Client Alert

New EC Merger Control Rules in Place

2/17/2004

On January 20, the Council of Ministers adopted Council Regulation (EC) No. 139/2004 concerning the control of concentrations between undertakings (Regulation 139/2004).[fn1] This new regulation, which replaces Regulation 4064/89, significantly increases the powers of the Commission to review and, if necessary, block transactions having a Community dimension,[fn2] while at the same time bringing more flexibility to the review process. Regulation 139/2004 will enter into force on May 1, 2004.

Regulation 139/ 2004 introduces a new substantive test, according to which the Commission may block a transaction which

"would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position."
Unlike the rules contained in Regulation 4064/89, the new substantive test will specifically allow the Commission to take into account so-called unilateral effects, that is, price increases arising because the transaction eliminates some existing competitive constraint that had been holding back the price level in the market.[fn3] Examples of transactions that may not pass muster under the unilateral effects doctrine are the acquisition of a maverick firm, a merger of two firms that are particularly close competitors, or a transaction allowing the merged entity to hinder expansion by competitors. Such transactions may have a negative impact on the competitive process in a market, without actually creating a single or collective dominant position. As a result of the modification of the substantive test, the Commission no longer needs to stretch the boundaries of the collective dominance test in order to block transactions resulting in price increases without creating a single dominant position.[fn4]

Regulation 139/2004 also modifies the system for referral of cases between the Commission and the national competition authorities. From May 1 onwards, companies may request the Commission to review transactions which do not have a Community dimension, but which are capable of being reviewed under the national merger control regimes of at least three Member States. Provided no competent Member State objects to the referral request, the transaction will be deemed to have a Community dimension, and the Commission will have exclusive jurisdiction to review such transaction at the exclusion of the Member States. This is a major step forward from the current system, in which sizeable transactions short of the Community dimension test are often reviewed by four or five different Member State competition authorities. It is expected that following the enlargement of the EU and the accession of the new Member States, most of which have relatively low pre-merger filing thresholds, it will be easy to meet the three country test in many multi-jurisdictional transactions, which will significantly lower the burden for companies involved in this type of transactions.

A higher degree of flexibility will be introduced into the review process. While retaining the relatively short review periods introduced by Regulation 4064/89,[fn5] the new regulation offers the notifying parties the possibility to ask for an extension of the phase II review period with 20 working days. The phase II period can also be extended by 20 working days by the Commission with the agreement of the notifying parties. By introducing these modifications, the Commission hopes to be able to avoid timing problems which have often occurred in complicated phase II investigations as a result of the time limit provided for in Regulation 4064/89.[fn6] Under Regulation 139/2004, it will also become possible to notify a transaction based upon a letter of intent: it suffices to show that the companies have a "good faith intention to conclude an agreement ;" a binding agreement is not longer required.

Finally, the fact-finding powers of the Commission in the context of merger proceedings have been substantially strengthened, and the potential fines -- for failure to respond to information requests (so-called Article 11 letters), and for supplying incorrect or misleading information in the notification or in response to an Article 11 letter -- have been increased to a maximum of 1% of the companies' aggregate turnover. Regulation 139/2004 also empowers the Commission to conduct inspections of business premises and to interview natural or legal persons, subject to their consent.

Together with Regulation 139/2004, the Commission has published Guidelines on the assessment of horizontal mergers, which contain detailed information about the analytical approach that will be adopted by the Commission when reviewing mergers between actual or potential competitors. The guidelines in particular describe the different unilateral and coordinated effects that may result from a transaction, and also contain information on how the Commission will approach a potential entry analysis, countervailing buying power claims and the efficiency defense.

 



Footnotes

1: 2004, OJ, L 24/1.

2: The Community dimension test is defined by reference to worldwide, EU-wide and Member State revenues.

3: Like under Regulation 4064/89, the creation of a single of collective dominant position remains a basis for blocking a transaction under Regulation 139/2004.

4: This approach was condemned by the Court of First Instance in Airtours, [2002] ECR II-2585.

5: The one month review period of Phase I will be replaced by a 25 working days review period, and the four month review period of Phase II will become 90 working days instead.

6: A transaction that is not approved within the fixed time frames will be deemed to be approved by the Commission.

Close

Feedback

Disclaimer

Unsolicited e-mails and information sent to Morrison & Foerster will not be considered confidential, may be disclosed to others pursuant to our Privacy Policy, may not receive a response, and do not create an attorney-client relationship with Morrison & Foerster. If you are not already a client of Morrison & Foerster, do not include any confidential information in this message. Also, please note that our attorneys do not seek to practice law in any jurisdiction in which they are not properly authorized to do so.