On 1 September 2023, the much-anticipated EU merger notification "simplification" package finally came into force. Following two rounds of consultations, the European Commission has issued new long and short notification forms (Form CO) and issued revised guidance on when the so-called simplified procedure can be used.
Touted as cutting "red tape", the reform package introduces new "tick-the-box" sections in notifications, increases the cases in which a short Form CO can be used, and gives the European Commission greater flexibility to require the long form and 'normal' procedure even in transactions with low market shares. Digital notifications are also set to become the norm.
While the reforms do introduce new streamlined procedures for certain categories of cases, there are also expanded information requirements and nuances that will require careful attention from dealmakers and advisors.
- Revised notification forms, with new "tick-the-box" sections.
- The simplified procedure may be used in a broader range of cases than previously.
- Early and active engagement with the European Commission is essential, particularly in relation to market definition, flexibility clauses, available data and safeguards.
- Clear-cut no issue cases may continue to be dealt with more efficiently but this will likely remain the exception rather than the rule.
- For cases involving cross-shareholdings, directorships or where there is no clear precedent on market definition, parties may need to consider proceeding directly with a long Form CO.
New possibilities for "simplified" review
Under the new rules, a broader range of transactions will be eligible for simplified review. However, the European Commission retains discretion to revert to the normal procedure in a number of cases.
Cases eligible for a new super simplified review, with no pre-notification required:
- Joint ventures which are only active outside the EEA.
- Acquisitions which do not involve any horizontal overlaps or vertical relationships.
Cases eligible for a simplified review (largely as before):
- Horizontal overlaps: acquisitions which (i) on any "plausible market definition" involve combined market shares of less than 20% or (ii) the combined market share is less than 50% and there is only a small increase in market share.
- Vertical overlaps: acquisitions which involve (i) combined market shares of less than 30% on the upstream and downstream markets or (ii) combined market shares of less than 50% on the upstream and downstream markets, there is only a small increase in market share and the smallest party is the same on both markets.
- Joint ventures whose annual EEA turnover (current and expected for three years) is less than EUR 100 million and the value of the assets to be transferred is less than EUR 100 million in the EEA.
The European Commission has the discretion to allow transactions to be reviewed under the simplified procedure using the so-called "flexibility clause" where:
- the combined market shares for horizontal overlaps are <25%;
- in vertical relationships, the parties' shares are <35% upstream and downstream or the parties' shares do not exceed 50% in one market and 10% in a vertically related one; or
- for joint ventures, where the relevant EEA turnover / assets are < EUR 150 million.
There is also the possibility of "hybrid" treatment where some markets meet the criteria for the simplified procedure while others do not.
Safeguards and exclusions from simplified review
The European Commission has the ability to revert to the "normal" (or non-simplified) procedure where one or more of a long list of safeguards or exclusions are met. The list of safeguards and exclusions (which parties must address in Section 11 of the notification forms) include cases where:
- minority cross shareholdings of >10% or cross directorships in horizontally / vertically related markets.
- closely related markets with a party or parties' shares of >30%.
- fewer than three competitors with shares above 5% in any overlapping or vertically related market.
- market share thresholds are exceeded by capacity.
- a party which is an entrant (last 3 years) in any overlap market.
- any party which is an "important" innovator in any overlap market.
- any party brought out an "important" pipeline product within last five years.
- pipeline to pipeline or pipeline to market overlaps.
- any plans to expand in market(s) where another party is active or any vertically related market.
- a party or parties' shares (individual or combined) are 30% or higher at any level of value chain (by value, volume, or capacity).
- the annual turnover of a joint venture is expected to significantly surpass EUR 100 million or EUR 150 million in the EEA within the following three years.
Parties need to confirm whether any of these criteria apply ("yes or no" tick box format) and to explain why, despite these factors, the case should still be treated under the simplified procedure and does not give rise to concerns.
The Section 11 list is not exhaustive, with the Simplified Notice referring to a number of other circumstances where the European Commission may see fit not to apply the simplified procedure, including where:
- there is "difficulty in defining the relevant markets";
- the transaction involves "combining technological, financial or other resources, or competitively valuable assets such as raw materials, intellectual property rights… infrastructure, a significant user base or commercially valuable data inventories";
- "the merged entity would…. gain access to commercially sensitive information on the upstream or downstream activities of its rivals"; or
- the transaction involves "promising" pipeline products, or where "the concentration involves novel legal issues of general interest".
Box-ticking and traps for the unwary
The new short Form CO (and to some extent, the long Form CO) now includes a substantial tick-box element, with parties required to select "yes" or "no" for a long list of questions relating to the structure of the transaction, jurisdiction and substantive assessment.
While this may simplify presentation of information in notifications, there are a few notes of caution when considering to what extent this really "cuts red tape" for companies. In particular:
- Significant preparation work will still be required to support the summary presented in the tables in order to avoid submitting incomplete or misleading information. For example, substantial work preparing market data on alternative cuts will still be required at an early stage.
- The revised short and long Form COs introduce additional information requirements. In both cases, parties are required to provide information on pipeline and market data (e.g. capacity shares), as well as details of cross-shareholding and directorates.
- The long Form CO includes an expanded Section 5 with extensive disclosure requirements on data collected and analysed in the ordinary course of business that will significantly affect the presentation of market data. For example, the long Form CO requires detailed descriptions of (i) the type of data (sales or bids, margins, procurement processes), (ii) the level of disaggregation, (iii) the time period and format and (iv) the source of the data (e.g. CRM software, external provider etc.).
Parties must also describe the usage of this data: e.g., "internal datasets produced" based on the data as well as "internal reporting products and analysis such as business strategy, market plans, investment plans, market intelligence and competitors' [sic] monitoring".
Although this requirement overlaps with typical requests for information in more complex cases, the level of detail required for (apparently) all filings that do not benefit from the simplified procedure is new. Larger corporations with activities in multiple jurisdictions will inevitably find this challenging. Preparing a complete answer will require early and extensive preparation as well as the retention, in many cases, of specialised economic consultants.
For several years, attempts have been made to reduce the physical and environmental burden of paper submissions with increased use of digital submissions. This trend gathered pace during the Covid-19 pandemic and has now been formalised in the 2023 simplification package.
Digital notification is now the default and parties are required to sign key documents electronically, using qualified electronic signatures (from specific approved providers).
The 2023 simplification package's impact should not be overstated. While it will clearly cut red tape for the simplest of no-issue cases and the new possibilities for simplified review are welcome, complexities remain.
As ever, careful preparation, data gathering, and engagement with the European Commission will be needed to avoid unpleasant surprises. At least initially, pre-notification is likely to become even more important, as parties, advisors, and the European Commission acclimatise to the new forms, information requirements, and exclusions / safeguards. Highlights for deal makers and advisors to bear in mind are:
- Early and active engagement with the European Commission on market definition, flexibility clauses, available data and safeguards will be essential.
- Clear-cut no issue cases may continue to be dealt with more rapidly but will likely remain the exception rather than the rule.
- In cases where timing is of the essence, serious consideration should be given to proceeding directly with a long Form CO in cases where there are cross-shareholdings, directorships, or a lack of clear precedent on market definition.