopping" within Europe. Of course, this amendment will not in any way affect the parties' obligations to notify competition authorities outside the EU (such as through the Hart-Scott-Rodino process in the United States).
2. The amendments will bring all joint ventures within the scope of the Merger Regulation.
The Merger Regulation currently applies only to "concentrative" joint ventures, i.e., those that create an entity that performs on a lasting basis all the functions of an autonomous economic entity, which does not give rise to coordination of the competitive behavior of the parties among themselves, or between them and the joint venture. The Merger Regulation currently does not apply to "cooperative" joint ventures, which have as their object or effect the coordination of the competitive behavior of undertakings that remain independent. The amendments bring cooperative joint ventures within the scope of the Merger Regulation. A significant difference will, nonetheless, continue between concentrative joint ventures and cooperative joint ventures. The former will continue to be judged solely by the substantive standard of the Merger Regulation, i.e., will be barred only if they "create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it." Cooperative joint ventures, however, will continue to be subject to the broader proscriptions of Article 85(1) and (3) of the Treaty of Rome.
3. The amendments authorize the Commission to accept undertakings and impose conditions and obligations (similar to a consent decree in U.S. procedure) during the initial phase of its review of a notification.
At present, the Commission may do so only during the second phase, i.e., after it decides to initiate formal proceedings. This change will make it possible to streamline the process where there is a clear issue, and the parties are amenable to a quick solution. (The Commission also will have the authority to extend the one-month time limit for completion of the first phase of an investigation when the notifying parties propose an undertaking during that time period.)
4. The Commission has extended the parties' standstill obligations.
Currently, a transaction may not be consummated for three weeks after it is notified, unless the Commission grants permission for earlier consummation, and the Commission may extend this period if it opens a full-scale investigation. Thus, technically, a transaction could be consummated during the last week of a one-month initial investigation, although few parties (if any) would do so. After next March first, a transaction will be suspended until the Commission declares the transaction compatible with the common market, thus eliminating even the theoretical possibility of a transaction's closing while it is still under review by the Commission.
In a similar vein, a transaction also will be suspended if it is referred to the Commission by a national authority, notwithstanding that the transaction does not meet the jurisdictional test of the Merger Regulation (unless, of course, the transaction has already been consummated before the parties are informed of the referral to Brussels).
There are also some technical changes of limited applicability, such as in the method of calculating the turnover of credit and financial institutions.
The net result of these changes should be to shift merger reviews from individual Member States to the Commission, and thus provide faster and more predictable review of transactions in Europe.
