European Union: EU Merger Control Alert

EU Merger Control 2017: Competition in Innovation; EC Prohibiting Deals; Fines for Procedural Infringements; and EU Courts Overturning EC Decisions

Introduction

2017 saw some highly significant investigations and court judgments in European Union merger control. Notably:

  • After detailed investigations and subject to extensive divestments, the European Commission ("EC") cleared two transactions in the agricultural chemicals area. The EC's analysis of competition in innovation in the Dow/Dupont merger broke new ground.
  • Three notified transactions failed because of substantive concerns: the Deutsche Börse/London Stock Exchange Group and HeidelbergCement/Schwenk/Cemex Croatia deals were prohibited and Knorr-Bremse/Haldex was abandoned during a Phase II review.
  • Procedural infringements attracted significant attention: the EC imposed a €110 million fine on Facebook for providing misleading information during a merger investigation. It also launched four other investigations into alleged procedural infringements.
  • The EU courts issued four important judgments: one annulling a 2013 EC prohibition decision; one annulling a 2014 clearance; one upholding a fine for gun-jumping; and one on the interpretation of the EU Merger Regulation.

None of these developments raises new themes in EU merger control. However, the Dow/DuPont decision probably is the best and most controversial example of the EC analysing threats to innovation in the context of merger control, although this has been a prominent concern in EC investigations in the last years.

The EC also continues to impose up-front buyer requirements frequently. That is, the EC withholds clearance until it has approved an acceptable buyer for the divested assets.

Otherwise, the UPS v Commission and KPN v Commission judgments are a salutary reminder that no decision is ever final until the EU courts have ruled on any appeals.

Numerically, more deals (380 compared to 362 in 2016) were notified to the EC in 2017 than in any year since 2007. Further details are available here.

Phase II Decisions

Following in-depth merger investigations, the EC adopted four Phase II decisions in 2017. Two of these were conditional clearances in the agricultural chemicals sector, while the other two were prohibition decisions in other sectors.

− Agricultural chemicals sector investigations

Dow/DuPont

  • Conditional clearance subject to divestment, including sale of R&D capability, to an up-front buyer
  • Focus on threat to innovation generally in the industry, not only in specific product markets

ChemChina/Syngenta

  • Conditional clearance subject to divestments
  • Multiple overlaps

Bayer/Monsanto review ongoing

The EC approved the Dow/DuPont merger subject to divestment of overlapping businesses and almost all of DuPont's global R&D capability to an up-front buyer. The decision contains a detailed analysis of potential threats to innovation. It has been criticised for focussing on reduced innovation at the overall industry level, rather than on particular relevant antitrust markets. Nonetheless, the EC has insisted that the decision is consistent with precedent and in line with EU law. Only time will tell if this decision will usher in a focus on threats to innovation that go beyond identified product markets.

The EC's concern about innovation competition in the agricultural chemicals sector generally – rather than on specific markets – is novel. It examined how new active ingredients and formulated products are developed, without examining an effect on any specific downstream product market. The EC decision highlights the importance of rivalry in the overall industry, the existence of strong intellectual property rights and other barriers to entry, previous industry consolidation and the fact that few competitors were active globally throughout all the various stages of R&D. These criteria are sufficiently broad to apply to many transactions in concentrated industries. Moreover, while the EC assessed whether the merger would lead to efficiencies that might offset the reduction in innovation competition, it rejected this possibility on the facts. This was not surprising since it is always extremely difficult to meet the EC's standard for demonstrating a likelihood of sufficient transaction-specific efficiencies to overcome competition concerns.

In the second Phase II decision in the agricultural chemicals sector, ChemChina/Syngenta, the EC analysed over 450 markets where the parties' combined market share exceeded 20%. The EC narrowed these down to 115 markets where the merger would have raised significant competition concerns. It cleared the transaction subject to divestments in those markets. In its substantive assessment, the EC analysed potential Syngenta overlaps/relationships with other Chinese State-Owned Enterprises and not just ChemChina.

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