Fighting Europe’s competition powerplay
4 Aug 2022
How can corporates push back against recent moves by the European competition authorities to extend its powers to intervene in mergers, asks DRD Senior Advisor and competition law expert, Claire Harris in her second article on the topic.
Those with even a passing interest in competition and anti-trust matters will have picked up on the recent confirmation of the European Commission’s powers to intervene in mergers in the Illumina/Grail case.
What seems to be behind the move is a perceived ‘enforcement gap,’ particularly in relation to so-called ‘killer acquisitions’. These are the type of deals where acquirers with a significant presence in the EU want to acquire a promising start-up, where the target has low value or little (or no) no turnover.
And the change of heart is linked to market developments that have ‘resulted in a gradual increase of concentrations involving firms that play or may develop into playing a significant competitive role on the market(s) at stake despite generating little or no turnover at the moment of the concentration.’
Far from discouraging the use of Article 22, Member States are now more likely to be encouraged to think more broadly about deals, as the Guidance sets out:
- The deal might eliminate a recent or future entrant
- The deal involves two innovator companies as it might reduce the incentive to innovate
- The target is an actual or potential competitor of the acquirer
- The deal would reduce competitors’ incentive to innovate
- The deal would increase the merged firm’s ability and incentive to leverage a strong market position from one market to another by exclusionary practices.
This means that quite a significant level of analysis will need to be conducted by parties when looking at the competition aspects of a deal. Inevitably this adds to the costs of the transaction and could impact on timing, lobbying and deal advocacy.
The publication of the Guidance, and the Court’s endorsement, would imply that this is set to become normal. The Commission has indicated it does not want to commit resources to looking at closed deals more than six months old, but it does have the power to look at closed cases.
At the same time, the Commission has widened the net by broadening out its stakeholder base to include third parties who can contact the Commission or National Competition Authorities to let them know of a deal they think should be referred. But this will inevitably generate more work for advisers on deals where the Commission might potentially be trying to grab for itself the power to review deals.
In our experience, it is always prudent to engage with stakeholders early and to be in control of the messaging around the deal in a constructive way.
Claire Harris, DRD Senior Advisor
This guidance means that parties will have to assess merger thresholds in each of the 27 Member States, whether or not they have jurisdiction. The EU’s one-stop shop is for all intents and purposes a thing of the past. The review that parties will need to conduct will be difficult, burdensome and uncertain.
NCAs are not all on the same page. Some, like France, Belgium, Netherlands, Greece and Sweden are likely to make referral requests; Ireland and Germany are less likely to. Very few have indicated they will not make requests (including Spain and Austria) but this cannot be relied upon.
An Article 22 request inevitably adds delay (and possibly uncertainty) to the deal clearance timetable, and this can be significant if the Commission eventually opens a Phase 2 investigation. And for companies who want to crack on with their deal, the prospect of a court case and the risk of being fined for early implementation must also be taken into account.
What’s to be done?
One thing a company could do to mitigate the risks of an Article 22 referral would be to contact those National Competition Authorities where the new company will have activities. The trouble with that is that not all companies are going to be willing to do that in advance of a full antitrust assessment. But the benefits of preparing the ground with public affairs and specialist communications support might end up outweighing the risks in the long-run. In our experience, it is always prudent to engage with stakeholders early and to be in control of the messaging around the deal in a constructive way.
Alternatively, it would be possible, proactively, and in the correct circumstances, to make an application for referral back to a National Competition Authority under Article 4(4). This is the referral mechanism working the other way: here it is generally supposed to apply to large transactions that have localised effects. Of course, this has a risk associated with it as it requires acknowledging a competition problem, instead of being competition neutral. This again is an opportunity for specialist competition communications services, to seed messaging in and around competition agencies, and in the Commission to support the reference back.
We haven’t yet seen a slew of Article 22 referrals, possibly because advisers were cautiously waiting for the outcome of the court case. In the future, it will be important to keep all communications open to the extent possible – with care being taken as to how any deal is portrayed when communicating to the outside world.