TerraLex Cross-Border Guide to Pre-Merger Notification Guide

Yes. A “concentration” (acquisition, merger, creation of a full function joint venture) must be notified and approved prior to its implementation pursuant to Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings ("the European Merger Regulation” or “EUMR”)

Any concentration that meets the applicable turnover thresholds set out in the European Merger Regulation (Article 1) is deemed to have a European dimension. The European dimension of a transaction is determined on the basis of the turnover achieved by the parties to a transaction across all their activities.

However, when only parts of an undertaking, constituted as legal entities or not, only the turnover of these parts is considered (Article 5.2 EUMR).

Notification is incumbent on both parties in the case of a merger and on the acquiring party in the case of an acquisition (Article 4.2 EUMR).

No. There is no voluntary merger notification mechanism. When a concentration meets the thresholds, the transaction must be notified. Reversely, a concentration which does not meet the thresholds cannot be notified. However, an informal "pre-notification" mechanism allows informal contacts between the notifying party and the European Commission on the basis of draft documents prior to an official notification. Although pre-notification is optional in principle, it is common in practice. The advantages of pre-notification are to ensure the European Commission's jurisdiction to review the transaction, to anticipate potential issues (delimitation of the relevant market, complex competitive analysis), and to ensure the completeness of the notification. The duration of the pre-notification can vary from 2 weeks for simple transactions to 3 months for more complex ones.

A concentration arises where the transaction leads to a change of control on a lasting basis, resulting from (Article 3 EUMR): - the merger of two or more previously independent undertakings or parts of undertakings, or

• the acquisition of direct or indirect control over the whole or parts of an undertaking.
• the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity.

Control may result from rights of governance, contracts, or any other means which, separately or in combination, confer the possibility of exercising decisive influence on an undertaking. Control may be acquired through the acquisition of shares or assets, or on a contractual basis or, exceptionally, on a de facto basis (e.g., high level of participation in shareholders' meetings, high level of economic dependence).

The following transactions notably do not qualify as concentrations under EU Law:

• transitory transactions such as financial institutions holding securities on a temporary basis and not exercising voting rights fully or acquisition by insolvency administrator (no acquisition of control on a lasting basis),
• intra-group restructuring (no change of control),
• outsourcing agreements (no change of control).

There are two sets of thresholds triggering an obligation to obtain clearance from the European Commission under European merger control:

Main thresholds (Article 1.2 EUMR)

• the combined aggregate worldwide turnover of all the undertakings concerned is > EUR 5 billion; and
• the aggregate EU-wide turnover of each of at least two of the undertakings concerned is > EUR 250 million,

Alternative thresholds (Article 1.3 EUMR)

• the combined aggregate worldwide turnover of all the undertakings concerned is > EUR 2.5 billion;
• in each of at least 3 Member States, the combined aggregate turnover of all the undertakings concerned is > EUR 100 million;
• in each of at least 3 Member States identified in (b), the aggregate turnover of each of at least two of the undertakings concerned is > EUR 25 million; and
• the aggregate EU-wide turnover of each of at least two of the undertakings concerned is > EUR 100 million

In both cases, the concentration will not be deemed to have a European dimension if the undertakings concerned achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State.

Merger control below thresholds

There are currently two mechanisms allowing merger control by the European Commission below EU merger control thresholds.

• Article 22 Referral: Article 22 EUMR allows National Competition Authorities (NCA) of the EU Member States to refer to the European Commission certain transactions that do not meet the EU notification thresholds, where such transactions affect trade between Member States and are likely to significantly threaten competition on the territory of the Member State(s) making the request. The European Court of Justice (ECJ) recently clarified that an Article 22 Referral can only be made by Member States whose national notification thresholds are met (ECJ, 3 Sept. 2024, C-611/22 P, in the Illumina/Grail case).
• Recent re-introduction of ex-post control of sub-thresholds transactions (ECJ, 16 March 2023, Towercast, C-449/21): This ex-post control is intended to apply where a transaction does not meet EU or Member States merger control thresholds. It implies a possible challenge to a closed transaction as a per se abuse of a dominant position (under Art. 102 TFEU) in the light of the structure of competition on the market. The mere creation or strengthening of a dominant position is not sufficient to identify an abuse. But a per se abuse may be found if the degree of dominance reached through the transaction would substantially impede competition, in that only undertakings whose behavior depends on the dominant undertaking would remain on the market.

The creation or acquisition of a joint venture must be cleared if the joint venture is “full function”. A joint venture is deemed to be full function when (a) it is jointly controlled, (b) it has all the functions of an autonomous economic entity and (c) it is performing on a lasting basis (Article 3.4 EUMR).

Such a joint venture may result from:

• a greenfield creation of joint activity (created ex nihilo),
• the contribution of assets to an existing or a new joint venture,
• the acquisition of sole control over a company that was previously solely controlled by one parent.

Please note that the transaction may be notifiable even if the joint venture has or will have a very low turnover in the short term, since the notification thresholds can be reached by the parent groups.

Any merger meeting the applicable turnover thresholds is subject to notification to the European Commission, even if the parties are not established in the EU. The only exception to the European Commission’s jurisdiction is where all undertakings involved in a concentration achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State (Articles 1.2 and 1.3 EUMR).

Regulation (EC) No 802/2004 of 7 April 2004 provides a form to be completed. Information to be provided in the form involve the following: - a description of the transaction including the markets in which it is likely to have an impact and the strategic and economic reasons for the transaction (Section 1);

• information on the parties (Section 2);
• a description of the nature of the transaction, of its value of the transaction and the various turnover figures used to determine whether or not the European Merger Regulation thresholds are met (Section 3);
• a list of companies in which the parties to the transaction hold capital. This covers subsidiaries belonging to the same group, as well as other companies operating in the affected markets and in which the group or individuals controlling the group individually or collectively hold 10% or more of the voting rights, subscribed capital or other securities. In addition, a list of the members of the management or supervisory bodies of each company who are also members of the management or supervisory bodies of any other company operating in the affected markets must also be included in the form (Section 4);
• several documents including a copy of the merger document (agreement, acquisition of a controlling interest, takeover bid), a copy of the reports and accounts of each stakeholder, a copy of the analyses, studies and reports prepared by the stakeholders on the transaction (Section 5);
• a detailed analysis of the concerned and/or affected markets, including market definitions, market shares of the parties and of competitors, structure of supply in affected markets (Section 6, 7 and 8);
• in case some relevant markets may be affected, an analysis of the efficiencies that could be achieved by the merger (causal link between the merger and the alleged gain, quantification of the gain, impact on consumers (Section 9);
• information on the future activity of parent companies in case of a joint venture (Section 10).

In certain cases, the concentration may be subject to a simplified procedure. The simplified procedure may be used in the following cases: - For a joint venture, when its turnover and total asset value are inferior to EUR 100 million in the EEA (European Economic Area covering the EU and associated countries);

• Where none of the parties to the concentration are engaged in business activities in the same product and geographic market or in an upstream or downstream market;
• Where the parties (i) are active in the same market, but their combined market share does not exceed 15% or (ii) are active in upstream and downstream markets but their individual market shares do not exceed 25%;
• Where a party acquires sole control over an undertaking over which it already has joint control.

No, there is no fee to file a notification under the European Merger Regulation.

A notification may only be filed when the parties have reached a sufficiently firm agreement. Reversely, there is no specific deadline for the filing of a notification. However, parties must wait for the final approval of the concentration by the European Commission before implementing any of its aspects. A penalty for “gun jumping” may be imposed otherwise.

The parties to a transaction subject to merger control must consider the fact that the Commission's decision may come after a certain period of time necessary for its review. This period of time must be factored into the negotiations between the parties to the transaction.

There is a stand-still obligation: the transaction cannot be implemented by the parties before the European Commission grants its approval (clearance decision). In exceptional circumstances, the European Commission may grant a derogation from the stand-still obligation and authorize the acquirer to take control over the target before the clearance decision. The request must be reasoned, and the European Commission shall assess the effects of the derogation on the undertakings involved in the concentration and on competition. It may attach conditions and obligations to the derogation in order to ensure effective competition while it proceed with the assessment of the transaction (Article 7.3 EUMR).

The European Commission may approve the concentration either after a phase I assessment or after a phase II assessment. (i) Simple assessment (Phase I assessment)

Examination by the European Commission: Maximum 25 working days from reception of a complete notification (“Initial Period”). In practice, it is highly recommended – save in very straightforward cases – to file an informal “pre-notification” in order to ensure that the notification will be considered complete on the day of its official filing.

Commitments (also called “remedies”): If commitments are presented to the European Commission, the Initial Period is extended by 10 extra working days.

Stop-the-clock: At the initiative of the European Commission, when the notifying party (a) fails to inform the EC of a new relevant and material fact, or (b) fails to provide the requested information within the allocated time. The running of the clock resumes as soon as the cause justifying the suspension has disappeared.

At the end of Phase I, the European Commission can either:

• find that the transaction is not subject to the European Merger Regulation (rare);
• approve (clear) the transaction - without conditions (approximately 90% of cases);
• approve (clear) the transaction - with conditions (approximately 5% of cases) or,
• open a “Phase II,” thereby initiating an in-depth investigation, if serious doubts remain about the anti-competitive effects of the transaction (approximately 5% of cases)

Possible intervention of National competition authorities (NCAs): The NCAs have 15 working days from the beginning of phase I to request a referral if a concentration affects or significantly threatens to significantly affect competition within their Member State.

(ii) In-depth assessment (Phase II assessment)

Examination by the European Commission: between 90 and 125 working days from the opening of phase II.

Commitments: If commitments (or modifications of previously transmitted commitments) are presented to the European Commission after 55 working days of the phase I assessment, the assessment period is extended by 15 extra working days, in the limit of 105 working days from the beginning of phase II.

Suspension requested by the parties: The parties may ask for a suspension for no longer than 20 working days, mainly to finalize their commitments.

Stop-the-clock: At the initiative of the European Commission, when the notifying party (a) fails to inform the EC of a new relevant and material fact, or (b) fails to provide the requested information within the allocated time. The running of the clock resumes as soon as the cause justifying the suspension has disappeared.

Both in case of failure to notify a concentration or where the concentration was implemented in violation of the stand-still obligation (so-called “gun-jumping”) the acquirer incurs a fine of up to 10% of its turnover, including the target’s turnover where applicable.

In case of failure to notify a concentration, the European Commission may take some interim measures, but these are not specified in the European Merger Regulation and are very rare (only one instance in the last 20 years). In practice, a sanction procedure will be launched in parallel to the merger review procedure and does not prejudge the possibility of obtaining clearance within the legal timeframe.

Tacit approval - If the European Commission does not issue a decision within the legal timeframe, the transaction is deemed to have been approved, unless the European Commission has referred the case to a National Competition Authority (Article 9 EUMR).

Withdrawal of approval - The European Commission may withdraw its approval:

• if the parties have not complied with an injunction, a prescription or a commitment contained in its decision;
• in the event of an omission or misrepresentation in the notification which the European Commission discovers after the clearance decision is granted.

Legal challenge to the decision - Third parties justifying a legitimate interest may challenge the approval obtained before the General Court of the European Union within 2 months from the publication of the clearance decision and, in case of appeal, before the European Court of Justice (ECJ). If the General Court overturns the European Commission's decision, the European Commission will have to issue a new decision. The parties must submit a new notification, or complete the initial notification without delay, if it has become incomplete due to changes in market conditions.

Limitation period - The limitation period for the European Commission’s action in the event of completion of a merger without prior notification or in the case of gun-jumping is 5 years from the day the change of control materializes.

No.

Merger control at EU level is exercised by European Commission’s Directorate General for Competition (“DG COMP”). It can self-refer any transaction that it suspects should have been notified. Il may block an anti-competitive transaction or impose conditions for clearance (most often in the form of divestiture of assets).

Where a concentration has been implemented in breach of the European Merger Regulation, the European Commission may order the undertakings to restore the pre-merger situation, either by dissolving the concentration or by any other means (article 8.4 EUMR).

If this order is not complied with, the Commission may impose a daily penalty payment of up to 5% of the average daily turnover of the undertaking or group of undertakings (Article 15.1 EUMR).

The European Commission publishes a press release on its website at the opening of phase I and at the opening of phase II. The procedure before the European Commission is otherwise strictly confidential: the European Commission does not publish the notification form or the supporting documentation.

Note that an informal pre-notification, on the other hand, does not give rise to any publicity.

Once the European Commission has decided on the outcome of its investigation (clearance with or without conditions, or prohibition), parties will have the opportunity to identify and redact any confidential information in the final decision before it is published in the Official Journal.

A concentration will only be challenged if it is likely to 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. A market share of more than 40% post transaction is the alert threshold to anticipate in-depth discussions with the European Commission.

The typical approach is to initiate informal “pre-notification” contacts with the European Commission a few weeks before the formal filing, in order to anticipate potential difficulties and to ensure that the European Commission will consider that the notification is complete on the day of the formal filing.

Clearance may be required: - From the European Commission, under the foreign subsidies control regime, where certain thresholds concerning the turnover of the target and public subsidies received by the acquirer are exceeded, and

• From each Member State of EU, under the Foreign Direct Investment control regime, if the target company carries out “sensitive activities” as listed by national law.