The European Commission (Commission) has dropped proposals to extend EU merger control powers to capture non-controlling minority shareholdings, focusing instead on reviewing high value transactions which currently fall beyond its reach. This shift of policy was set out in the Commission's public consultation on proposals for amendments to the EU Merger Regulation (EUMR), published on 7 October 2016. The consultation follows on from the White Paper of 2014 and continues the process of refining the scope and procedure of EU merger control.
Reflecting its wider strategic focus on equipping the EU for the digital economy, the Commission's new focus concerns whether the reach of the EUMR should be extended to capture acquisitions where currently low revenues mean that the jurisdictional thresholds are not met, but the potential competitive and commercial impact of the target is reflected in high transaction values. It cites in particular the digital economy and pharmaceutical sectors, both driven by innovation and breakthrough technologies, products and processes - sectors in which small companies can expand very quickly to become very large. A notable example is the acquisition of Whatsapp by Facebook, which fell outside the scope of the EUMR due to Whatapp's small size at the time and was only reviewed by the Commission at Facebook's request. The consultation is an information-gathering exercise, seeking information about the incidence of such transactions and the extent to which respondents consider that merger control rules have dealt with them effectively to date. The stated goal is that "all competitively significant transactions with a cross-border effect in the EEA should be subject to merger control at EU level".
By contrast, the 2014 White Paper focused on a perceived enforcement gap in relation to the acquisition of non-controlling minority shareholdings. This concern was highlighted by Ryanair's successive attempts to purchase Aer Lingus. The Commission prohibited the proposals but had no power to require Ryanair to divest a pre-existing minority stake. The residual stake was dealt with by UK merger control, which applies to acquisitions of "material influence", a lower threshold than control under the EUMR.
Responses to the 2014 White Paper expressed doubts as to whether the enforcement gap was sufficiently significant given that such transactions do not generally raise competition issues. These views were reinforced by a Support Study recently published by the Commission, which contains detailed research on merger control and non-controlling minority shareholdings. The study highlighted the difficulty of identifying a proportionate way to extend the jurisdiction of the EUMR. As well as considering expanding the scope of EUMR jurisdiction, the October 2016 consultation proposes various further measures, including:
- simplifying the application of the EUMR to categories of typically benign mergers;
- improving the mechanisms for transferring cases between the Commission and EU Member States;
- restricting the scope for structuring a transaction so as to delay triggering the obligation to notify the transaction; and
- introducing flexibility into the timeframes for merger control investigations, particularly at Phase 2.
Although still at consultation phase, those involved in rapidly developing markets (like the digital economy and pharmaceutical sectors) may find that their future transactions start to fall under the scrutiny of the EU's merger control process.
