European Union Merger Control

Chapter 16 European Union Robbert Snelders Cleary Gottlieb Michele Piergiovanni Relevant authorities and legislation acquisitions at the EU level. Such legislation may, however, exist at the national level. 1 Who is/are the relevant merger authority(ies)? Within the 25-country European Union (the EU), the 4 Is there any other relevant legislation for mergers in European Commission (the Commission) has exclusive particular sectors? competence to review mergers and acquisitions between There are no sector-specific merger control or non- parties that meet certain size thresholds. Transactions competition related prior authorization rules at the EU that fall below those size thresholds are subject to national level. Such legislation may, however, exist at the national merger control legislation and the jurisdiction of national level. Where a transaction falls within the scope of the competition authorities. This basic division of competence Merger Regulation, Member States may apply domestic between the Commission and national competition prior authorization regimes only subject to the constraints authorities is fine-tuned through a mutual referral system of Article 21(4) of the Merger Regulation. This Article designed to ensure that transactions are reviewed by the allows Member States to apply national legislation authority best-placed to do so and to maintain, as much designed to protect legitimate national interests, such as as possible, a ‘‘one-stop-shop’’ for merger review within public security, plurality of the media, and prudential the EU. rules, to the extent compatible with the general principles The Commission, the EU’s executive, is a collegiate and other provisions of EU law. body comprising 25 Commissioners supported by a civil service organised along 25 directorates-general. A specific Directorate-General for Competition (DG Competition), Transactions caught by merger control legislation under the responsibility of one of the Commissioners, is 5 Which transactions are caught – in particular, how entrusted with the task of applying, inter alia, EU merger is the concept of "control" defined? control legislation. More information on the Commission may be obtained at: http://www.europa.eu.int/comm/ The Merger Regulation applies to so-called concentra- index_en.htm. tions, which are defined as transactions that lead to a lasting change of control resulting from the merger of two 2 What is the merger legislation? or more previously independent companies, or the acquisition of direct or indirect control of the whole or Merger control legislation at the EU level is set out in part of another undertaking (through the purchase of Council Regulation (EC) 139/2004 on the control of shares or assets, by contract, or by any other means). concentrations between undertakings (the Merger Regu- Warrants, options, or other instruments that create future lation) and in Commission Regulation (EC) 802/2004 equity entitlements will not normally give rise to a implementing the Merger Regulation (the Implementing concentration until such time as they are exercised and Regulation). These legal instruments adopt a number of confer control over a company, unless it is clear from changes from pre-existing EU merger control legislation legally binding agreements that they will be exercised in and entered into force on May 1, 2004. They have been the near future. complemented with various interpretative notices, guide- The Merger Regulation does not apply to acquisitions lines, and best practice rules. These may be found at: that do not confer control. Control is defined as the ability http://www.europa.eu.int/comm/competition/merg- (legally or de facto) to exercise ‘‘decisive influence’’ over ers/legislation/regulation/#implementing. the strategic commercial behavior of a company. Control may be exercised alone (sole control) or jointly with other 3 Is there any other relevant legislation for foreign companies (joint control). A concentration arises not only mergers? from the acquisition of sole or joint control, but also from There are no foreign investment control or other prior a change from joint to sole control, or vice versa. authorization requirements for foreign mergers and The acquisition of sole control typically involves one 103 ICLG TO MERGER CONTROL 2005 Cleary Gottlieb European Union company acquiring all or a majority of the voting rights 7 What are the jurisdictional thresholds for (but not necessarily the share capital) of another company. application of merger control? However, sole control may also be acquired through a ‘‘qualified minority’’ shareholding. This might happen, Community dimension for example, where a minority shareholder has the right The Commission’s jurisdiction under the Merger Regu- to appoint more than half of the members of a venture’s lation is defined as a function of two alternative sets of decision-making bodies, or where the remaining voting turnover thresholds. When the parties to a transaction (in rights are widely dispersed and evidence of prior share- technical terms, the ‘‘undertakings concerned’’) meet holders’ meetings suggest that the minority shareholder is either of these sets of turnover thresholds, the transaction European Union highly likely to achieve a majority at that meeting. is said to have a ‘‘Community dimension’’. The typical form of joint control involves two parent Generally speaking, the ‘‘undertakings concerned’’ are companies with equal voting rights in a venture or with the direct participants to the transaction, i.e., the merging equal representation on the venture’s decision-making parties or the acquiror(s) and the target business. Unless bodies. However, joint control may also be exercised in it retains a controlling stake, the seller is usually not other situations where two or more parent companies considered an ‘‘undertaking concerned’’ for purposes of enjoy veto rights over strategic commercial decisions, the Merger Regulation’s turnover thresholds. such as the approval of annual operating and capital Concentrations have a Community dimension and fall budgets, annual and long-range business plans and within the scope of the Merger Regulation if all of the strategies, or key managerial appointments (as opposed to following three conditions are met in the last financial veto rights over matters normally associated with the year: financial protection of minority investors). Finally, even ■ the combined aggregate worldwide turnover of all in the absence of specific individual veto rights, joint undertakings concerned exceeded €5,000 million (USD control may exist through a voting agreement or, in 5,656 million); exceptional circumstances, a strong de facto commonality ■ the aggregate EU-wide turnover of each of at least two of interest among several minority shareholders who undertakings concerned exceeded €250 million (USD together have a majority or blocking vote over strategic 328 million); and commercial decisions. ■ the undertakings concerned did not achieve more than The following types of acquisition of control are two-thirds of their aggregate EU-wide turnover within expressly excluded from the Merger Regulation’s scope one and the same Member State. of application: (1) the acquisition of securities by compa- Alternatively, concentrations fall within the scope of the nies whose normal activities include transactions and Merger Regulation if the following four conditions are dealing in securities, provided that the acquisition is done met in the last financial year: in the framework of these businesses and the securities are held on a temporary basis; (2) the acquisition of control ■ the combined worldwide turnover of all undertakings € by an office holder in the framework of national concerned exceeded 2,500 million (USD 3,280 bankruptcy proceedings or alike; and (3) the acquisition million); of control by a financial holding company, provided that ■ the EU-wide turnover of each of at least two € this company exercises its voting rights only to maintain undertakings concerned exceeded 100 million (USD the full value of its investment. 131.2 million); ■ in each of at least three Member States, (i) the combined turnover of all the undertakings concerned 6 Are joint ventures subject to merger control? exceeded €100 million (USD 131.2 million), and (ii) The formation of a joint venture qualifies as a concentra- the turnover of each of at least two undertakings tion and falls within the scope of the Merger Regulation concerned exceeded €25 million (USD 32.8 million); where two or more parent companies acquire control and and the venture is designed to perform on a lasting basis all of ■ the undertakings concerned did not achieve more than the functions of an autonomous economic entity. Such two-thirds of their aggregate EC-wide turnover within ‘‘full-function’’ joint ventures must have the necessary one and the same Member State. financial resources, fixed assets, employees, trademarks, intellectual property rights, and research and development Calculation of turnover capacity to operate independently and perform the The relevant turnover of an ‘‘undertaking concerned’’ is business functions normally carried out by other firms on calculated as the revenues achieved in the financial year the market. Partial function joint ventures are susceptible preceding the transaction from the sale of products and to review under Article 81 EC, which governs restrictive provision of services falling within the company’s ordinary agreements. activities (excluding intra-group transactions), after

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