By Christer A. Holm 23 March 1998
On 1 March the amendments to the EC Merger Regulation, adopted by the Council in June 1997 (Regulation 1301/97), came into force. A new procedural Regulation, together with the revised notification form CO was published in OJ L61 of 2 March 1998. A series of explanatory Commission notices were published in OJ C66 of 2 March 1998.
The new amendments are the first set of substantive changes made to the Regulation since its introduction in 1989. They can be grouped into four categories:
- reduced thresholds to cover deals which may otherwise give rise to multiple national filings
- changes to the definition of a joint venture which qualifies under the Regulation, extending its scope to all "full-function" joint ventures
- changes to the method of calculating the turnover of credit and financial institutions
- procedural changes in order to bring the Regulation in line with current Commission practice
The amendments came into effect on 1 March 1998 but do not apply to transactions agreed, notified or effected before that date, nor to transactions which were subject to investigation by national authorities before that date.
This second attempt to reduce the original thresholds (a previous attempt in 1993 was blocked by most Member States) has resulted in a compromise, under which the original thresholds remain unchanged but a supplementary set of thresholds has been introduced in order to catch those transactions where there might otherwise be a need for multiple national filings. Because of practical problems involved in defining such a "multiple filing" test, the compromise has been framed around these supplementary thresholds. Article 1(2) of the Merger Regulation now describes a concentration with a Community dimension as one where:
- the combined aggregate world-wide turnover of all the undertakings concerned is more than ECU 5000 million; and
- the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than ECU 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.
Article 1(3) further defines a concentration with a Community dimension as one which satisfies the following five criteria:
- the combined aggregate world-wide turnover of all the undertakings concerned is more than ECU 2500 million;
- in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than ECU 100 million;
- in each of the three Member States included for the purpose of the above, the aggregate turnover of each of at least two of the undertakings concerned is more than ECU 25 million; and
- the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than ECU 100 million;
- unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.
The new rules are complex and it will not always be easy to identify which deals are caught by the new regime. For companies to establish their sales on individual Member State basis will be very difficult, as most companies do not account in that way. It is also interesting to imagine how many transactions would satisfy the second and third but not the fourth test.
The Commission will have to report to the Council on the operation of the thresholds before 1 July 2000. The Council may then revise the thresholds, on a proposal from the Commission, acting by qualified majority.
More Joint Ventures to Benefit from the Regulation
The distinction between co-operative joint ventures (outside the scope of the Regulation) and concentrative joint ventures (assessed under the Regulation if they have the required Community dimension) has developed over the years, slowly extending the concentrative class by dropping a number of conditions a joint venture has to satisfy in order to qualify as concentrative.
Before 1 March 1998, a joint venture which performed on a lasting basis all the functions of an autonomous economic entity, and did not give rise to the co-ordination of the competitive behaviour of the parties amongst themselves or between them and the joint venture, constituted a concentration. In the new Regulation, the "risk of co-ordination" element has been deleted, thereby recognising all full function joint ventures as concentrative.
Any restrictions of competition arising between parties which remain independent will continue to be appraised in accordance with the criteria of Article 85(1) and 85(3) of the EC Treaty, but as part of the Merger Regulation timetable and process.
All full-function joint ventures with a Community dimension must now be notified under the Regulation. Full-function joint ventures which do not have a Community dimension will continue to be assessed under Article 85 of the EC Treaty with respect to the co-ordination aspects between the activities of the parents, in addition to any national merger control rules that may apply to the transaction.
The Commission's new approach to joint ventures makes economic sense as many full function joint ventures with a Community dimension have similar effects on competition to those of mergers. The extension of the benefits of the Merger Regulation to a wider class of joint ventures must be welcomed. Unfortunately however, it is unlikely to achieve a clearer demarcation line between concentrative and co-operative joint ventures. The debate will now focus on the "full function" criterion which joint ventures must satisfy in order to come within the Regulation.
The new Commission Notice on the concept of full-function joint ventures under the Merger Regulation replaces the Notice on the distinction between concentrative and co-operative joint ventures.
Turnover Calculation for Credit and Financial Institutions
Before 1 March 1998 the thresholds calculations for credit and financial institutions were based on the value of the institution's assets. Article 5(3) of the Regulation has been amended and the assets test has been replaced by a new income test. The new definition will simplify calculations for the banking sector and is in line with submissions made by the industry. Turnover will now comprise the sum of the following:
- interest income and similar income
- income from securities (from shares and other variable yield securities, from participating interests, from shares in affiliated undertakings)
- commissions receivable
- net profit on financial operations
- other operating income
Community turnover or turnover in a particular Member State will be the above income items which are received by the branches located in the Community or in that Member State.
The method of calculating the turnover or insurance companies remains unchanged.
Miscellaneous and Procedural Changes
The Commission has taken the opportunity to clarify and improve the text of the Regulation and bring it in line with current Commission practice.
The suspension period, which previously only extended to the first three weeks of a Commission investigation, has now been extended to such time until clearance has been granted by the Commission, whether at the end of first or second stage investigation. The Commission can however waive this suspension within a more broadly drawn discretion than under the old rules (Article 7).
The Regulation now makes it clear that commitments offered by parties in phase one in order to avoid phase two investigation have binding legal force. Where commitments are offered in the preliminary investigation, the initial one-month investigation period is extended to six weeks.
Article 9 Referral
The referral to the national authority for mergers affecting distinct markets within a Member State will be almost automatic. It will not be necessary to demonstrate that the merger threatens to create or strengthen a dominant position on this distinct market, only that it affects competition on its own markets and that that market is not a substantial part of the EU.
Joint Requests under Article 22
A joint request by two or more Member States will be possible under Article 22, which enables national authorities to ask for Commission scrutiny of mergers which lack a Community dimension.
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