What's new? The European Commission has published new guidance on the application of the referral mechanism set out in Article 22 of the EU Merger Regulation ("EUMR"). The Commission's new approach supports the referral of certain merger cases to it by national competition authorities ("NCAs") not having initial jurisdiction over the transaction where the Commission previously discouraged such referrals.
The Commission's recent assessment of the existing EU merger control regime led to the conclusion that acquisitions of undertakings with a low turnover at the moment of the transaction but with a high competitive potential in the EU internal market ("Killer Acquisitions"), in particular in the digital economy and pharmaceutical sector where innovation is an important parameter of competition, may escape the merger control review of both the Commission and NCAs due to the turnover-based jurisdictional thresholds. Rather than reviewing the EUMR, e.g. to introduce thresholds based on transaction value, the Commission decided to use the existing referral mechanism set out in Article 22 EUMR to capture such acquisitions not initially in scope of EU or NCA review. Article 22 EUMR allows NCAs to refer a transaction to the Commission for merger control review provided it (i) affects trade between Member States and (ii) threatens to significantly affect competition within the territory of the Member State(s) making the request.
What does it mean? Although there is no merger control regime in Luxembourg, the Luxembourg Competition Council can also refer mergers and acquisitions to the Commission for review. In a press release of 29 April 2021, the Competition Council confirmed that it now has a stronger incentive to make use of the Article 22 EUMR referral mechanism provided the conditions are met.
The new approach may have significant implications for merging parties, including for transactions affecting the Luxembourg market only.
Depending on the context and rationale of the deal, merging parties have to integrate the possibility of the use of the Article 22 EUMR mechanism when contemplating the terms and timing of a transaction. This exercise goes beyond the verification of whether merger control thresholds are met but implies an analysis of the effects of the transaction on competition on a case-by-case basis, including with regard to the Luxembourg market and the possibility of a referral by the Competition Council. Such an assessment can be difficult in practice, bearing in mind that this provision is characterised by a wide margin of discretion of both the Commission and NCAs.
The Commission is currently examining a first case under the new regime following a referral by France to assess a transaction between two US companies, the proposed acquisition of GRAIL by Illumina in the area of cancer detection.
At Luxembourg level, parliamentary questions were introduced on April 2021 asking the Minister of Economy whether the Competition Council should issue guidelines for merging parties clarifying how it will apply the referral mechanism and whether the introduction of a Luxembourg merger control regime is envisaged.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.