1 EU merger control
| Committee's assessment
| Politically important |
| Committee's decision | Not cleared from scrutiny; for debate in European Committee C
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| Document details | Towards more effective EU merger control (36230), 11976/14 + ADDs 1-3, COM(14) 449
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| Legal base | —
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| Department | Business, Innovation and Skills
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Summary and Committee's conclusions
1.1 An EU system for merger control has been in place
since 1989, and seeks to create a "one stop shop" by
making a clear distinction between the role of the Commission
and Member States, with the Commission having exclusive jurisdiction
over mergers with an EU dimension, and those below specified thresholds
being subject to Member State control. A merger which appears
to have an EU dimension must be notified to the Commission, and
may not proceed unless and until it has ruled that it is compatible
with the common market.
1.2 As nearly 10 years had elapsed since the adoption
of the current Council Regulation (EC) No. 139/2004, the Commission
has in the past year or so been considering possible improvements,
in line with its Better Regulation agenda. This White Paper reviews
the operation of the controls since the 2004 reforms, and proposes
specific amendments to address the two issues identified in the
course of a consultation carried out in 2013 — the need
for the merger control rules to be extended to the anti-competitive
effects stemming from certain acquisitions of non-controlling
minority shareholdings, and the effectiveness and smoothness of
the referral system for transferring cases between Member States
and the Commission both before and after notification.
1.3 When we drew the attention of the House to
a consultation on EU merger policy being carried out by the Commission
last autumn, we said that, since this was intended to canvass
views in advance of any legislative proposals, we did not think
it gave rise to any major issues requiring further consideration
at that stage. To some extent, the same might be said of this
White Paper, but we believe there are two significant differences.
First, the Commission has now been more specific as regards the
changes it sees as necessary to address the issues of minority
shareholdings and the referral system, and secondly, the document
also includes a review of the operation of the current system
of merger control over the last ten years. We therefore think
this would be an appropriate time for the House to take stock
of the state of play in an area which is a cornerstone of the
EU's competition policy, and we are therefore recommending the
document for debate in European Committee C.
Full details of the documents:
Commission White Paper: Towards more effective EU merger control:
(36230), 11976/14 + ADDs 1-3, COM(14) 449.
Background
1.4 An EU system for merger control has been in place
since 1989, and is currently based on Council Regulation (EC)
No. 139/2004. This seeks to create a "one stop shop"
by making a clear distinction between the role of the Commission
and Member States, with the Commission having exclusive jurisdiction
over mergers with an EU dimension.[1]
Mergers below these thresholds are subject to Member State control,
though there is provision for particular cases to be referred
from the Commission to Member States and vice versa. A merger
which appears to have an EU dimension must be notified to the
Commission, and may not proceed unless and until it has ruled
that it is compatible with the common market.
1.5 As we noted in a Report last October, the Commission
took the view in 2013 that, as nearly 10 years had elapsed since
the adoption of the Regulation, it would be an appropriate moment
to consider possible further improvements, in line with its Better
Regulation agenda. It therefore circulated a Staff Working Document[2]
in order to canvass views, notably on whether the merger control
rules should be extended to deal with the anti-competitive effects
stemming from certain acquisitions of non-controlling minority
shareholdings, and the effectiveness and smoothness of the referral
system for transferring cases between Member States and the Commission
both before and after notification.
The current document
1.6 The purpose of this Commission White Paper is
to review the operation of the controls since the 2004 reforms,
and to propose specific amendments to Council Regulation (EC)
No. 139/2004 in order to address the two issues identified in
2013.
REVIEW OF MERGER CONTROLS
1.7 The Commission says that merger control is one
of the three main pillars of EU competition law, and makes an
important contribution to the functioning of the internal market
by providing a harmonised set of rules. It also notes that the
majority of cases investigated have not raised competition concerns,
and are cleared at an initial investigation, with fewer than 5%
proceeding to a more detailed investigation (and only 30 out of
more than 5,000 mergers having been blocked since 1990).
1.8 The Commission observes that the most significant
change in the 2004 Regulation was the introduction of the SIEC
("significantly impede effective competition") test
— which is almost identical to the "substantial lessening
of competition" criterion used by the UK — and which
it uses to establish whether a merger would create or strengthen
a dominant position, the majority of investigations having focussed
on mergers where there has not been any anti-competitive coordination
with other competitors (those presenting an increased risk of
coordination having been much rarer). The Commission also says
that, in order to improve transparency and predictability, it
has published two sets of guidance — one on horizontal mergers
between direct competitors, and one on vertical mergers in the
same supply chain — which recognise efficiencies arising
from the merger can counteract any harm to competition, and revised
its Remedies Notice[3]
in 2008.
1.9 The Commission goes on to state that, although
Regulation (EC) No. 139/2004 has been successful in providing
scrutiny of mergers with an EU dimension, Member States also play
an important role, but it notes that a public consultation in
2009 identified concerns that diverging merger rules and practices
may create an administrative burden on business and lead to ineffective
enforcement. It therefore believes that, despite the progress
achieved so far, there is room for further cooperation and convergence
(for example, on how substantive tests are interpreted and applied
by national competition authorities and courts), and it highlights
two particular areas of difference — the fact that some
national laws allow mergers to be cleared on public interest grounds
despite adverse competition findings by the national competition
authority, and differences in remedies and procedures —
suggesting that greater convergence can be achieved by encouraging
increased cooperation between competition authorities on individual
cases.
1.10 In particular, it suggests that there should
be a single, substantive test applied by both the Commission and
national competition authorities, but it notes that this would
require a more ambitious overhaul of the merger regime. Consequently,
in the meantime — and, as foreshadowed in its Staff Working
Document last year — it proposes instead to bring non-controlling
minority shareholding acquisitions within the scope of EU merger
control and to streamline case referrals.
ACQUISITION OF NON-CONTROLLING MINORITY SHAREHOLDINGS
1.11 The Commission argues that, whilst effective
and efficient competition policy requires appropriate tools, the
current regime only permits it to investigate acquisition of control
by one business over another, and prevents it from investigating
an acquisition of a non-controlling minority shareholding, even
if that takes place after it has blocked proposals for an outright
acquisition. However, it suggests there is evidence that the acquisition
of non-controlling minority shareholdings may impair competitiveness
(for example, where the acquirer possesses a degree of influence
over the businesses decisions of the target business), and it
cites a number of recent cases which have raised concerns.[4]
1.12 The Commission says that it considered whether
Article 101 TFEU (on anti-competitive agreements) or Article 102
(abuse of dominant position) might be suitable for supervising
minority shareholdings, but concluded that these provided limited
scope, since Article 101 is not clear whether acquiring a minority
shareholding would always constitute an agreement, whilst Article
102 requires the acquirer to be in a dominant market position
and the acquisition to be an abuse of dominance. It also recalls
that its Staff Working Document identified three options for controlling
minority shareholdings — an extension of the present notification
arrangements; a system of self-assessment; and a "transparency"
system requiring parties to a potentially problematic structural
link to file a short information notice.
1.13 It says that any regime for examining non-controlling
minority shareholding should capture potentially anti-competitive
acquisitions; avoid any unnecessary and disproportionate burden
on companies, the Commission and national competition authorities;
and fit with existing merger control regimes at both the EU and
national level. It has therefore opted for a "targeted"
transparency system, which would give it jurisdiction over acquisitions
creating a "competitively significant link", involving
acquisitions of a minority shareholding in a competitor or vertically
related company (effectively a supplier or purchaser), and where
the acquired shareholding is either around 20%, or between 5%
and around 20% if accompanied by additional factors such as rights
giving the acquirer a "de-facto" blocking minority,
a seat on the board of directors, or access to commercially sensitive
information.
1.14 In such cases, the parties would be required
to assess whether an acquisition creates a "competitively
significant link" and, if it does, to submit an information
notice to the Commission, which would then have to consider whether
to investigate the transaction. Such a notice would be less detailed
than a formal notification, but would have to contain information
relating to the parties, their turnover, a description of the
transaction, the level of shareholding before and after the transaction,
any rights attached to the shareholding, and some limited market
information.
1.15 The Commission says it could also consider proposing
a waiting period once an information notice has been submitted,
during which a Member State could decide whether to request a
referral to its own competition authorities instead. Subject to
that, the Commission would be free to investigate a transaction
following receipt of an information notice, although it proposes
that, notwithstanding any clearance of the acquisition of a non-controlling
minority shareholding, any agreements would still be subject to
Articles 101 and 102 TFEU, the only exception being for "ancillary
restraints".[5] As
part of the substantive assessment, any agreements already in
existence between the two parties would be taken into account.
CASE REFERRALS
1.16 The second set of proposals refer to how cases
are transferred from Member States to the Commission and vice
versa under Articles 4 and 22 of Council Regulation (EC) No. 139/2004.
1.17 Where a merger does not have an EU dimension
in terms of the relevant thresholds, but would normally be reviewed
by the competition authorities of at least three Member States,
Article 4(5) allows merging parties to request that it should
instead be examined by the Commission: and, if they wish to refer
the case, they currently have to follow a two-step process, where
they first have to request a referral, and then complete a notification
if the referral is approved. The Commission is now proposing a
new process under which the parties would directly notify the
merger, which it would draw to the attention of the relevant Member
States, which would have 15 days to respond. If no such Member
State objects during that period, the Commission would then have
jurisdiction over the merger: but, if an objection is made, it
would renounce jurisdiction (which would remain with the Member
States)
1.18 In addition, Article 22 currently allows National
Competition Authorities to refer to the Commission cases where
it is the "more appropriate" or "better placed"
authority, even if this has not been requested by the parties
involved. If the request is accepted, the Member States concerned
cannot apply their national law, but other Member States not joining
the request remain free to do so, which can result in parallel
investigations. The Commission is now proposing that any competent
Member State may request a referral to it under this Article 22,
and that, whilst it would decide whether or not to accept this,
it would not do so if any other competent Member State was opposed.
1.19 In order to smooth referrals, it is also proposed
that Member States should share information about cross-border
cases, and that the Commission should be able to invite competent
Member States to request a referral. Also, in order to reduce
the possibility of a request being made to the Commission after
another Member State has already cleared the transaction, it is
proposed that national competition authorities should circulate
early information notices, indicating whether or not they are
considering a referral request, and that this would suspend the
national deadlines of all Member States which are also investigating
the case. Finally, the Commission proposes that it should be able
to invite Member States to make referral requests. If a national
competition authority has already cleared the acquisition, then
that decision would remain in place and the rest of the acquisition
would be examined by the Commission.
1.20 The Commission also proposes a change to the
process under Article 4(4) of the Regulation by which the parties
to a merger may seek (before notifying it to the Commission) to
have it examined by a Member State instead. This currently requires
the parties to show that the merger "may significantly affect
competition" in a distinct market in a Member State, and
the Commission proposes to remove that requirement on the grounds
that it involves a "perceived element of self-incrimination",
with the parties having instead to show that the transaction "is
likely to have its main impact" in a distinct market in the
Member State.
1.21 Finally, the White Paper states that there is
a case for improving and streamlining further provisions of Council
Regulation (EC) No. 139/2004. In particular, it suggests that:
- the creation of a full-function joint venture
located and operating wholly outside the EEA, and which does not
have any impact on markets within it, should fall outside the
scope of the Regulation, and would not therefore have to be notified
to the Commission, even if the turnover thresholds are met; and
- where transactions do not normally raise competition
concerns, and are currently dealt with under the simplified regime,
the Commission could exempt them from mandatory notification,
and apply a targeted transparency procedure of the kind it has
proposed for non-controlling minority shareholdings.
The Government's view
1.22 In her Explanatory Memorandum of 31 July 2014,
the Minister for Employment Relations, Consumer and Postal Affairs
(Jo Swinson) points out that the establishment of competition
rules necessary for the functioning of the internal market falls
within the EU's exclusive competence. She says that, if any formal
legislative proposal were to be made, the Government would want
to consider the issue of subsidiarity, but she adds that, at this
stage, the Commission's subsidiarity analysis appears to be plausible,
and can see no immediate cause for concern.
1.23 At the same time, she suggests that the proposals
would have policy implications for the UK. First, she notes that
the UK is one of only three Member States where the national competition
authority can examine minority shareholdings, and that the Commission
has instanced two UK cases[6]
as evidence of the need for change. She says that, under the domestic
regime, a business would voluntarily decide whether or not to
notify the acquisition of a minority shareholding to the national
competition authorities (which would in practice means doing so
only if it might raise competition concerns), whereas, under the
Commission's proposals for a "targeted transparency system",
notification would be required if a minority acquisition met the
thresholds, even if it was unlikely to raise merger concerns.
She says that the Government will work with stakeholders to understand
the exact nature of any burden this might impose. She also notes
that, under the Commission's proposals, a minority acquisition
would only have to be notified if it creates a "competitively
significant link", but that this would nonetheless result
in certain minority acquisitions, which had previously been examined
at a domestic level, now being examined by the Commission.
1.24 Secondly, the Minister says that the
proposals on case referrals are likely to have limited policy
implications, as they involve a streamlining of existing Commission
procedures, and do not grant any new powers, although she suggests
that they may result in more cases being transferred to the Commission,
which will automatically be given jurisdiction, unless the UK
objects.
1.25 Finally, she comments on the suggestion that
the proposed "targeted transparency system" should be
extended to acquisitions which do not normally raise competition
concerns, and are completed under the existing simplified procedure,
and suggests that this would result in fewer burdens for business.
Previous Committee Reports
None.
1 Defined in terms of the combined global turnover
of the two parties, and the turnover of each of the parties in
the EU. Back
2
(35291) 12927/13: see Eighteenth Report HC 83-xvii (2013-14),
chapter 8 (16 October 2013). Back
3
This provides guidance on potential remedies, such as the selling
of assets. Back
4
These include the merger of Siemens/VA Tech, and the acquisition
of minority shareholdings as in Ryanair/Aer Lingus, Toshiba/Westinghouse
and IPIC/MAN Ferrostaal. Back
5
These are already defined in the existing EU Merger Regulation
as "restrictions directly related and necessary to the implementation"
of the acquisition of the shareholding. Back
6
The Office of Fair Trading and Competition Commission investigations
into the minority shareholdings of BSkyB in ITV, and Ryanair in
Aer Lingus. In both cases, the national competition authorities
decided that the minority shareholdings were anti-competitive. Back
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