The new thresholds in Italian merger control

On the 2^nd of August, the Italian Senate approved the Law on Market and Competition, after more than 2 years of discussions and amendments within the two chambers of the national Parliament. The law provides, inter alia, important new thresholds for merger notifications, by amending art. 16, para. 1, of Law no. 287/1990.

What are the thresholds currently in force?

According to the existing legislation (and as a consequence of the last revaluation in light of the increase in the Gross National Product price deflator), a concentration must currently be notified to the Italian Competition Authority (ICA) if two cumulative thresholds are met: (i) the aggregate Italian turnover of all the undertakings involved exceeds EUR 499 million in the previous fiscal year; and (ii) the Italian turnover of the target exceeds EUR 50 million in the previous fiscal year.

What are the new thresholds being introduced by the Law on Market and Competition?

The revised text of art. 16, para. 1, maintains a set of two cumulative thresholds but slightly reduces the amount of the first one and modifies the second one, requiring notification of a merger to the ICA if: (i) all parties’ combined Italian turnover exceeds EUR 492 million; and (ii) the individual Italian turnover of each of at least two companies involved in the transaction exceeds EUR 30 million. As is the case under the current legislation, these thresholds will be adjusted each year to reflect the increase in the Gross National Product price deflator.

What are the consequences of these amendments for companies?

Even if the new thresholds might seem, at a first glance, not significantly different from the previous ones, these amendments may have important consequences, in particular in the case of joint ventures or the joint acquisition of a target company.

As explained above, the existing system focuses on the Italian turnover of the target, as well as the combined Italian turnover of all the parties concerned by the transaction. The result of this was that if a company with little or no turnover in Italy acquired a target with very significant turnover in Italy (i.e. exceeding EUR 499 million, either individually or when combined with the buyer's (small) Italian turnover), then the transaction was notifiable.

Following the implementation of the revised thresholds, in the case of a straight acquisition, if the buyer has a large turnover in Italy, then the acquisition of a smaller target with Italian turnover below the previous EUR 50 million threshold, but above EUR 30 million, will be notifiable. However, if the buyer has a turnover below EUR 30 million in Italy, then even the acquisition of a large Italian company may not be notifiable due to the need to have at least two parties with a non-insignificant turnover in Italy.

The changes introduced in respect of joint ventures and the joint acquisition of a target are even more significant. In the case of a joint venture, the ICA previously explained that – having regard to the thresholds currently in force – it would consider the turnover of the joint venture (or of the assets transferred to the joint venture if newly incorporated) as the target turnover, so that if two companies with a significant turnover in Italy created a joint venture with no turnover or only limited turnover in Italy, no notification was required. The same was true if two large companies decided to jointly purchase a target which did not meet the second turnover threshold in Italy.

This will now change, since it will be sufficient for two of the entities creating the joint venture or acquiring joint control of even a small target company to reach the EUR 30 million threshold individually (and together the EUR 492 million threshold), to trigger an obligation to file a notification in Italy, irrespective of the size of the target (which could thus in theory not even be active in Italy).

Preliminary conclusions:

The revised thresholds introduced by the Law on Market and Competition are generally to be welcomed, since they bring the Italian system more into line with the EU model. There are however a few shortcomings that it is important to be aware of:

• the revised thresholds are still very high for a country composed of small and medium companies; in particular, the requirement that the combined Italian turnover of all parties to the transaction must exceed EUR 492 million still appears excessive; and 
•  by eliminating – in practice – any requirement that the transaction has effects on the Italian market, the revised thresholds result in a system which suffers from a similar defect to the EU model, in that a notification will be required in respect of an acquisition of joint control over assets or the creation of a joint venture with no (or only insignificant) activity in Italy, provided that the companies acquiring joint control or creating the joint venture have significant turnover in Italy themselves. 

When will the new thresholds enter into force?

The new thresholds will apply after the entry into force of the Law on Market and Competition. This date has not yet been specified at the time of writing: the law still needs to be enacted by the President of the Republic, which must occur within one month of its approval by the Senate (unless he exceptionally decides to ask the Parliament to review the law again). Thereafter the law will be published on the Italian Official Journal and will then enter into force on the fifteenth day following that publication.

In principle, and also in light of the lack of standstill effect provided by the Italian merger control rules, it is the closing date of a transaction which should be relevant to determining whether the old or new thresholds should be applied. However, given the difficulties that such a system would create in the present situation (in which the thresholds will be decreased), it is hoped that the ICA will review its previous practice and agree that the date of the signing of the transaction may be treated as the relevant date. We will provide an update on this issue once the position has been clarified.