Antitrust Alert: EC Merger Control: Remedies Remedied, and Yet Another Public Consultation
On October 22, the European Commission ("EC") published a revised Notice on the remedies acceptable under the European Merger Control Regulation ("EMCR"), which amends an earlier EC notice of 2001. The Notice formalizes the EC Commission's current administrative practice and takes account of recent judgements by the European courts and a study by Commission staff concerning the effectiveness of EC remedies from 1996 to 2000. Disappointingly, the public consultation which the Commission conducted on the basis of a draft in 2007 has left almost no trace in the final version of the Notice. Businesses should be aware that this is just part of a set of fundamental changes to the EC merger control system.
The Notice confirms much of the Commission's current merger control practice. In particular, it emphasizes the need for remedies to eliminate the Commission's concerns “entirely” (thus triggering a tendency towards far-reaching and expensive remedies, along with extensive reporting requirements for the parties) and for the parties to be in a position to implement the remedy within a short period of time. The burden of proof is on the parties to establish that the remedy is sufficient.
More devil is in the detail. For instance, the Commission continues to strongly believe that structural remedies such as divestitures "are, as a rule, preferable" to IP licensing and behavioral remedies: “Divestitures are the benchmark for other remedies in terms of effectiveness and efficiency.” As for the various types of structural remedies, the Commission's clear preference is for the divestiture of stand-alone businesses. Where the to-be-divested business has strong links with the parties' retained business, the Commission prefers reverse carve-outs (carve-outs of those parts that the parties will keep) over straight carve-outs (carve-outs of the business that will be divested). Moreover, the Commission is inclined to accept the divestiture of packages of brands and supporting assets "only in exceptional cases." Where a divestiture seems feasible to the Commission, it will not accept the granting of an IP license as a suitable remedy instead.
On the procedural side, the Commission "welcomes" fix-it-first remedies, where the parties enter into a binding agreement with one particular purchaser already in the course of the Commission’s review process. The Notice alludes to certain (limited) scenarios in which a fix-it-first remedy may even be the only viable remedy in the Commission's perspective. The Commission’s expectations are even greater in relation to an up-front buyer. There, the parties agree to close the overall transaction only after they have an agreement with a buyer of the divested business that has the Commission's blessing. The conditions for when the Commission would be looking for an up-front buyer proposal are vague. Finally, relevant time periods should be "as short as feasible": six months for the parties to identify a suitable purchaser; a further three months for closing the transaction; an additional three months for a fire sale, when the parties are unable to divest the business and a trustee has to divest at no minimum price.
In addition to the Notice, the reform package includes:
(1) A new template ("Form RM"), which the parties must use to propose a particular remedy to Commission staff: Form RM requires extensive information on the business to be divested and on the reasons why the parties believe that “the business will be acquired by a suitable purchaser in the time-frame proposed in the commitments offered”;
(2) Amendments to the EMCR regarding confidentiality and the appointment of trustees (inter alia, the Commission now has the power to appoint trustees); and
(3) Amendments to the EMCR's Implementing Regulation (including unrelated technical changes to "Form CO," the "Short Form" and "Form RS").
More fundamental changes to the EC merger control system are around the corner. On October 28, the Commission opened a public consultation regarding (i) the current monetary thresholds for EC jurisdiction and (ii) the mechanisms for downstream referrals to national level where the EC thresholds are satisfied and, perhaps more importantly, for upstream referrals to the EC where they are not. There should be a report by the Commission in July 2009. The Commission is known for its dislike of the current system, which has prevented it from reviewing transactions which were not subject to EC control (particularly in the energy sector).
The deadline to provide comments on possible changes to the EC merger control system is December 1, 2008. The Notice and the invitation to comment on the EMCR are attached below.
EMCR Remedies Notice
This alert is intended to provide a brief synopsis of recent developments in the law and should not be construed as legal advice. For more information, please contact your principal Jones Day representative or one of the lawyers listed below.
Dr. Johannes Zöttl