Antitrust Alert: European Commission Targets Non-Controlling Minority Shareholdings and Case Referrals in New Consultation on Modifying EU Merger Regulation

The European Commission recently opened another public consultation (closing 12 September 2013) on potential modifications to EU merger control law in view of increasing oversight over non-controlling minority shareholdings and efficiency in upward case referrals from the national authorities to the Commission.  This latest consultation focuses on two main issues:  
  • whether to expand merger control rules to address the anticompetitive effects arising from certain acquisitions of non-controlling minority shareholdings
  • enhancing the speed and effectiveness of the case referral system for the transfer of cases from Member States to the Commission, both before and after notification. 

Additionally, the Commission raises various other points for the potential improvement of the merger control system.

Expanding merger control rules to non-controlling minority shareholdings

Non-controlling minority stakes of one firm in another ("structural links," as referred to by the Commission) are not covered under the current scope of the EUMR.  The EUMR's scope is limited to transactions leading to an acquisition of control over a company.  Today the Commission can only take account of pre-existing minority shareholdings in the context of a notified merger for a separate acquisition of control, which has in some cases led to divestments of such pre-existing shareholdings. 

The Consultation Paper explores the potential expansion of the EUMR to enable the Commission's intervention in the event of problematic cases of the acquisition of minority shareholdings, particularly those concerning the creation of structural links in both horizontal (reducing competitive pressure between competitors or facilitating their coordination) and vertical relationships (enabling companies to impede competitors' access to inputs or customers).  According to the Commission, such approach is already taken in several EU Member States (Austria, Germany, and the UK) and worldwide (as in Canada and U.S.). 

Establishing the substantive threshold for review of acquisitions of non-controlling minority shareholdings would follow the existing thresholds under the EUMR.  The Consultation Paper then considers how to procedurally treat such cases, setting forth two options: 

(1) Mandatory notification system.  This amounts to extending the existing system of ex-ante merger control to structural links.  However, mindful of avoiding undue burdens on notifying companies, the Commission finds it "doubtful" a mandatory ex-ante notification system for non-controlling minority shareholdings is needed, even if such notification might be done along the lines of a simplified procedure (Short Form CO). The Commission rather seeks a "discretionary" review of only problematic cases. 

(2) Discretionary selection of cases.  Enabling the Commission's discretion to examine only certain cases of structural links could be carried out in two ways.  First, a self-assessment system, whereby the ex-ante notification of a transaction to the Commission would not apply to structural links; rather, the parties would be allowed to proceed with the transaction, but the Commission would have the ability to open an investigation, following its own market investigation or complaints.  Second, a transparency system, whereby parties to a structural link, which is prima facie problematic, must file a short information notice with the Commission, to ensure that Member States and third-parties are aware of such transactions.

Under both of the above options, the possibility of allowing voluntary notifications by the parties to a transaction, in view of providing legal certainty to parties, would also need to be determined. In view of determining which acquisitions of minority shareholding should qualify as "structural links" subject to the Commission's scrutiny, the Consultation Paper also raises the possibility of safe harbors for transactions that would be deemed to fall outside of the Commission's review.  Safe harbors could be established in line with those already established by certain Member States reviewing acquisitions of non-controlling minority shareholdings, e.g., 10% shareholding or absence of special shareholder rights. 

Improving speed and effectiveness of case referrals 

The Merger Regulation allows the Member States or the parties to refer cases falling under the competence of Member States to the Commission, so that the best-placed authority may handle the case from the outset.  However, the Consultation Paper notes that many cross-border cases are still subject to multiple review in several Member States, due in part to parties seeking to avoid the procedural burdens and delays associated with referrals and possibly because of forum-shopping by parties avoiding the Commission's review. 

In view of these concerns, the Commission explores the modification of the referral mechanisms, with the aim of facilitating the speed and effectiveness of referrals, but without altering the basic features of the system or the allocation of competences between the Commission and Member States.  The Consultation Paper examines the following reforms: 

(1) Pre-notification referrals to the Commission. Article 4(5) EUMR allows parties to request referral to the Commission, by way of the "Form RS" (Reasoned Submission), of mergers that are notifiable in at least three Member States but which do not meet the thresholds of the EUMR.  Information provided in Form RS allows Member States to assess whether to accept the referral request, and under the current system, the competent Member States have 15 working days to oppose the referral to the Commission.  In such case, the review then remains with the Member States. If no competent Member State opposes, then the Commission obtains jurisdiction for the entire EEA, and the parties must submit a merger notification to the Commission ("Form CO"). 

Elimination of Form RS.  The Consultation Paper suggests the elimination of the Form RS, given that the burdens of this two-step submission process and 15-day consultation process have possibly discouraged companies from using the referral procedure, and since very few referral requests are opposed by Member States.  Rather, parties could directly notify to the Commission, but competent Member States would retain the same right to oppose the Commission's jurisdiction and re-gain their original competence.  The Consultation Paper also considers further accelerating the review process by shortening the Member State consultation period from 15 to 10 working days.  

(2) Post-notification referrals to the Commission.  Article 22 EUMR allows national competition authorities to refer cases that do not meet the EUMR thresholds where the Commission is the better-placed authority to review, particularly in case of cross-border effects and serious competition concerns, even if parties did not or could not request a pre-notification referral of the case.

Expansion of Commission's jurisdiction to entire EEA.  In line with the "one-stop-shop" principle, the Consultation Paper considers broadening the Commission's review under such referrals to cover the whole of the European Economic Area, rather than only the territory of the Member States requesting or joining the referral.  This would avoid truncating a merger review between the Commission and other national competition authorities investigating the effects of a transaction in their territory.  Such EEA-wide competence would simplify the review process by allowing parties to deal with just one authority, and would thereby also lower the risk of diverging merger assessments and close the door to forum-shopping parties seeking to bypass the Commission's scrutiny. 

Procedural shifts.  The Commission would retain its discretion on whether to accept a referral, and competent Member States would retain the right to oppose the referral, in which case the Member States would retain jurisdiction.  However, while it would no longer be required that another Member State join a referral request, the ability to request a referral would be narrowed to only Member States that are originally competent to review (those who received official notification of a transaction).  According to the Commission, this proposed approach raises the concern that this could lead to a situation whereby a Member State already clears a transaction before a referral occurs from another Member State.  To avoid such scenario, the Consultation Paper suggests, in particular, the aligning the timing of national notifications and expanding the suspensory effect. 

Other points for potential improvement of the merger control rules

The Consultation Paper sets forth other envisaged changes, including (a) setting out an explicit methodology for calculating a joint venture's relevant turnover, which would be in line with the Commission's practice and Consolidated Jurisdictional Notice of 2008, and (b) better protecting confidential information by sanctioning parties and third parties, who are given access to non-public commercial information of other undertakings exclusively for the purpose of the proceeding (e.g. through access to the file), but who use or disclose such information for other purposes.

This consultation continues the Commission's ongoing initiative to re-shape the EU merger control regime, last reformed in 2004, and follows on the recently closed consultation on a separate proposal to simplify certain procedures for notifying mergers within the current EU Merger Regulation (EUMR) (see our prior alert, "European Commission Consults on Proposals to Modify Merger Control Notification Procedures" .  Jones Day is preparing formal remarks on the Commission's consultation.

Lawyer Contacts 

For more information, please contact your principal Jones Day representative or the lawyer listed below. 

Serge Clerckx
+ 32.2.645.15.03  

Cecelia Kye, a Consultant in the Brussels Office, assisted in the preparation of this Alert. 

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