Transactions and practices: EU Mergers & acquisitions EU Mergers and Acquisitions.pdf · Transactions and practices: EU Mergers & acquisitions • Resource type: Practice note •

Transactions and practices: EU Mergers & acquisitions

• Resource type: Practice note

• Status: Maintained

• Jurisdiction: European Union

The European Commission has power under the EU Merger Regulation to vet major cross-border mergers and acquisitions, and to

prohibit them when they are incompatible with the internal market. This Practice note considers the scope and application of the Merger

Regulation in relation to mergers and acquisitions. (Joint ventures are considered separately in the Practice note, EU Joint ventures).

Alex Nourry and Jennifer Storey, Clifford Chance LLP

Contents

• Legislation and notices

• Mergers and acquisitions subject to EU control

• EU dimension

• Turnover thresholds

• Calculation of turnover

• Mergers outside the EU

• What is a concentration?

• Control

• Sole control and joint control

• Simplified procedure for certain concentrations

• Exclusions

• One-stop shop principle

• Exceptions

• Legitimate interests

• National security

• Referral back to member states

• Referral to the Commission

• Proposals for reform

• Notification of a concentration

• Pre-notification guidance, contacts and discussions

• Confidentiality

• Incomplete notification

• Suspension

• Derogation from suspension

• Completion in breach

• Fines

• Commission's review procedure

• Initial investigation: Phase I

• In-depth investigation: Phase II

• Time limits

• Priority rule

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• Advisory Committee

• Powers of investigation

• Remedies

• Notice on remedies

• Phase I undertakings

• Phase II undertakings

• Third party interventions

• Access to documents

• Commission's assessment

• The test: compatibility with the internal market

• Substantive assessment

• Collective dominance

• Merger control statistics

• Assessment of ancillary restrictions

• Appeals against merger decisions

• International co-operation

• Best Practices for multi-jurisdictional mergers

• Commission notices and guidance relating to mergers

• Merger notifications: Best Practice Guidelines

• Skanska/Scancem case

• Nestlé/Ralston Purina

• EU merger control statistics

• Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel

• Reform of EU merger control in 2004

• Revised EU Merger Regulation

• Non-legislative measures

• Horizontal Guidelines

• The Non-horizontal Guidelines

• Sony/BMG

• 2014 White Paper - proposed changes to make Merger Regulation more effective.

Changes in terminology: Following the entry into force of the Lisbon Treaty on 1 December 2009, Article 81 and Article 82 of

the EC Treaty have been renamed Article 101 and Article 102 of the Treaty on the Functioning of the European Union (TFEU)).

In addition, the Court of First Instance (CFI) has been renamed the General Court. This new terminology has been reflected

throughout this note. For further information on the Lisbon Treaty see the Practice note, The European Union after the Treaty

of Lisbon (www.practicallaw.com/2-381-1190).

The European Commission has the power to vet major cross-border mergers, acquisitions and certain joint ventures, and to prohibit

them when they are incompatible with the internal market, by virtue of the EU Merger Regulation (Merger Regulation) (Regulation

139/2004 on the control of concentrations between undertakings (OJ 2004 L24/1)).

For this purpose, the Merger Regulation requires compulsory and exclusive ("one-stop shop") notification to the Commission of

significant structural changes which have an impact on the EU market going beyond the borders of any one member state. The size of

the transactions concerned is measured by way of cumulative turnover thresholds.



This Practice note considers the scope and application of the Merger Regulation in relation to mergers and acquisitions. The Merger

Regulation also applies to full-function joint ventures (see Glossary (www.practicallaw.com/A14505)), which are considered

separately in Practice note, EU Joint ventures (www.practicallaw.com/A14479).

Legislation and notices

The main EU legislation relating to mergers and acquisitions comprises the Merger Regulation itself, and the Commission's

implementing regulation which deals with procedural matters (Regulation 802/2004 OJ 2004 L133/1, as amended by Regulation

1033/2008 and Regulation 1269/2013) (the Implementing Regulation).

The current version of the Merger Regulation (Regulation 139/2004) was adopted on 20 January 2004 and came into force on 1 May

2004, replacing the original version (Regulation 4064/89), which had been in force since 1990.

This Practice note discusses the Merger Regulation as it applies since 1 May 2004. The main changes introduced to the Merger

Regulation in 2004 are summarised in the box, Reform of EU merger control and are also discussed in detail in the Practice note, EU

Merger Control Reform Package (www.practicallaw.com/A28356).

In addition, the Commission has issued a series of notices containing guidance on aspects of the EU merger control regime (see box,

Commission notices and guidance relating to mergers). In July 2007, the Commission adopted a notice which consolidated four of the

previous notices on jurisdictional issues (the Consolidated Jurisdictional Notice) (OJ 2008 C95/1) (see Legal updates, Commission

consults on new consolidated merger control jurisdictional notice (www.practicallaw.com/0-204-8104) and Commission adopts

consolidated merger control jurisdictional notice (www.practicallaw.com/4-371-7993)).

The Commission's 2004 reforms also included new guidelines and other non-legislative measures intended to improve the

Commission's decision making process, including guidelines on horizontal mergers (OJ 2004 C31/03)(see boxes, Reform of EU merger

control and Horizontal Guidelines). The Commission also adopted a revised Commission notice on simplified procedure for the

treatment of certain concentrations (the Notice on Simplified Procedure) (further revised in 2013) and a revised Commission notice on

restrictions that are directly related and necessary to concentrations (the Notice on Ancillary Restraints) (OJ 2005 C56/03).

In 2007, the Commission began consultations on new guidelines on non-horizontal mergers (the Non-horizontal Guidelines) and on a

revised version of its notice on remedies acceptable under the EU Merger Regulation (Remedies Notice) (see Legal updates,

Commission consults on draft non-horizontal merger guidelines (www.practicallaw.com/4-219-2953) and Commission consults on

revised Remedies Notice (www.practicallaw.com/6-312-5952)). It adopted the final version of the Non-horizontal Guidelines on 29

November 2007 (OJ 2008 C265/7). The guidelines provide guidance on the Commission's assessment of mergers where the parties

are active on distinct relevant markets: vertical mergers or conglomerate mergers (see box, The Non-horizontal Guidelines and Legal

update, Commission adopts guidelines on non-horizontal mergers (www.practicallaw.com/6-379-6526)). The Commission adopted the

Remedies Notice on 22 October 2008 (OJ 2008 C267/01) (see Legal update, Commission publishes new Remedies Notice and

amendments to Implementing Regulation (www.practicallaw.com/8-383-7955)).

In October 2008, the Commission began a consultation on a review of the Merger Regulation. The main aim of this review was to

evaluate how the rules on jurisdictional thresholds (see Turnover thresholds) and the referral mechanisms (see One-stop shop

principle) were working. The Commission also sought any comments on the operation of the Merger Regulation more generally (see

Legal update, Commission begins consultation on review of Merger Regulation (www.practicallaw.com/1-383-8897)). In June 2009, the

Commission published a report setting out the results of this review. This found that, overall, the jurisdictional thresholds and the referral

mechanisms have provided an appropriate legal framework for allocating cases between the EU level and member states. Although the

Commission identified certain possible issues of concern, it did not make any proposals for reform (see Legal update, Commission

publishes report on operation of Merger Regulation (www.practicallaw.com/8-386-3039)).

However, in June 2012, Joaquin Almunia, Vice President of the Commission responsible for competition policy, indicated in a speech

that the Commission is considering certain revisions to the Merger Regulation, in particular, further simplifying the simplified merger

notification procedure (see below) and reviewing the Commission's pre-notification practice. The Commission also stated that it was

examining issues such as scrutiny of acquisitions of non-controlling minority interests and the interaction between national and EU

merger controls (see Legal update, Speech by Joaquin Almunia on competition enforcement (www.practicallaw.com/5-519-9168)).

Joaquin Almunia confirmed these potential reforms in a speech given in November 2012 (see Legal update, Speech by Joaquin

Almunia on the evolution of EU merger control (www.practicallaw.com/1-522-2463)).

On 27 March 2013, the Commission issued a consultation on proposed revisions to the simplified merger procedure and to the

notifications forms, in order to update and simplify notification procedures (Legal update, Commission consults on proposals to simplify

procedures under EU Merger Regulation (www.practicallaw.com/7-525-4658)). On 5 December 2013, the Commission adopted a new

Notice on Simplified Procedure (OJ 2013 C366/5) and Regulation 1269/2013 amending the Implementing Regulation) (OJ 2013

L336/1), with effect from 1 January 2014 (see Commission adopts package of measures to simplify procedures under EU Merger

Regulation (www.practicallaw.com/0-551-0925)).



On 20 June 2013, the Commission launched a consultation on further measures to improve the effectiveness of EU merger control,

including the possible extension of the scope of the Merger Regulation to the acquisition of non-controlling minority interests and

modification of the pre and post -notification system for referrals of cases from member states to the Commission (see Legal update,

Commission consultation on measures to improve the effectiveness of EU merger control (www.practicallaw.com/9-532-3774)).

Following this consultation, the Commission published a White Paper on its refined proposals on 9 July 2014 (see box, 2014 White

Paper - proposed changes to make Merger Regulation more effective.).

Mergers and acquisitions subject to EU control

Any "concentration" within the meaning of the Merger Regulation (see What is a concentration?), which has a EU dimension (see

below), must be notified to the Commission for approval before being implemented.

EU dimension

A concentration will have an EU dimension where the turnover thresholds set out in the Merger Regulation are exceeded:

Turnover thresholds

The turnover thresholds will be exceeded where either:

• The combined aggregate worldwide turnover of all the undertakings concerned is more than EUR5 billion (this threshold is intended

to exclude mergers between small and medium-sized companies); and

• The aggregate EU-wide turnover of each of at least two of the undertakings concerned is more than EUR250 million (this threshold

is intended to exclude relatively minor acquisitions by large companies or acquisitions with only a minor European dimension),

unless each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same

member state (this threshold - the so-called "two-thirds rule" - is intended to exclude cases where the effects of the merger are felt

primarily in a single member state, when it is more appropriate for the national competition authorities (NCAs) to deal with it) (Article 1

(2), Merger Regulation);

or:

• The combined aggregate worldwide turnover of all undertakings concerned is more than EUR2.5 billion (instead of EUR5 billion);

and

• The aggregate EU-wide turnover of each of a least two of the undertakings concerned is more than EUR100 million (instead of

EUR250 million); and

• The combined aggregate turnover of all undertakings concerned is more than EUR100 million in each of at least three member

states; and

• In each of at least three of these member states, the aggregate turnover of each of at least two of the undertakings concerned is

more than EUR25 million,

unless each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same

member state (Article 1(3), Merger Regulation).

This second limb of the turnover test covers concentrations of a smaller size where the parties carry on, jointly and individually, a

minimum level of activities in three or more member states.

The Commission's report on the operation of the jurisdictional thresholds, published on 18 June 2009, concluded that, overall, the

jurisdictional thresholds were working well. However, some concerns about the operation of the "two thirds rule" were identified. The

Commission considered that the two-thirds rule has generally distinguished appropriately between concentrations that have cross-

border effects and those that do not. However, there were a small number of cases with potential cross-border effects which had fallen

outside the Commission's jurisdiction as a result of the two-thirds rule. The Commission also noted that public interest considerations

other than competition policy had been applied in a number of cases that were reviewed by national authorities under the two-thirds rule

and which could have given rise to competition concerns. The Commission, therefore, concluded that the two-thirds rule in its current

form merits further consideration, in order to ensure that the application of merger control across the EU ensures the protection of

undistorted competition (see Legal update, Commission publishes report on operation of Merger Regulation (www.practicallaw.com/8-

386-3039)). However, the Commission has not, to date, made any proposals for legislative reform of the two-thirds rule.



However, in June 2013, in a consultation on improving the effectiveness of the Merger Regulation, and in a subsequent White Paper

published in July 2014, the Commission raised the possibility of limiting the jurisdiction for concentrations that do not have any effect in

the EEA, such as the creation of a full-function joint venture located and operating outside the EEA and that would not have any

conceivable impact on markets in the EEA (these are currently dealt with under the Notice on Simplified Procedure).

The operation of the turnover thresholds is illustrated in the box, Merger Regulation thresholds, below.

In December 2007, the ECJ confirmed that, given the need for the Commission to examine mergers with a EU dimension in accordance

with strict timescales, the Commission's competence to examine such a merger (on the basis that the thresholds are met) "cannot be

challenged at any time or be in a state of constant flux". The Commission cannot be required to reconsider its competence on a regular

basis throughout the merger investigation proceedings. To do so would be to the detriment of the examination of the substance of the

case. The ECJ, therefore, concluded that the Commission's competence to examine a merger under the Merger Regulation must be

established (for the whole of the proceedings) at a fixed time. That fixed time must necessarily be closely related to the notification of

the concentration (Case C-202/06 - Cementbouw Handel & Industrie BV v Commission, judgment of 18 December 2007).

In the Cementbouw case, the ECJ was considering the issue of whether the offer of remedies (which, if implemented, would bring the

transaction below the jurisdictional thresholds) could impact on the Commission's jurisdiction to examine a merger. The ECJ concluded

that it would not. Although the Commission loses its competence to examine a merger where it is completely abandoned, this is not the

case where the parties propose partial amendments to the notified arrangements.

Calculation of turnover

The undertakings involved in the transaction whose turnover is relevant for this purpose are: the merging companies in the case of a

merger; the bidder and the target in the case of a public bid; the buyer and the target in the case of an acquisition of sole control; in the

case of an acquisition of joint control of a pre-existing target, each of the undertakings acquiring joint control and the target; and, in the

case of an acquisition of joint control of a newly-created undertaking, each of the undertakings taking joint control ( Consolidated

Jurisdictional Notice).

• Other relevant undertakings. The turnover figures must include not only the turnover of the undertakings concerned in the

transaction but also that of all the other undertakings which belong to the same group (although, as mentioned above, in the case of

acquisitions only the target's turnover is to be counted in respect of the seller). The relevant definitions of group companies for this



purpose in the Merger Regulation (Article 5(4)) and the Commission's Consolidated Jurisdictional Notice extend beyond legal control

(so that a 50% holding is not required). Even turnover realised by franchisees may be included, depending on the level of control by

the undertaking concerned (for example, compare Case IV/M.940 - UBS/Mister Minit with Case IV/M.126 - Accor/Wagon-Lits).

• Relevant accounts. The relevant turnover is the amount derived during the last financial year from the sale of products or the

provision of services in the ordinary course of business (Article 5(1), Merger Regulation). This can be obtained from the profit and

loss statement in the audited accounts for that financial year. Deductions may be made from this figure in respect of sales rebates,

and value added tax and other taxes directly related to turnover. Sales of goods or the provision of services to other companies

within the same group are excluded from turnover.

These figures for the last financial year should be adjusted to take account of important fluctuations since the end of the financial

year (such as acquisitions or disposals of certain businesses by the undertaking concerned or other group companies). This is

necessary so that the true value of the companies being concentrated can be assessed.

When calculating EU or national turnover, as a general rule, turnover should be attributed to the place where the customer is

located.

In November 2005, the Commission was asked to confirm whether the Spanish electricity company Endesa could be seen to

achieve two thirds of its annual turnover in Spain, such that the acquisition by it of the Spanish gas company, Gas Natural ( two

thirds of whose turnover was achieved in Spain) would fall outside the Merger Regulation. It confirmed that on the basis of Endesa's

annual audited accounts for 2004, and after disallowing certain deductions suggested by Endesa, the two-thirds exception was

satisfied (Commission press release IP/05/1425).

Endesa appealed the Commission's determination that the proposed takeover by Gas Natural did not have an EU dimension. On 1

February 2006, the General Court rejected an application by Endesa for interim measures (to suspend any acquisition by Gas

Natural until after the General Court's substantive ruling) (Case T-417/05 Endesa SA v Commission, Order of the President of the

Court of First Instance [2006] ECR II-18).

On 14 July 2006, the General Court dismissed Endesa's appeal and upheld the Commission's use of the audited accounts of the last

full business year (as opposed to reconciled accounts using a new accounting standard). The General Court also held that the

Commission had been correct not to discount the turnover of Endesa's electricity distribution businesses. Contrary to what was

claimed by Endesa, this turnover was not merely a "pass through" of the amounts paid by electricity generators to suppliers (Case T-

417/05 Endesa SA v Commission, judgment of 14 July 2006; see Legal update, CFI dismisses appeal by

Endesa (www.practicallaw.com/5-203-4656)).

• Acquisition of part of an undertaking. The general rule that turnover should be calculated on a consolidated basis does not apply

where the concentration consists of the acquisition of a part or parts of one or more undertakings (whether or not they constitute

legal entities). In this case, only the turnover relating to those parts which are the subject of the transaction is to be taken into

account (Article 5(2), Merger Regulation). However, artificially splitting the target undertaking into parts cannot be used as a means

of avoiding the application of the Merger Regulation. Where two or more acquisitions of part, involving the same persons or

undertakings, take place within a two-year period they are treated as one and the same transaction arising on the date of the last

acquisition.

• Currency conversions. Currency conversions should be done by using the exchange rates made available by both the

Commission and the European Central Bank (published in the Monthly Bulletin of the European Central Bank and available on its

website at http://www.ecb.europa.eu/pub/mb/html/index.en.html) (see also the Practice note, How to do a EURO currency

conversion (www.practicallaw.com/A28377)).

• Banks, financial institutions and insurance companies. Special rules apply for the calculation of the turnover of banks and of

other financial institutions, and insurance companies (Article 5(3), Merger Regulation). In relation to credit institutions and other

financial institutions, the aggregate amount of specified items of income as shown in the annual accounts and consolidated accounts

is used (interest income and similar income, income from securities, commissions receivable, net profit on financial operations and

other operating income), after deduction of value added tax and other taxes directly related to those items. By way of exception to

the general rule that turnover should be attributed to the place where the customer is located, banking income should be allocated

by reference to the residence of the bank's branches or divisions.

For insurance companies, the value of gross written premiums is used. Gross written premiums are all amounts received and

receivable in respect of insurance contracts issued by or on behalf of insurance companies, including all outgoing reinsurance

premiums and after deduction of taxes and contributions having an effect equivalent to taxes. Insurance income is to be allocated on

the basis of the residence of the persons from whom the premiums have been received.

Commission Form CO (see Notification of a concentration) contains some helpful worked examples for calculating the turnover of

banks and insurance companies.

• Other sectors. For certain sectors, such as air transport and telecommunications, further guidance on determining how to allocate

turnover geographically may be found in Commission decisions and the Commission's Consolidated Jurisdictional Notice.



Mergers outside the EU

The thresholds can have the effect of bringing transactions that take place outside the EU within the scope of the Merger Regulation,

where neither the parties nor the businesses concerned are principally European in nature. If the thresholds are exceeded, the

Commission may assume jurisdiction over companies which do not have a registered office, subsidiary or branch within the EU if their

transaction has an EU dimension.

The territorial scope of the Merger Regulation was considered by the General Court in Gencor (Case T-102/96 [1999] ECR 753).

Gencor argued that the Merger Regulation did not apply to economic activities carried out in a non-member state - in this case mining

activities in South Africa. The General Court rejected this argument, concluding that the Merger Regulation applies to all concentrations

with an EU dimension. The EU dimension is satisfied if the various conditions relating to turnover are met. The Merger Regulation does

not require that the companies must be established or carry out production in the EU. The General Court also took into account the fact

that the purpose of the Merger Regulation is to ensure that competition is not distorted in the internal market. What mattered was not

that the parties' mining activities were in South Africa, but that the market for the sale of platinum was in the EU, and on this basis the

Commission did have jurisdiction in the case.

The Commission will not hesitate to impose conditions on mergers involving companies based primarily outside of the EU where it

considers that they have a significant negative impact on competition in the internal market, as it did in the Boeing/McDonnell Douglas

(Case IV/M.877), World/Com/MCI Case IV/M.1069) and United Airlines/US Airways (Case IV/M.2041) cases, and it may even block a

concentration, as it did in Gencor/Lonrho (Case IV/M.619), WorldCom/Sprint (Case IV/M.1741) and General Electric/Honeywell (Case

COMP/M.2220). The latter case was the first time that the Commission had blocked a merger between two US companies which had

already been cleared by the US competition authorities (see also International co-operation). As of 1 December 2013, the Commission

has blocked a total of 24 concentrations under the Merger Regulation, the most recent being the proposed combination of Ryanair and

Aer Lingus (CaseCOMP/6663 ).

What is a concentration?

The term "concentration" is broadly defined in the Merger Regulation. A concentration arises if there is a change of control on a lasting

basis where:

• Two or more previously independent undertakings merge; or

• One or more undertakings (or one or more persons already controlling at least one undertaking) acquire, whether by purchase of

securities or assets, by contract or by any other means, direct or indirect control of the whole or part of one or more other

undertakings (Article 3(1), Merger Regulation).

This covers mergers, de-mergers, acquisitions of shares or assets, and structural joint ventures ( see Practice note, EU Joint

ventures (www.practicallaw.com/A14479)).

Control

The determining factor is whether the transaction will lead to a lasting change in control (direct or indirect) over one or more

undertakings - the legal form by which the change of control may be brought about does not matter. Thus the Merger Regulation has

been held to apply to management buy-outs and other venture capital-type transactions (see, for example, Industry Kapital/Dyno (Case

COMP/M.1813) and CVC/Lenzing (Case COMP/ M.2187)), although such transactions are often covered by the simplified notification

procedure due to the absence of competitive overlaps (see Simplified procedure for certain concentrations).

The definition of control is very broad. It is sufficient that one party acquires the possibility of exercising decisive influence over

another company (Article 3(2), Merger Regulation). Decisive influence may arise by the ownership of all or part of the company's

assets, or of rights which confer decisive influence on the decision-making process of the company (for example, by means of voting

rights attached to shares, or contractual rights).

Control can be exercised on a de facto or a legal (de jure) basis, regardless of the size of the shareholding concerned. For example, a

shareholding of 34% (which was to be increased to 42% by a capital reduction of the share capital) has been held to confer decisive

influence (Case IV/M.1046 Ameritech/Tele Danmark).

There are various factors which may be relevant in deciding whether de facto control exists. There may be de facto control where, for

example:

• A shareholder is highly likely to achieve a majority at shareholders' meetings, for example because the remaining shares are widely

dispersed; or

• Minority shareholders have strong common interests which means that they would not, in practice, act against each other (this would



give rise to joint, as opposed to sole, control (see further below)).

In Ryanair/Aer Lingus (Case COMP/M.4439), Ryanair had acquired a 19.21% stake in Aer Lingus prior to notifying the Commission of

its takeover bid for the company. It subsequently increased its stake to 29.4%. The Commission ultimately prohibited the acquisition, but

did not require Ryanair to divest the shares that it had already acquired. The Commission took the view that the stake already acquired

did not amount to an acquisition of control by Ryanair over Aer Lingus.

Aer Lingus challenged this decision to the General Court, claiming that the acquisition of the stake amounted to implementation of a

concentration that had been found incompatible (Case T-411/07R Aer Lingus Group plc v Commission). On 6 July 2010, the General

Court dismissed Aer Lingus' appeal. It held that the Commission had been correct to find that Ryanair had not acquired control over Aer

Lingus, neither in the form of de jure nor de facto decisive influence. It noted, in particular, that there was evidence that Ryanair had not

been able to impose its will on Aer Lingus (despite Ryanair's opposition, Aer Lingus' board was able to take two important strategic

decisions). Further, the two airlines had continued to compete since the acquisition of Ryanair's shareholding.

The acquisition this minority stake is, however, currently under review by the UK Competition Commission. In addition, Ryanair

launched a further takeover bid for the whole of Aer Lingus, which, after another Phase II investigation, the Commission again

prohibited on 27 February 2013 (Case COMP/M.6663).

Generally, the grant of an option to purchase or convert shares will not of itself confer control, but it may do so if, at the time when the

Commission carries out its appraisal of the concentration, it is shown that the beneficiary of the option has formed an intention to

exercise the option (see Case T-2/93 - Air France [1994] ECR 323). Even if the existence of such an intention cannot be established,

the fact that there is a strong likelihood of the option being exercised can be a factor which, in combination with other factors, may lead

to the conclusion that control has been conferred (paragraph 60, Consolidated Jurisdictional Notice).

In Cementbouw Handel & Industrie BV v Commission, the General Court considered the circumstances in which control can be

acquired by way of a series of transactions (Case T-282/02 [2006] ECR II-319). It found that the definition of a concentration within

Article 3(1) of the Merger Regulation implies that there is no difference whether direct or indirect acquisition of control is acquired in one,

two or more stages by means of more than one transaction, provided that the end result constitutes a single concentration. The ECJ

upheld this judgment in December 2007 (Case C-202/06 - Cementbouw Handel & Industrie BV v Commission, judgment of 18

December 2007).

It is for the Commission to ascertain on a case-by-case basis whether the transactions are unitary in nature, such that they constitute a

single concentration. In doing this, the Commission must ascertain whether those transactions are interdependent such that one

transaction would not have been carried out without the other. This reflects the economic reality underlying the transactions and the

economic aim pursued by the parties. A concentration will therefore arise even where there are number of distinct legal transactions

which are sufficiently interdependent on each other, where the result confers on one or more undertakings direct or indirect economic

control over the activities of one or more other undertakings.

Proposals for reform: extension to non-controlling shareholdings

The Commission is proposing to extend the scope of the Merger Regulation could be extended so that acquisitions of significant

minority stakes falling short of the acquisition of "control" could be subject to the Commission's scrutiny. In contrast to the current

position under the Merger Regulation, other regulators such as the US Department of Justice and even a number of European NCAs

(for example those in the UK, Germany, Austria) do have the competence to review such acquisitions.

In June 2013, the Commission published a staff working paper to seek views on this issue (see Legal update, Commission consultation

on measures to improve the effectiveness of EU merger control (www.practicallaw.com/9-532-3774)). In July 2014, it published a White

Paper in which it seeks views on more developed proposals (see Commission White Paper on making EU merger control more

effective (www.practicallaw.com/8-573-9189)).

The Commission is of the view that acquisitions of non-controlling minority shareholdings (also referred to as structural links by the

Commission) may in some cases lead to anti-competitive effects:

• By reducing competitive pressure between competitors (horizontal unilateral effects).

• By substantially facilitating coordination among competitors (horizontal coordinated effects).

• In the case of vertical structural links by allowing companies to hamper competitors' access to inputs or customers (vertical effects).

As demonstrated by the Rynair/ Aer Lingus case (above), the Commission does not consider that it currently has the tools to

systematically prevent anti-competitive effects deriving from structural links falling short of control. However, the Commission

recognises that the number of cases creating problematic structural links is limited, and so it may be doubted whether it is necessary to

apply all the procedural rules of the Merger Regulation to structural links, in particular, the mandatory ex ante notification system, or

whether procedural rules can be devised so that the Commission is able to select the problematic cases only.



The Commission is, therefore, consulting on whether to extend the scope of application of the Merger Regulation so as to give the

Commission the possibility to investigate and, if necessary, intervene against anti-competitive structural links.

In June 2013, the Commission consulted on the following options:

• To extend the current system of ex ante merger control to structural links. All relevant structural links would, therefore, have to

be notified to the Commission in advance and could not be implemented before the Commission has cleared them. The Commission

would decide in each case whether or not the transaction could be authorised (notification system).

• The Commission would have discretion to select cases of structural links to investigate. This could be achieved either by:

• a self-assessment system, where the obligation to notify a transaction to the Commission in advance would not apply to structural

links, but instead the parties would be allowed to proceed with the transaction but the Commission would have the option whether

and when to open an investigation. The Commission would have discretion to investigate such structural links, but would have to

rely on own market intelligence or complaints to become aware of structural links that may raise competition issues (self-

assessment system); or

• in order to ensure that transactions do not take place unnoticed, it would be possible to impose on the parties of a prima facie

problematic structural link an obligation to file a short information notice (containing, for example, information on the parties, the

type of transaction and possibly limited information on the economic sectors or markets concerned) to the Commission. This

notice would be published on the Commission's website and/or in the Official Journal in order to make third parties and member

states aware of the transaction (transparency system).

Under both under the self-assessment system and the transparency system, it would also have to be decided if the parties to a

transaction should have the possibility to make a voluntary notification.

Following consideration of responses to the June 2013 consultation, in the July 2014 White Paper, the Commission has concluded that

a "targeted" transparency approach would be most appropriate. The Commission states that a system for controlling acquisitions of non

-controlling minority shareholdings should reflect the following principles:

• It should capture the potentially anti-competitive acquisitions of non-controlling minority shareholdings.

• It should avoid any unnecessary and disproportionate administrative burden on companies, the Commission and national

competition authorities (NCAs).

• It should fit with the merger control regimes currently in place at both the EU and national level.

The Commission considers that a targeted transparency approach would meet these principles. Such a system would allow potentially

problematic transactions to be targeted at the outset, so that they can be controlled by the Commission, even without the need for a full

notification system.

The Commission is proposing that those transactions to be targeted would be those that create a "competitively significant link". This

would arise where there is a prima facie competitive relationship between the acquirer's and the target's activities, either because they

are active in the same markets or sectors or they are active in vertically related markets.

In principle, the system would only be triggered when the minority shareholdings and the rights attached to it enable the acquirer to

influence materially the commercial policy of the target and therefore its behaviour in the marketplace or grant it access to commercially

sensitive information. However, above a certain level the shareholding itself might result in a change in acquirer's financial incentives in

a way that the acquirer would adjust its own behaviour in the market place, irrespective of whether it gains material influence over the

target.

The Commission is proposing the following definition of a "competitively significant link":

• Acquisitions of a minority shareholding in a competitor or vertically related company (there needs to be a competitive relationship

between acquirer and target); and

• The competitive link would be considered significant if the acquired shareholding is:

• around 20%; or

• between 5% and around 20%, but accompanied by additional factors such as rights which give the acquirer a "de-facto" blocking

minority, a seat on the board of directors, or access to commercially sensitive information of the target.

(in determining these thresholds, the Commission has taken into account levels of voting rights that typically enable the

shareholders to block special resolution and the levels of shareholdings that shift financial incentives).



The Commission is proposing the following procedure and application of this new competence:

• An undertaking would be required to submit an information notice to the Commission if it proposes to acquire a minority shareholding

that qualifies as a "competitively significant link".

• The information notice would contain information relating to the parties, their turnover, a description of the transaction, the level of

shareholding before and after the transaction, any rights attached to the minority shareholding and some limited market share

information.

• The Commission will decide whether further investigation of the transaction is warranted and member states would consider whether

to request a referral on the basis of this information notice. The Commission notes that it could also consider proposing a waiting

period (for example 15 working days) once an information notice has been submitted, during which the parties would not be able to

close the transaction and during which the member states have to decide whether to request a referral.

• The parties would only be required to submit a full notification if the Commission decided to initiate an investigation and the

Commission would only issue a decision if it had initiated an investigation.

• To provide parties with legal certainty, they should also be able to voluntarily submit a full notification.

• The Commission would be free to investigate a transaction, whether or not it has already been implemented, within a limited period

of time (possible four to six months) following the information notice. This would allow the business community to come forward with

complaints. It would also reduce the risk of the Commission initiating an investigation on a precautionary basis during the initial

waiting period.

• If the Commission initiates an investigation of a transaction which was already (fully or partially) implemented, it should have the

power to issue interim measures (such as a hold separate order) in order to ensure the effectiveness of its ultimate decision under

Articles 6 and 8 of the EU Merger Regulation.

• Any agreements entered into between the acquirer of the minority shareholding and the target remain subject to assessment under

Articles 101 and 102 of the TFEU unless they constitute "ancillary restraints". As for acquisitions of control, such agreements would

be taken into account during the substantive assessment of a transaction under the merger control rules.

• In relation to "staggered acquisitions", the Commission is proposing to require submission of an information notice only the first time

a competitively significant link is established. Subsequent increases would not trigger a new information notices unless they result in

acquisitions of control, which would trigger notifications under the existing rules.

• The existing SIEC substantive test would be applied to the assessment of acquisitions of minority shareholdings that the

Commission investigates. J

• Joint ventures which are not jointly controlled but rather have several shareholders with minority stakes who make decisions through

changing majorities would also fall under the new competence as long as the joint venture is full-function in nature. Acquisitions of

minority shareholdings by several companies in a joint venture would constitute a single transaction if the share purchase

agreements are conditional upon each other or if they are concluded at the same time. Where a joint venture is newly established

and two of the shareholders acquire joint control (triggering a notification) while a third shareholder acquires a minority stake without

control (triggering only an information notice), the third shareholder should also join the notification if the operation constitutes a

single transaction.

These proposals could be implemented by:

• Defining in the Merger Regulation the Commission's competence to cover only acquisitions of minority shareholdings which create a

"competitively significant link". The criteria of a "competitively significant link" would either be set forth in the articles of the Merger

Regulation, the recitals, and/or a guidance document.

• Stating in the Merger Regulation that the Commission is competent for acquisitions of minority shareholdings above 5% if further

criteria, to be specified by the Commission in an implementing regulation, are fulfilled. This would give the Commission the ability to

fine-tune the criteria, in consultation with the member states, after gaining some experiences and without requiring a full amendment

of the Merger Regulation.

• It would be necessary to amend Article 3(5) of the Merger Regulation (which allows financial institutions to acquire a controlling

shareholding in other companies under certain circumstances without having to notify the transaction) to specify that restructuring

transactions, carried out by financial institutions in the normal course of business and for a limited period of time, would not create

competitively significant links.

The consultation on the White Paper proposals is open until 3 October 2014.



Sole control and joint control

Sole control exists where a single shareholder is able to exercise decisive influence over a company, whereas joint control arises where

two or more shareholders together are able to exercise decisive influence.

An acquisition of sole control will mean that only one party will be able to exercise decisive influence over the target, post-transaction,

while an acquisition of joint control means that two or more parties will each be able to exercise decisive influence over the joint

venture resulting from the transaction.

A concentration will also arise if there is a change:

• From sole control to joint control;

• In the structure of joint control (such as an increase in the number of shareholders exercising joint control); or

• From joint control to sole control (including where this is a return to an earlier situation (Case IV/M.909 - Worms/Saint Louis).

The special considerations that apply to concentrations arising from the creation of joint control, or from changes in the structure of joint

control, are discussed in Practice note, EU Joint ventures (www.practicallaw.com/A14479).

Simplified procedure for certain concentrations

A simplified procedure was introduced by the Commission in September 2000 for the handling of routine concentrations which do not

involve significant competition concerns. The 2004 Implementing Regulation introduced a new Short Form CO for concentrations which

meet the criteria for the application of the simplified procedure (see Commission's review procedure ). In 2005, the Commission

specified these criteria in its Notice on Simplified Procedure.

In December 2013, the Commission adopted a new Notice on Simplified Procedure and a new Short Form CO was adopted, both of

which have effect from 1 January 2014 (see Legal update, Commission adopts package of measures to simplify procedures under EU

Merger Regulation (www.practicallaw.com/0-551-0925)). The new Notice widens the scope of the simplified merger procedure. The

Commission anticipates that 60-70% of all cases that fall within the EU Merger Regulation will, in future, fall within the simplified

procedure (an increase in about 10%). This is intended to reduce the burden on businesses, and also reduce legal fees associated with

merger notification

The simplified procedure covers:

• Mergers and acquisitions where none of the parties to the concentration are engaged in business activities in the same product and

geographic market, or in a product market which is upstream or downstream from a product market in which any other party to the

concentration is engaged.

• Mergers and acquisitions where there are no markets on which either:

• two or more of the parties have a combined market share of 20% or more (horizontal relationships), or

• where any party has a share of 30% or more on a market which is upstream or downstream of a market on which the other party

is active (vertical relationships).

These thresholds have been increased from respectively 15% and 25% with effect from 1 January 2014.

• Joint ventures with no, or de minimis, actual or foreseen activities within the European Economic Area (EEA). A turnover and asset

transfer test of less than EUR100 million is used to determine this.

• The acquisition of sole control by a party who already has joint control.

• Mergers or acquisitions where both:

• the combined market share of all the parties to the concentration that are in a horizontal relationship is less than 50%; and

• the increment (delta) of the Herfindahl-Hirschman Index (HHI) resulting from the concentration is below 150.

This condition was introduced by the December 2013 revisions to the Notice on Simplified Procedure. The Commission will decide

on a case-by-case basis whether, under the particular circumstances of the case at hand, the increase in market concentration level

indicated by the HHI delta is such that the case should be examined under the normal first phase merger procedure.

However, the Commission may revert to a normal first phase merger procedure and launch an investigation if certain safeguards and

exclusions apply, which are set out in the Notice on Simplified Procedure (see Commission's review procedure).



In terms of timing, the Notice states that the Commission "will endeavour" to adopt a short-form decision between 15 and 25 working

days after notification. By way of example, the Commission cleared an acquisition of joint control of the assets and business of a

residential property complex in Moscow by Deutsche Bank AG and American International Group after 16 working days (Case

COMP/M.4391 - Deutsche Bank/AIG/Pokrovsky Hills).

The Commission can be particularly demanding when assessing the completeness of EU merger notifications, including those under

the simplified procedure, notwithstanding the absence of any real horizontal, vertical or conglomerate overlaps.

Exclusions

The Merger Regulation excludes the following categories of transactions from its application (Article 3(5), Merger Regulation):

• Certain acquisitions of securities by banks and other financial institutions on a temporary basis (less than one year);

• Certain acquisitions of assets by a liquidator or other office-holder in the context of insolvency proceedings;

• Certain acquisitions by financial holding companies (that is, companies which hold shares for investment purposes only); and

• Intra-group restructurings (as there is no change of control between two separate undertakings, as defined in the Merger

Regulation).

The first of the above exclusions was considered by the General Court in an appeal against the Commission's conditional approval, in

January 2004, of theLagardère/Natexis/ VUP merger (Case COMP/M.2978) by a third party Éditions Odile Jacob SAS (EOJ). The target

VUP assets were held through the intermediary of Natexis Banque Populaire (NBP), from December 2002. This transaction structure

(sometimes referred to as a "warehousing" or "parking" structure) was used to allow the seller (Vivendi Universal) to complete the sale

of the VUP assets quickly, and without bearing any of the risk that the Commission might subsequently prohibit the transaction. The

Commission considered that warehousing by NBP fell within the exception in Article 3(5)(a) of the Merger Regulation. However, EOJ

argued that the acquisition by NBP could not be covered by the exception because NBP acquired VUP only after giving a commitment

to resell that undertaking to Lagardère. EOJ argued that the acquisition of the assets by NBP was itself a concentration because it

permitted Lagardère control over those assets.

In September 2010, the General Court dismissed EOJ's appeal. The General Court found that the holding of the target VUP assets,

through the intermediary of NBP, from December 2002 (and prior to the Commission's decision), did not give Lagardère the possibility

of exercising decisive influence (either jointly or solely) over VUP and did not give rise to a separate concentration. The terms of the

contract regulating the holding of the target assets made this clear. Further, EOJ had failed to show that the board members of the

relevant NBP investment company did not possess the necessary independence of action. It was only a temporary holding that fell

within the financial institutions exception (T-279/04 Éditions Jacob SA v Commission; see PLC Legal update, General Court upholds

conditional approval of Lagardere/VUP merger but annuls approval of purchaser of divestment assets (www.practicallaw.com/4-503-

3201)).

EOJ appealed the General Court's judgment to the ECJ. In March 2012, the Advocate General recommended that the ECJ dismiss

EOJ's appeal (see Legal update, Advocate General recommends that ECJ dismiss Editions Odile Jacob

appeal (www.practicallaw.com/2-518-3338)). In November 2012, the ECJ did dismiss the appeal, upholding the General Court's

analysis (see Legal update, ECJ dismisses appeals against General Court judgments on Lagardere/VUP

merger (www.practicallaw.com/6-522-2757)).

However, the General Court's judgment does not mean that warehousing arrangements can safely be considered to be legal, as the

Commission's Consolidated Jurisdictional Notice (issued after its clearance decision in Lagardère/Natexis/VUP) adopted a revised

approach to the legality of warehousing arrangements, stating that the Commission would no longer accept that the article 3(5)(a)

exception applies if the acquisition by a financial institution is part of a wider transaction in which the ultimate acquirer of control would

not fall within the scope of the exception, an approach which was not explicitly addressed by the General Court's judgment.

One-stop shop principle

The principle underlying the Merger Regulation is to provide a "one-stop shop" for determining the competition-related issues arising

from transactions falling within the scope of the Regulation. In general, companies need only obtain clearance from one level of

authority, either at EU or national level, as the respective jurisdictions of the Commission under the Merger Regulation and the national

competition authorities are mutually exclusive.



In practice, this means that once a transaction is caught by the Merger Regulation, no notifications will be required in any country within

the EEA. The Agreement on the European Economic Area (which entered into force on 1 January 1994) between the EU and Iceland,

Liechtenstein and Norway has created a category of merger: "EFTA mergers" (see Practice note, Merger control and the EFTA states -

jurisdictional issues and interaction with the EC Merger Regulation (www.practicallaw.com/3-380-2005)). These are subject to

compulsory notification to the Commission, or to the EFTA Surveillance Authority (ESA), depending on the turnover of the parties:

• If the parties' turnover meets the Merger Regulation thresholds (including the EU wide turnover thresholds), the EU Commission will

have jurisdiction to consider the competitive effects of the transaction throughout the EEA) and no national authorities of EU or the

EFTA countries which are currently members of the EEA (Iceland, Liechtenstein and Norway) will be permitted to apply national

merger control rules.

• If the parties' turnover does not meet the EU wide thresholds of the Merger Regulation, but does meet similar thresholds for turnover

in the EFTA states, the ESA will have jurisdiction. In this case, national authorities of EU member states will be permitted to apply

national merger control rules to the transaction. So, for example, the ESA will have jurisdiction if there is no EU dimension and the

undertakings concerned have combined worldwide turnover of more than EUR 5 billion, combined EFTA-wide turnover (in Iceland,

Liechtenstein and Norway) of more than EUR 250 million and do not generate more than two-thirds of their EFTA wide turnover in

one and the same EFTA State (or if the second limb of the EUMR thresholds – which is similarly adapted – is satisfied).

Currently, all EEA countries except Luxembourg (an EU member state), and Liechtenstein (an EFTA member state) have national

merger control regimes (see further International merger notification (www.practicallaw.com/A14483)).

On 18 June 2009, the Commission published its report to the Council of Ministers on the effectiveness of the operation of the

jurisdictional thresholds and the procedures for the referral of cases to and from the Commission.

The Commission reached the overall conclusion that the jurisdictional and referral mechanisms (see below) have provided the

appropriate legal framework for a flexible allocation and reallocation of cases. In most cases, the current framework is effective in

distinguishing between mergers which have an EU relevance and those which are primarily national. However, the Commission

identified certain issues:

• There are still a significant number of transactions that need to be notified in more than one member states: there were at least 100

transactions which were notified in three or more member states in 2007, requiring more than 360 parallel investigations by the

national authorities (about 240 cases were reviewable in two or more member states). The majority of these cases involved markets

which were wider than national or where there were several national or narrower markets. These transactions therefore had

significant cross-border effects, and yet fell outside the Merger Regulation thresholds. About 6% of the cases notified in at least

three member states gave rise to competition concerns. The negative impact of parallel proceedings and the potential for

contradictory outcomes are particularly significant in cases raising substantive competition concerns. The Commission considered

that this evidence indicated that there was further scope for "one stop" review of such transactions by the Commission. There

seemed to be a number of additional concentrations that could (with regard to the "more appropriate authority" principle)

appropriately have been reviewed by the Commission.

• The pre-notification referral mechanisms (Articles 4(4) and Article 4(5) of the Merger Regulation, see below) have substantially

improved the allocation of cases between the Commission and member states. The evidence available shows that the mechanisms

have enabled the appropriate authority to handle cases. They have also prevented unnecessary parallel proceedings and

inconsistent enforcement. However, respondents to the consultation identified some, mainly procedural, problems relating to the

timing of the referral process and its burdensome nature. The Commission received evidence that parties have decided not to

request referral due to such concerns. The Commission considered that there appears to be scope for more referrals to member

states under Article 4(4). Further, there seems to be further scope for using the Article 4(5) referral mechanism to increase the

benefits of the "one-stop shop". In particular, given the limited use of the member states' refusal powers under Article 4(5), it was

suggested that consideration should be given to the possibility of moving to a system of automatic referral where the three member

state criterion is met (as was initially proposed in the consultations prior to the adoption of the Merger Regulation). It was argued that

this could increase transparency and reduce costs.

• The post-notification referral mechanisms under Article 9 and 22 of the Merger Regulation have continued to be useful corrective

instruments, even after the introduction of the pre-notification mechanisms. They serve a different function (allowing flexibility at the

request of the Commission or member states, rather than the parties). However, business respondents to the consultation

expressed similar concerns about the timing and cumbersome nature of these procedures, as for pre-notification referrals.

The report did not propose any measures to address the issues identified. However, the Commission noted that it may decide to

present proposals to revise the notification thresholds or the referral mechanisms, with particular regard to the reactions of the Council

of Ministers to the report.

In June 2013, the Commission published a consultation on various measures to improve the effectiveness of the EU Merger Regulation,

including possible reforms to system for pre and post notification referrals from member states to the Commission. This was followed by

a White Paper in July 2014 (see below).



Exceptions

There are limited exceptions to the Commission's exclusive jurisdiction. Since the Merger Regulation was first introduced there has

been an ongoing debate about the scope of the Commission's jurisdiction and the need to ensure that, while maintaining the

administrative certainty and benefits of a one-stop shop, cases are dealt with by the most appropriate authority. Further, member states

wished to maintain some rights to scrutinise cases that raise issues of particular national importance.

In the revision of the Merger Regulation in 2004, the Commission decided that rather than amending the jurisdictional thresholds, the

appropriate way to deal with concerns about the handling of multi-jurisdictional cases (which fell below the Merger Regulation

thresholds) or cases involving national markets (which were caught by the Merger Regulation thresholds) was to reform the procedures

for the referral of cases between the Commission and member state competition authorities (see Referral back to member states and

Referral by member states).

The Commission adopted a Notice on the principles for the referral of cases (the Notice on Case Referral) (OJ 2005 C56/2). The Notice

describes the rationale underlying the referral system, sets out the legal criteria that must be fulfilled in order for referrals to be possible,

explains the factors that the Commission will take into account in deciding whether to make or accept a referral (generally, which is the

more appropriate authority for dealing with the case) and provides guidance on the procedures for referral.

Legitimate interests

The Commission retains sole jurisdiction to investigate concentrations that have a EU dimension on competition grounds, but a member

state may carry out a parallel investigation if its "legitimate interests" are affected (Article 21(4), Merger Regulation).

The Merger Regulation sets out the following examples:

• Public security.

• Plurality of the media (the need to maintain diversified sources of information).

• Prudential rules (national prudential or supervisory rules, relating in particular to providers of financial services such as banks and

insurance companies).

This list is, however, non-exhaustive and other interests, such as the regulation of utilities, may be recognised by the Commission if

member states communicate those interests in accordance with Article 21(4). For example, in Lyonnaise des Eaux/Northumbrian Water

(Case IV/M.567), the Commission recognised the legitimate interest of the UK in applying, under certain conditions, the relevant

provisions of the UK Water Industry Act in parallel with the Commission's merger investigation (see also Lagardère/Aerospatiale (Case

IV/M.820), which concerned essential security interests).

Legitimate interests which are not expressly set out in the Merger Regulation need only be cleared by the Commission if they directly

relate to the transaction in question. In Electricité de France/London Electricity (Case IV/M.1346), which concerned the acquisition of

London Electricity by the state-owned electricity group Electricité de France, the UK authorities had submitted a request to the

Commission for certain public interest matters to be recognised as legitimate interests. In particular, the UK authorities were of the view

that the Director General of Electricity Supply should continue to be allowed to take certain measures designed to ensure regulatory

transparency in the electricity sector and to protect consumers and other small customers. The Commission, however, concluded that

these measures were taken pursuant to an existing system of ongoing regulation of the electricity sector and were not aimed at the

concentration itself. It was not, therefore, necessary for the Commission to recognise a legitimate interest before the UK authorities

could take the measures concerned.

In a number of cases, the Commission has issued decisions preventing a member state from blocking a concentration falling within the

Commission's exclusive jurisdiction. In the first case, BSCH/A.Champalimaud (Case IV/M.1616) the Commission refused to recognise

that Portugal had a legitimate interest in freezing Champalimaud's shares on the basis that Portuguese regulators had been given

insufficient notice of the deal and that the transaction failed to comply with financial rules. The Commission subsequently cleared the

concentration in August 1999, and overruled the Portuguese measures on the grounds that they contravened EU competition law.

In another case, also involving Portugal, the Commission found that national actions to block a merger were not justified as measures to

protect a legitimate interest under Article 21 of the Merger Regulation (COMP/M.2054 -Secil/Holderbank/Cimpor). This case involved

proposed bids for the Portuguese cement company Cimpor, in which the Portuguese state held special shares.

Portugal appealed the Commission's decision to the ECJ but the ECJ dismissed Portugal's arguments and supported the "one-stop

shop" principle confirming that the legislative intent of the Merger Regulation was to ensure a clear division of powers between the

supervisory authorities of the member states and those of the Commission (Case C-42/01 Portugal v Commission, judgment of 22 June

2004).



In March 2006, the Commission announced that it had begun a procedure against Poland claiming infringement of Article 21 of the

Merger Regulation. The Commission considered that Poland had breached the Commission's exclusive jurisdiction to review mergers

with an EU dimension by requiring the bank Unicredit to divest shares in a bank, the acquisition of which had already been approved by

the Commission (Case COMP/M.3894 - Unicredito/HVB ).

The Polish Treasury instructed UniCredit to sell its shares in the acquired bank on the basis that an earlier privatisation contained a

"non-competition" clause which prevented UniCredit, for a period of 10 years, from opening subsidiaries and/or branches in Poland,

acquiring control of banks active in Poland or making any capital investment in any company active in the Polish banking sector. The

Commission announced that it considered that the Polish government's decision to invoke, and its expressed intent to enforce, the "non

competition" clause constituted a measure of the Polish state. This measure could de facto prevent, or seriously prejudice the

UniCredit/HVB concentration and had the aim of unduly protecting competition. In addition, the Commission noted that Poland had not

communicated any hypothetical legitimate interests (under Article 21(4)) to it (Commission press release IP/06/277).

In addition, in September 2006, the Commission took a decision under Article 21 against Spain in relation to conditions imposed by the

Spanish energy regulator on the proposed merger of the German energy company, E.On, with Spanish electricity company, Endesa.

The Commission had approved this merger unconditionally under Article 6(1)(b) of the EU Merger Regulation (Case COMP/M.4110 -

E.ON/Endesa ). The Commission concluded that Spain had violated Article 21 on the basis that the Spanish regulator adopted its

decision to impose conditions on the merger without prior communication of the measures to the Commission and without the

Commission's approval, as required under Article 21(4). In addition, the conditions imposed by the regulator were considered to be

contrary to the right of establishment and the freedom to provide services under Articles 43 and 56 of the EC Treaty (now Article 49 and

Article 56 of the Treaty on the Functioning of the European Union (TFEU)). By virtue of this decision, Spain was required to withdraw

the unlawful conditions imposed on the acquisition (Commission press releases IP/06/1265).

Further, in December 2006, the Commission reached a second decision concluding that Spain had breached Article 21 of the Merger

Regulation by virtue of modified conditions imposed on E.ON's bid for Endesa by the Spanish Minister of Industry, Tourism and Trade

(Commission press release IP/06/1853). In March 2007, the Commission referred Spain to the ECJ for failing to withdraw the conditions

that had been imposed by the Spanish energy regulator and by a Ministerial decision on E.On's bid for Endesa (Commission press

release IP/07/427). In March 2008, the General Court ruled that Spain had failed to fulfil its EU law obligations by not withdrawing the

conditions as required by the Commission's Article 21 infringement decisions (Case C-196/07 Commission v Spain, judgment of 6

March 2008).

In December 2007, the Commission announced that Spain had also breached Article 21 by virtue of conditions imposed by the Spanish

energy regulator on Enel and Acciona in relation to their acquisition of Endesa (which had received unconditional clearance from the

Commission under Article 6(1)(b) of the Merger Regulation) (see Legal update, Commission finds that Spain has breached Article 21 of

Merger Regulation in relation to Enel/Acciona/Endesa merger (www.practicallaw.com/4-379-7065)). Spain lodged an appeal against this

decision with the General Court. In April 2008, the General Court rejected an application by Spain for interim measures to suspend the

Commission's decision (requiring the withdrawal of the offending conditions) until the General Court's judgment (see Case T-65/08 -

Spain v Commission, order of the General Court President, 30 April 2008). Spain subsequently withdrew its appeal.

Appeals were also lodged with the General Court against a decision of the Commission to close Article 21 proceedings brought against

Italy. The Italian authorities had initially refused the company Autostrade permission to merge with Abertis under an Italian law relating

to motorway concessions (despite the merger having been approved by the Commission under the Merger Regulation). However,

following Commission action under Article 21, Italy withdrew the offending measures and issued new rules to clarify the regulatory

framework for the authorisation of the transfer of motorway concessions. The applicants (including one of the parties to the original

proposed merger) claimed, however, that the Commission erred in its application of Article 21 by ending its infringement action (Case T-

58/09 - Schemaventotto SpA v Commission and Case T-200/09 - Abertis Infraestructuras v Commission).

In June 2010, the General Court ruled that the appeal by Abertis was inadmissible as it had been brought out of time. In September

2010, the General Court also ruled that Schemaventotto's appeal was inadmissible. The General Court concluded that the

Commission's decision not to pursue the Article 21 proceedings was not an appealable decision. The decision was not a decision either

on the compatibility of certain Italian measures with EU law or a decision on the recognition of legitimate public interest measures under

Article 21(4) of the EU Merger Regulation. As the Abertis/Autostrade merger had been terminated, the Commission did not have the

power to take such a decision under Article 21(4). Therefore, the decision could not have a binding legal effect or affect the interests of

Schemaventotto (see Legal update, General Court rules that appeal by Schemaventotto against Commission decision to close Article

21 proceedings is inadmissible (www.practicallaw.com/2-503-3320)).

The UK exercised this right in 2010 in News Corp's public bid to obtain complete ownership of BSkyB. The Commission had exclusive

jurisdiction to examine the competition aspects of the deal; however, the transaction also raised questions over the future diversity of

media ownership in the UK. In December 2010, the Commission issued its clearance decision, concluding that the proposed acquisition

would not significantly impede competition in the EU (Case NCOMP/M.5932 – News Corp/ BSkyB). However, News Corp had to await

the UK's determination on media plurality before the takeover could be advanced.



The UK Office of Fair Trading (OFT) and communications regulator, Ofcom advised the UK Secretary of State that the proposed

transaction may operate against the public interest in media plurality. The Secretary of State therefore announced that he intended to

refer the merger to the Competition Commission for an in-depth investigation, but before doing so, he would consider whether

undertakings in lieu of a reference would prevent or otherwise mitigate the merger from having effects adverse to the public interest.

News Corp subsequently offered undertakings. However, this coincided with a scandal over phone hacking at News of the World

newspaper which led to News Corp's decision to close the newspaper, cast some doubt on previous advice given to the Secretary of

State on media plurality, and ultimately led News Corp to withdrew its bid for BSkyB.

National security

Member states have also invoked Article 346 of the TFEU (formerly Article 296 of the EC Treaty) in order to protect their essential

security interests, which provides that:

• No member state is obliged to supply information the disclosure of which it considers contrary to the essential interests of its security

(Article 346(1)(a)).

• A member state may take such measures as it considers necessary for the protection of the essential interests of its security which

are connected with the production of or trade in arms or other products intended for military purposes. This does not, however, apply

to the non-military aspects of a concentration, which would still need to be notified under the Merger Regulation (Article 346(1)(b)).

Referral back to member states

Pre-notification referral

It is possible for the parties to establish prior to making a formal notification whether a merger, which has an EU dimension, should

more appropriately be considered by a member state competition authority.

Under Article 4(4) of the Merger Regulation, where a transaction falls within the jurisdiction of the Commission under the Merger

Regulation (but has not yet been notified on Form CO), the parties may inform the Commission that the concentration may significantly

affect competition in a market within a member state that presents all the characteristics of a distinct market and that it should,

therefore, be examined, in whole or in part, by that member state.

The parties must make a reasoned submission to the Commission (using Form RS) providing information about the parties and the

transaction and markets affected by the transaction. The reasoned submission must also provide a detailed explanation of why the

parties believe that the concentration would be eligible for a referral to a member state.

The Commission must forward the reasoned submission to all member states without delay (it typically does so the working day after

the date in which the submission is filed). The member state referred to in the submission must let the Commission know whether it

agrees or disagrees with the referral request within 15 working days of receiving the submission (member states typically receive the

submission on the same day as it is sent by the Commission, or the day after). If it does not do so then it will be deemed to have agreed

to the referral.

If a relevant member state disagrees with a referral request then the Commission may not refer the case to it. However, where no

disagreement is expressed the Commission has discretion to decide whether to make a referral, of whole or part of the case, to the

relevant member state. The Commission must take this decision within 25 working days of receiving the reasoned submission, if it does

not do so then it will be deemed to have made the referral requested in the reasoned submission.

Where the whole of a case is referred then the parties do not need to submit a Form CO notification to the Commission and national

competition law will apply to the concentration.

Recent examples of where the Commission has referred a transaction to be reviewed in its entirety by a national authority include: Case

COMP/M.6359 – Saint Gobain/Build Center; Case COMP/M.6143 - Princes/Premier Foods Canned Grocery Operations and Case

COMP/M.6294 - Shell/Rontec Investments, which were all fully referred to the UK. The Commission may also refer a transaction only in

part to a member state, see Case COMP/M.6146– XELLA/ H+H where German aspects of the deal were referred to Germany.

As at 30 June 2014, a total of 87 cases had been referred back in full to the member states (with four partial referrals) under the Article

4(4) procedure. To date, there have been no refusals to refer back.

Post-notification referral

The Commission may, at the request of one or more member states, refer a notified concentration with an EU dimension, in whole or in

part, to the relevant authority of the member state(s) concerned (Article 9, Merger Regulation). Any such request must be made within

15 working days of the member state receiving a copy of the notification from the Commission. The request for referral may be made on

the member state's own initiative or the Commission may invite member states to request a referral.



The Commission has a discretion as to whether to make such a referral when the concentration threatens to affect significantly

competition in a distinct market within that member state (the previous test was whether it threatens to create or strengthen a dominant

position as a result of which competition would be significantly impeded (see Commission's assessment)), but it is obliged to make the

referral if the territory concerned does not form a substantial part of the internal market.

Examples of cases in which the Commission has referred concentrations back to member states under Article 9 are as follows:

• In Krauss-Maffei/Wegmann (Case IV/M.1153), the German authorities requested the referral back of a joint venture which raised

competition concerns in the market for armoured vehicles in Germany. The Commission found that the market was national, mainly

due to purchaser behaviour. As the Commission was unable to resolve the particular competition concerns, there were no significant

effects in other markets and no other factors that would make it appropriate for the Commission to retain the case, this part of the

case was referred to the German authorities.

• In Alliance Unichem/Unifarm (Case IV/M.1220), the Commission referred the entire case to the Italian authorities. The concentration

concerned pharmaceutical wholesaling in certain parts of Italy. The Commission found that the market was regional or local,

although further analysis was required to establish the precise geographical scope of the market, which the Italian authorities were

better placed to carry out.

• In Interbrew/Bass (Case IV/M.2044), the Commission referred the proposed acquisition by the Belgian company, Interbrew, of the

brewing and distribution assets owned by the British company, Bass, to the UK's Office of Fair Trading (OFT) for investigation. The

referral only related to those parts of the deal that affected the UK beer sector. The Commission considered that the UK was best-

placed to carry out the necessary further examination because it was already investigating Interbrew's acquisition of Whitbread Plc's

brewing interests and the UK authorities had concluded a number of recent investigations into the UK beer industry.

• In Total/PetroFina (Case IV/M.1464), which concerned the acquisition of the Belgian oil and petrochemical company PetroFina by

the French oil company Total, the Commission referred back to the French authorities the part of the concentration which affected

the petroleum storage infrastructure in the Languedoc-Roussillon region of south-west France, where the parties' petroleum storage

facilities was likely to raise serious competition concerns.

• In Lafarge/Redland (Case IV/M.1030), the Commission referred parts of a concentration to France and the UK. This was the first

occasion on which a concentration had been referred to two member states. Other recent examples of where a merger has been

referred back to more than one member state include: Case COMP/M.1684 - Carrefour/Promodès; Case COMP/M.5790 –

LIDL/PLUS ROMANIA/PLUS BULGARIA; Case COMP/M.5881- ProSiebenSat.1/RTL interactive/JV; and Case COMP/M.5557 -

SNCF-P/CDPQ/KEOLIS/EFFIA.

• In Arla Foods/Express Dairies (Case COMP/M.3130) the Commission referred parts of the merger to the UK authorities. It concluded

that there were potential competition concerns in relation to the markets for processed milk and the supply of clotted cream in

distinct UK markets. Further, it concluded that the market for the supply of bottled milk fell within distinct local markets that did not

constitute a substantial part of the internal market. However, it did not refer the market for the procurement of raw milk in the UK as it

did not find any potential competition concerns in this market.

• In MAG/ Ferriovial Aeropuertos/ Exeter Airport (Case COMP/M.3823) the Commission accepted a referral request by the UK

authorities. It concluded that the relevant product market was that for the provision of airport infrastructure service to airlines and that

the geographic market was at most national in scope and may be as narrow as the South West of England. It therefore concluded

that the market was a distinct one and that there was at least a risk of distortion of competition within it due to the parties' combined

ownership, post-merger, of both Exeter Airport and Bristol Airport . The case was referred for a second stage investigation by the UK

Competition Commission due to competition concerns, but the deal was subsequently abandoned.

• In Thomas Cook/ travel business of Co-operative Group/ travel business of Midlands Co-operative Society (Case COMP/M.5996)

the Commission accepted a referral request by the UK authorities. The Commission accepted that the proposed transaction would

threaten to affect significantly competition in a distinct market which is at most UK-wide (the market for holiday distribution, in

particular of package holidays, in the UK). The UK competition authorities were well placed to investigate the effect of the transaction

on the national market or parts of this market. As Co-operative Group Limited and Midlands Co-operative Society Limited are not

active in other member states, any possible competition problems would be confined to the UK.

In Case COMP/M.5650 - T-Mobile/ Orange, the UK authorities requested a partial referral of the proposed transaction in relation to the

parts of the case concerning the UK mobile communications markets. In the event, however, the parties offered commitments to the

Commission which addressed the concerns of the UK authorities, and the request was consequently withdrawn

The Commission rejected a request from the French authorities to refer the Lagardère/Natexis/VUP merger to it. The Commission

concluded that most of the markets in question (various publishing markets) related to all French speaking countries and areas in

Europe and not just to France. Accordingly, the transaction could not be seen to be taking place in a market "which presents all the

characteristics of a distinct market" as required by Article 9 of the Merger Regulation. The Commission also took into account the fact

that both Lagardère and the Belgian authorities expressed a preference for the case to the dealt with solely by the Commission.



The Commission has also recently refused Article 9 referral requests in three cases in which it had opened Phase II investigations:

• In the Holcim/ Cemex West (COMP/M.7009) case the Commission rejected a referral request from Germany. Germany submitted

that the transaction threatened to affect significantly competition in the cement markets in Northern and Western Germany.

However, the Commission concluded that the relevant cement markets affected by the transaction were not national or narrower

than national in geographic scope. Rather, they included territories outside of Germany, such as parts of Belgium, the Netherlands

and the Northeast of France. The Commission took account of the existence of substantial cross-border trade of cement and the

results of its market investigation into the competitive dynamics of the cement sector.

• In Telefónica Germany/ E-Plus (COMP/M.7018) the Commission refused a referral request from Germany. Although the markets

concerned were national, the Commission considered that it was better placed to deal with the case because of its experience in

assessing mergers in the mobile telecommunications sector and the need for a consistent application of the merger control rules in

the EU.

• In Liberty Global / Ziggo (COMP/M.7000), again the Commission rejected the referral request, from the Netherlands, on the basis

that it was the better placed authority to examine the transaction. The Commission noted that it has extensive experience of

assessing mergers in the converging media and telecommunications sectors, including in national markets. Liberty Global is an

international media operator present in a majority of EEA countries, and a Commission investigation into the merger would better

ensure consistency in the application of the merger control rules in the EEA. In addition, the Commission considered that the merger

might have effects outside the Netherlands, such as in the linguistically homogenous Flemish part of Belgium.

The Commission's discretion to refer a case to a NCA has been confirmed by the General Court. Royal Philips Electronics NV

challenged the Commission's decision to refer part of the merger between electrical goods producers SEB and Moulinex (Case

COMP/M.2621) to the French authorities. The Court decided that the Commission had exercised its discretion reasonably in

determining that the merger threatened to create or strengthen a dominant position (the new entity would have an unrivalled range of

products in France) in a distinct market (France could be seen to be a separate market having regard to factors such as prices, national

trademarks and the distribution structure). The Court did, however, comment that the systematic referral to member states where there

was a distinct market could damage the principles of the one-stop shop but as this was inherent in the referral procedure in Article 9 it

was not its place to change the tests (Case T-119/02 Royal Philips Electronics v Commission [2003] ECR II-1433).

As at 30 June 2014, there had been a total of 104 requests for referral under Article 9. 41 had resulted in a full referral, 42 had resulted

in partial referral and nine requests had been refused.

Referral to the Commission

Pre-notification request

The parties to a transaction, which is a concentration for the purposes of the Merger Regulation but which does not have an EU

dimension, may seek to have the transaction considered by the Commission rather than making a number of individual notifications to

different member states (Article 4(5), Merger Regulation).

The parties may send the Commission a reasoned submission, using Form RS, informing it that the concentration is capable of being

reviewed under the national competition laws of at least three member states and should, therefore, be examined by the Commission.

Form RS requires the parties to provide information about the parties, the transaction and the markets concerned. The parties must also

provide sufficient turnover and other information to demonstrate which national EU merger control rules the transaction falls within.

The Commission must send the submission to all member states straight away. If at least one member state, that is competent to

review the merger, disagrees with the referral then the Commission cannot accept the reference. Where no disagreement is expressed

within the relevant period (15 working days), the case is deemed to be referred to the Commission. The parties must then notify the

transaction to the Commission using Form CO and the normal Commission procedures for reviewing concentrations will apply (see

Notification of a concentration and Commission's review procedure). In accordance with the one stop shop principle, no member state

may then apply their national merger control rules to a concentration that the Commission will review under this provision.

This procedure is designed to reduce the administrative burden on companies caused by the preparation of multiple notifications and

liaison with a number of different competition authorities. The referral process is triggered by purely jurisdictional factors and not any

assessment of the competition effects of the merger. However, member states can veto the process for any reason, although this will

usually be where they have a particular interest in reviewing the case due to the companies or markets involved. The Commission has

no power to reject a referral under this provision, unless it is not satisfied that the jurisdictional tests for three national merger control

rules are met.

The Article 4(5) referral procedure has been used on a number of occasions since the provision came into effect. For example, in

Reuters/Telerate (Case COMP/M.3692), the parties sought referral under Article 4(5) as, otherwise, the transaction would have been

subject to review in 12 member states. Other examples of cases successfully referred to the Commission under the Article 4(5) referral



system include: Case COMP/M.6323 - Tech Data Europe/MuM VAD Business; Case COMP/M.6091 - GALENICA/FRESENIUS

MEDICAL CARE/VIFOR FRESENIUS MEDICAL CARE RENAL PHARMA JV; and Case COMP/M.6205 - Eli Lilly/Janssen

Pharmaceutica Animal Health Business Assets.

As at 30 June 2014, a total of 271 requests for referral had been made under the Article 4(5) procedure. Referral had been refused in

six cases and accepted in 259 cases.

Post-notification request

Originally devised to assist member states with less developed merger control laws, Article 22 has been used for joint referrals by a

number of member states acting together as a way of solving the problem of mergers which do not have an EU dimension but which

trigger merger filing requirements in multiple national jurisdictions. Such cases might be better and more efficiently dealt with by the

European Commission rather than being simultaneously reviewed by a number of national authorities. More recently, it has also come

to be perceived as a way to ensure scrutiny of mergers which are not even notifiable under national merger control laws, but which

nonetheless raise competition concerns in the eyes of the national authority.

Under revised Article 22, one or more member states may request the Commission to examine a concentration without an EU

dimension that affects trade between member states and threatens to affect significantly competition within the territory of the member

state(s) concerned. The request must be made no later than 15 working days from when the transaction was notified to the member

state under national merger control rules or, where no notification is required, otherwise made known to it. In past cases, transactions

have been "made known" to member states as a result of press releases (for example, Case COMP/M.784 - Kesko/Tuko), letters (for

example, Case IV/M.890 - Blokker/Toys‘R’Us(II)) and completion of the concentration itself (for example, Case IV/M.278 - British

Airways/Dan Air). In addition, the Commission may, on its own initiative, decide to inform one or more member states that it believes

that a transaction that they are reviewing meet the criteria for reference under Article 22 and invite them to make a reference request.

Where any member state makes such a request, the Commission will inform all member states and they then have a further period of

15 working days to join the initial request (it is not therefore strictly necessary for all relevant member states to collaborate prior to

making a request). National time limits relating to the review of the concentration are suspended until the Commission decides whether

or not to accept the referral, unless a member state informs the Commission that it does not wish to make a referral request. The

Commission has a further period of 10 working days in which to make its decision.

Where the Commission decides to accept a referral it may request the parties to submit a Form CO notification and the national laws of

those member states that made a request will no longer apply to the merger. Unlike under the Article 4(5) procedure, however, member

states that do not join the request for referral may apply their national merger control rules to the merger.

In October 2005, the Commission rejected an Article 22 referral request by the Italian and Portuguese authorities in relation to the

proposed acquisition by Spanish gas company Gas Natural of Spanish electricity company Endesa. The Spanish authorities, to whom

the transaction had been notified, did not join this request. The Commission decided that, in accordance with the principles set out in its

Notice on Case Referral it was not better placed to examine the competitive effects of this merger than the Portuguese and Italian

competition authorities (Commission press release IP/05/1356).

In September 2010, the Commission accepted an Article 22 referral request in relation to the proposed acquisition by SC Johnson &

Son Inc. of the leasehold insect control business of Sara Lee Corporation (Case COMP/M.5969 - SCJ/Sara Lee) from six member

states (Commission press release IP/10/1099). The Commission accepted the referral request from Spain, together with Belgium,

Greece, France, Czech Republic and Italy, despite the fact that the transaction had only originally been notified in Portugal and Spain

and thus the transaction was not even notifiable in five of the six referring member states. Portugal chose not to join Spain in the referral

request; the transaction therefore continued to be examined separately, and was unconditionally cleared by the Portuguese competition

authority. However, the parties aborted the transaction on 9 May 2011 and withdrew their notification from the Commission following the

Commission's initiation of a Phase II investigation in December 2010. This case highlights both the procedural peculiarities of the

Merger Regulation and the increasing interagency co-operation between NCAs in relation to merger reviews (see International co-

operation).

The General Court clarified the scope of the Commission's competence in Article 22 investigations in the Endemol case (Case T-221/95

[1999] ECR 1299). This concerned a proposed joint venture, Holland Media Group, which had been referred to the Commission by the

Dutch government.

The Commission had initially decided to prohibit the joint venture on the basis that it would have created a dominant position on the

Dutch television market, but subsequently decided to approve the joint venture on condition that Endemol's participation was

terminated. Endemol argued that the Dutch government had restricted its request to the television advertising market and that the

Commission could not go on to examine the television production market.



The General Court held that the scope of the Commission's investigation in such cases is circumscribed solely by the terms of Article 22

of the Merger Regulation and that Article 22 does not grant the power to the member state concerned to control the Commission's

conduct of the investigation or to define the scope of the Commission's investigation. The General Court found in any event that the

Dutch government in this case had not in fact restricted the scope of the Commission's investigation and had expected the Commission

to examine the concentration as a whole.

In Kesko/Tuko, Kesko challenged the Commission's decision to prohibit its acquisition on the ground, amongst others, that the Finnish

national authorities concerned lacked competence to make a referral under Article 22 and that the Commission had failed to verify

whether the national authorities were competent to make the referral under Finnish law (Case T-22/97 [1999] ECR 3775). The General

Court, in dismissing the action, noted that it was not for the Commission to determine the competence of national authorities under

national law to submit a request pursuant to Article 22. Instead, the Commission is only required to verify whether the request is one

which is made by a member state within the meaning of Article 22.

In January 2005, the European Competition Authorities Association (the ECA) published agreed principles on the use of Article 22 (and

Article 4(5)) and on procedures for exchanging information between member states. The procedures aim to facilitate contact between

competition authorities in member states where a merger has been or will be notified from a very early stage. The agreed principles also

aim to speed up the process of review by all the participants involved. In November 2011, the EU Merger Working Group also published

best practices for co-operation between EU NCAs in merger reviews (see Legal update, Best practices for co-operation between

national authorities on multi-jurisdictional mergers adopted (www.practicallaw.com/8-511-7171)).

As at 30 June 2014 , there had been a total of 30 requests for referral under Article 22. 27 referrals had been accepted.

Proposals for reform

The Commission is concerned that a significant number of cross border cases are still subject to multiple review in several member

states. To some extent, the reason for this could be the procedural burden associated with a referral as the referral procedures have

been criticised as being cumbersome and time-consuming. In some cases, where the Commission might have been the more

appropriate authority, companies may also have opted against a referral to the Commission in order to avoid the Commission's

jurisdiction for reasons of forum shopping.

To remove these obstacles, the Commission is considering a modification of the referral mechanisms, relating in particular to pre-

notification referrals to the Commission (Article 4(5) of the Merger Regulation) and post-notification referrals to the Commission (Article

22 of the Merger Regulation). The aim would be to facilitate referrals and to make them more efficient without fundamentally reforming

the features of the system or the allocation of competences between the Commission and member states.

Following a preliminary consultation in June 2014, in a White Paper published in July 2014, the Commission consulted on the following:

• Reform of Article 4(5). The Commission considers that the cumbersome and time-consuming nature of the two stage procedure

(reasoned submission followed by full notification once the referral has been approved) may be deterring some parties from seeking

a referral in appropriate cases. Given the low number of Article 4(5) requests that were vetoed by a member state since 2004 (only 6

of the 261 requests), the Commission proposes abolishing the current two-step procedure (a reasoned submission followed by a

notification).

Under these reforms:

• Parties would notify a transaction directly to the Commission, who would then forward the notification to the member states

immediately.

• Member states that are prima facie competent to review the transaction under national law would then opportunity to oppose the

referral request within 15 working days.

• If no competent member state opposes the request, the Commission would have jurisdiction to review the whole transaction.

• If at least one competent member state opposes the jurisdiction of the Commission, the Commission would renounce jurisdiction

entirely and member states would retain jurisdiction. The Commission would not have any discretion, and would adopt a decision

stating that it is no longer competent. It would then be up to the parties to determine in which member states they must notify.

• To facilitate the information exchange, the Commission proposes sending the parties' initial briefing paper or the case allocation

request to the member states to alert them about the transaction during the pre-notification contacts.

The Commission considers that this change would speed up Article 4(5) referrals and make them more efficient while maintaining

the ability of member states to veto a request in the rare event that they consider it necessary.



• Reform of Article 22. The Commission is concerned that the fact that it is currently only able to obtain jurisdiction for the member

states which have made or joined a referral request has led, in some cases, to parallel investigations by the Commission and NCAs

contrary to the one-stop shop principle. It is therefore proposing streamlining Article 22 referrals to give the Commission EEA-wide

jurisdictions in cases referred to it so as to better implement the one-stop-shop principle. Under the proposed amended Article 22

procedure:

• One or more member state(s) that are competent to review a transaction under their national law could request a referral to the

Commission within 15 working days of the date it was notified to them (or made known to them).

• The Commission would be able to decide whether or not to accept a referral request (on the basis of its cross-border effects).

• If the Commission decided to accept a referral request, it would have jurisdiction for the whole of the EEA.

• However, if one (or more) competent member state(s) opposed the referral, the Commission would renounce jurisdiction for the

whole of the EEA, and the member states would retain their jurisdiction.

• A member state would not need to give reasons for opposing the referral.

The Commission notes that two potential problems need to be addressed:

• A timing problem could arise if the referral request is made after one member state has already cleared the transaction in its

territory as this would prevent the Commission from being able to take EEA-wide jurisdiction.

• Other member states might not have enough information to ascertain whether they are competent and would have the right to

oppose the referral, or if they were competent, to make an informed choice whether or not to veto the referral.

To resolve these problems, the Commission is proposing that:

• The NCAs circulate early information notices for multi-jurisdictional or cross-border cases or cases concerning markets that are

prima facie wider than national as soon as possible after a member state receives the notification or otherwise learns of the

transaction, indicating whether it is considering making a referral request. In that case, the notice would trigger the suspension of

the national deadlines of all member states which are also investigating the case.

• Alternatively, If the Commission itself believes that it could be the more appropriate authority it would invite the member state to

request a referral under Article 22(5) and such an invitation would equally suspend all national deadlines.

• In the unlikely event that a member state has adopted a clearance decision before a referral request occurs, the clearance

decision would remain in force and the case would be referred by the remaining member states only.

• Reform of Article 4(4). The Commission proposes clarifying the substantive thresholds for pre-notification referrals from the

Commission to a member state under Article 4(4). In order to encourage the use of that provision, the Commission proposes

adapting the substantive test in Article 4(4) so that parties are no longer required to claim that the transaction may "significantly

affect competition in a market" in order for a case to qualify for a referral. It would suffice to show that the transaction is likely to have

its main impact in a distinct market in the member state in question.

The Commission considers removing the perceived "element of self-incrimination", implicit in acknowledging a significant affect on

competition, may lead to an increase in the number of Article 4(4) requests.

• Reform of Article 9. Although the referral mechanism under Article 9 is generally believed to function effectively. The Commission t

considers that there may be room for further flexibility regarding the Commission's deadline for rejecting referral requests in the case

of Phase II proceedings. At present the Commission has 65 working days from the date of notification to make a referral or adopt a

statement of objections. The 65 working days deadline can be problematic for the Commission as normally it will still be in the

course of investigating at that time and it may typically still have to decide on whether to take the case forward and to adopt a

statement of objections.

Therefore, the Commission is suggesting tolling the 65 working days deadline from the start of the Phase II proceedings. This will

ensure that its investigation is well advanced at the time when it has to decide upon a referral. This would bring that deadline in line

with the deadline for remedies in Phase II.

The consultation on these proposed closes on 3 October 2014.

Notification of a concentration

All concentrations with an EU dimension, according to the terms of the Merger Regulation, must be notified to the Merger Registry of

the Competition Directorate prior to implementation of the concentration and following :



• Conclusion of the agreement;

• Announcement of a public bid; or

• The acquisition of a controlling interest (Article 4(1), Merger Regulation).

In addition, the Merger Regulation permits notifications to be made where the undertakings can demonstrate a "good faith intention" to

conclude an agreement or to make a public bid (the intention to make a bid must have been publicly announced).

In a consultation in June 2013 on improving the effectiveness of the Merger Regulation, the Commission consulted on the possibility of

modifying Article 4(1) of the Merger Regulation in order to improve flexibility for notifying mergers that are implemented by way of

acquisition of shares via the stock exchange without a public takeover bid. If no public take-over bid is made or no such intention is

publicly announced, the current rules do not allow for notification before the acquisition of control on the basis of "good faith intention".

However, neither do the current rules do not allow for the implementation of control (exercising voting rights, etc.) once control has been

acquired, that is, after the acquisition of shares via the stock exchange without a public take-over bid, either. The Commission considers

that the existing rules could be complemented to find a suitable solution to address such a scenario.

Since 2004, the teams (or units) within the Competition Directorate that deal with merger control cases sit within the sector-specific

branches of the Directorate-General - one in each of: energy and environment; information, communication and media; financial

services; basic industries, agriculture and manufacture; and transport post and other services. In addition, a "case support and policy"

unit co-ordinates the review of mergers across each of these branches. The Merger Registry is the central point for submitting merger

notifications (see further the Practice note, Dealing with the Commission in merger cases (www.practicallaw.com/A14488)).

Notifications have to be made in a Form CO, or Short Form CO, as published by the Commission. The forms are annexed to the

Implementing Regulation.

The notification must be completed jointly by the parties to the merger or by those acquiring joint control, as the case may be. In the

case of the acquisition of sole control of one undertaking by another, the acquirer must complete the notification. In the case of a public

bid to acquire an undertaking, the bidder must complete the notification.

From 1 January 2014, the Commission has substantially reduced the number of paper copies of notifications that must be provided. In a

Communication, issued under the Implementing Regulation (as amended by Commission Implementing Regulation 1269/2013), the

Commission announced that the parties should provide:

• One signed original on paper.

• Three paper copies of the entire submission.

• Paper copies may be waived or extra copies may be requested by the case team. Two copies of the submission in CD- or DVD-

ROM format (the medium).

The Communication sets out requirements for electronic communications and the e-mail address for e-mail communications (see

Commission Communication on notifications under EU Merger Regulation (www.practicallaw.com/2-555-5545)). These requirements

apply not only to the Form CO and Short Form CO but also the Form RS (for reasoned submissions under Articles 4(4) and 4(5) of the

Merger Regulation). Form RM (for the submission of commitments) and also for submission of comments on the Commission's

objections.

Failure to comply with the obligation to notify concentrations gives rise to the possibility of invalidity and fines (see Completion in breach

and Fines).

Immediately after receiving the notification the Commission must publish details of it (Article 4(3), Merger Regulation), which it does in

the Official Journal and also on its website. The Commission will at the same time invite the comments of third parties on the

concentration (see further Third party interventions).

The Commission has published best practice guidelines for the submission of economic evidence and data collection in competition

cases, including merger cases (originally published for consultation in January 2010, with the final version published in October 2011).

The best practice guidance contains recommendations regarding the content and presentation of economic analysis, and guidance on

how to respond to Commission requests for quantitative data (see Legal update, Commission publishes final version of best practices

for the submission of economic evidence and data collection (www.practicallaw.com/9-509-2957)).

An overview of the Commission's merger control procedures is contained in the box, EU merger control procedure, below.



The tactical importance of when to notify a merger to DG Competition was highlighted recently by two mergers in the hard disk sector.

The Seagate/Samsung (Case COMP/M.6214) and Western Digital/Hitachi (Case COMP/M.6203) mergers were filed only one day

apart. However, owing to the "first in" or "priority rule", the Seagate/Samsung deal, which was submitted first, was reviewed without

consideration of the competition issues raised by any subsequent notifications. By contrast, Western Digital and Hitachi's merger

application was considered in the context of the Seagate/Samsung merger, and given that these four companies constituted a large

portion of the overall market, this made approval for the merger harder to secure despite being lodged at almost the same time.

Moreover, Western Digital had even informally approached the Commission before Samsung, but because their notification came

second, the merger was reviewed under different market conditions to the Seagate/Samsung deal (see also Priority rule).

Pre-notification guidance, contacts and discussions

The Commission is co-operative in providing confidential guidance to parties in informal pre-notification contacts and indeed actively

encourages contact at the earliest opportunity. Such contacts may involve clarification as to whether the Merger Regulation applies and,

if it does, may be instrumental in avoiding an in-depth "Phase II" investigation (see Commission's review procedure), particularly if

difficult issues are involved as the process effectively gives the Commission more time to examine the case. It may also mean that the

parties are in a better position to offer undertakings in order to remove concerns which might otherwise have led the Commission to

initiate Phase II proceedings (see Remedies).

In addition, parties may use such discussions in order to obtain exemption from some of the information requests in Form CO.



Pre-notification discussions are particularly useful for discussing uncertainty or differences of opinion over market definitions which,

depending on the parties' market positions as mentioned above, may substantially affect the amount of information to be provided in

Form CO.

The Commission prefers parties to submit a briefing memorandum at least three working days before a pre-notification meeting, and

prefers such meetings to take place at least one or two weeks before notification (or longer in more difficult cases). It is prepared to

review and comment upon a substantially complete draft Form CO and should be given at least five working days for such review. The

Commission has published Best Practice Guidelines to clarify its merger control review procedures (see box, Merger notifications: Best

Practice Guidelines). Where parties follow this procedure the risk of a notification being declared incomplete will be reduced (see

below).

For further consideration of tactical issues which may be relevant when dealing with the Commission (see Practice note, Dealing with

the Commission in merger cases (www.practicallaw.com/A14488)).

Confidentiality

The Commission will send copies of the notification as well as any other important documents made available during the investigation to

all the member states. In addition, in Phase II investigations (see Commission's review procedure), third parties who have an interest in

the case may be granted access to the Commission's non-confidential files. It is important, therefore, that business secrets are clearly

marked as such when notifications and any subsequent documents (such as draft undertakings) are submitted to the Commission. Non-

confidential summaries of confidential documents must be submitted.

Incomplete notification

Omissions or inaccuracies in the information provided in the Form CO (such as a failure to identify the parties' main customers or

competitors, as happened in Swedish Match/KAV (Case IV/M.997)) can result in the notification being declared incomplete.

The consequences of providing inadequate information are illustrated by the Sanofi-Synthélabo case, which concerned a joint venture

controlled by the Elf-Aquitaine Group and the L'Oréal Group (Case COMP/M.1397). The Commission, for the first time ever, invoked

Article 6(3)(a) of the Merger Regulation, and withdrew its earlier approval of the transaction on the basis that it had not been correctly

notified. Having received third party observations, the Commission concluded that the parties had failed to describe in the original

notification their respective activities in the area of stupefying active substances (i.e., morphine and derived active substances), and in

respect of which they had a dominant position in France. The decision to clear the joint venture was, therefore, based on incorrect

information.

In order to overcome the new competition concerns raised, the parties agreed to divest Synthélabo's activities in the area of stupefying

active substances, thus removing the overlap between the companies in this field. The Commission waived the obligation to suspend

the concentration pursuant to Article 7(4) of the Merger Regulation (see Derogation from suspension), taking into account the parties'

undertaking to divest and the effect of a delay on the parties. The Commission fined the parties EUR50,000 (the maximum possible for

incomplete notification at that time) in order to reflect the gravity of the case (see Fines).

Suspension

Where a merger meets the thresholds for notification under the Merger Regulation (or is referred to the Commission under Article 4(5))

the parties are forbidden from putting it into effect prior to receiving a clearance decision from the Commission (Article 7(1), Merger

Regulation).

There is an exception to this in the case of public bids which have been duly notified to the Commission (Article 7(2)). Such bids can

proceed, but only on the basis that the transaction is notified to the Commission without delay and if the bidder exercises the voting

rights attached to the securities in question, it does so only to maintain the full value of those investments and following a derogation

granted by the Commission under Article 7(3) of the Merger Regulation (see below).

The Schneider/Legrand (Case COMP/M.2283) and TetraLaval/Sidel (Case COMP/M.2416) cases involved transactions which were

public bids and had closed (as permitted for such bids) prior to the Commission reaching its decision under the Merger Regulation. Both

cases involved a public bid for a French company, and by law such bids must be unconditional. In both instances the Commission

prohibited the concentration and subsequently made orders for divestment (see box, Airtours/First Choice, Schneider/Legrand and

Tetra Laval/Sidel).

Derogation from suspension



The Commission has the power upon request to grant a derogation from the obligation to suspend the concentration. In deciding upon

the request, the Commission will be take into account, amongst other factors, the effects of the suspension on the undertakings

concerned (for example, major financial risks) and the threat to competition posed by the concentration (Article 7(3), Merger

Regulation). However, in practice, the Commission remains rather reluctant to grant derogations.

Given that this is a derogation from the general obligation not to implement concentrations, the Commission considers that a request

under Article 7(3) should be granted only in exceptional and justified circumstances where the suspension would cause serious damage

to the undertakings concerned by the concentration or to a third party (for instance when the target is under an imminent danger of

bankruptcy).

Derogations have been granted in cases such as Mannesmann/Olivetti/Infostrada (Case IV/M.1025) and AOM/Air Liberté/Air Littoval

(Case IV/M.2008). In Mannesmann, the Commission allowed the parties to implement the first phase of the planned acquisition of joint

control over Infostrada by Mannesmann and Olivetti. This was after the initial notification was declared incomplete and, as a result,

delayed by nearly six weeks. It was clear that the transaction would have no impact on competition in the relevant market.

The Commission has also granted derogations under Article 7(3) in the context of auctions in which a bidder would have been

effectively excluded from the auction, because its acquisition of the target would have an EU dimension. For example, in

Cerberus/Torex (Case COMP/M.4763), the parties submitted that a refusal of the derogation would effectively exclude Cerberus from

the bidding process for Torex (which was insolvent) and in addition would have significant negative financial effects on Torex. The

Commission noted the possible adverse effects on other bidders but stated "it is appropriate to ensure that a bidder which has a

Community dimension – such as Cerberus – is not unduly excluded from the bidding in the absence of a threat to competition posed by

the concentration".

However, the derogation was granted solely insofar as it allowed Cerberus to take all actions that were reasonably necessary to restore

the viability of Torex as a going concern following signature of the share purchase agreement. These necessary actions included senior

appointments, provision of funding, contacting key customers to inform them of the change of ownership and introduction of cost-cutting

measures. Cerberus could not exercise any voting or other shareholder rights for any other purposes. Cerberus was required to appoint

an independent observer to ensure that the businesses of Torex was operated independently from Cerberus and that the terms and

conditions of the derogation were observed.

In Orkla/Elkem (Case COMP/M.3709), the Commission granted a derogation on the basis that the transaction triggered a duty for Orkla

to make a mandatory offer for all of the outstanding shares in Elkem under the 1997 Norwegian Securities Act, and that continued

application of the standstill obligation would result in a risk that someone might try to influence or manipulate the market price of the

Elkem shares in order to increase the mandatory offer price to be paid by Orkla. The Commission concluded that, whilst the suspension

obligation could seriously affect the financial interests of Orkla, no possible threat to competition caused by the operation had been

identified, and a derogation would not affect any legitimate right of any third party. In addition, the derogation was conditional on Orkla

not exercising any shareholders rights during the period of the Commission's review under the Merger Regulation.

Protection of workers' rights has also been considered to be a sufficient justification for derogation. In IPM/ERG Nuove Centrali/ISAB

Energy Services (Case COMP/M.4712), the transfer of insurance cover for the employees of the target had been made effective from 1

July, with the effect that employees would have been without insurance cover from that date until completion of the transaction. Delayed

completion also created a risk that employees would receive a late payment of tax refunds. The Commission concluded that in view of

the absence of any threat of harm to competition and the interest of the employees in being covered by insurance as well as the tax

implications, derogation could be granted.

The Commission has also been prepared to consider the harm that application of a standstill obligation would have on customers,

creditors and, indeed the financial stability of the economy as a whole. For example, in Santander/Bradford & Bingley (Case

COMP/M.5363), the Commission took into account the adverse impact that a financial failure of Bradford & Bingley, absent the

acquisition by a stable and reputable market player, would have on the stability of financial markets and so on third parties (including

Bradford & Bingley's customers) and on other players in financial markets in the UK and beyond.

Similarly, in BNP Paribas/Fortis (Case COMP/M.5384), the Commission granted a derogation to permit the early closing of the

acquisition by BNP Paribas of a 75% stake in Fortis's retail banking arm in Belgium and Luxembourg on the basis that the absence of

the derogation could have very significant effect on Fortis, its customers and creditors, as well as on BNP. The derogation was therefore

granted to enable BNP to intervene in some aspect of the management of the Fortis companies, to supervise certain aspects of its

business, and to monitor financial risks associated with Fortis' operations. It is notable that in this case, the Commission came to the

prima facie conclusion, when granting the derogation, that the transaction was not likely to significantly impede effective competition

within the EEA, yet its final decision identified serious concerns relating to the issuing of credit cards in Belgium and partly in

Luxembourg, where the merged entity would have become the largest player by far, such that clearance of the transaction was

conditioned on divestment of BNP Paribas' Belgian consumer credit subsidiary.

Particular issues arise in relation to the steps that may be considered to amount to implementation of a newly created full function joint

venture in breach of the Article 7 suspension obligation. For a discussion of these issues, see Practice note, EU Joint ventures:

Mandatory notification (www.practicallaw.com/1-107-3702).



While the Commission has accepted derogation requests in most of the published cases in which they have been requested, it has also

rejected derogation requests in some instances:

• In Bertelsmann/Kirch/Premiere (Case IV/M.993), the Commission asked the parties to call an immediate halt to the marketing of

decoders for digitally broadcast channels, which it considered constituted partial implementation of the transaction, pending the

Commission's investigation.

• In Rhodia/Donau Chemie/Albright & Wilson (Case IV/M.1517), the Commission refused to grant a derogation on the grounds that the

concentration raised competition concerns and the companies had failed to show that serious harm would have resulted from

suspension of the merger.

• In France Télécom/Global One (Case IV/M.1865), derogation was refused as France Télécom had not shown that its situation was

any different from the situation of any other party who had acquired a new business and wanted to have control over it as soon as

possible.

• In SC Johnson/ Sara Lee (Case COMP/M.5969), the parties requested a partial derogation, in order to allow the transaction to close

in various non-EEA jurisdictions, pending the outcome of the Commission's review under the Merger Regulation. The Commission

refused, stating that:

• there was insufficient evidence that delayed closing of the transaction in Russia and Malaysia would have harmed the target's

business in those countries (for example, due to mismanagement by its current owners or loss of key personnel);

• the fact that the transaction had been subject to an unexpected Article 22 referral process could not be considered an exceptional

circumstance;

• it was irrelevant that the parties could have structured the acquisition in the form of a series of independent transactions such that

Sara Lee's activities outside the EEA would not have fallen under the Merger Regulation;

• and while the relevant markets were national in scope, the Commission did not have sufficient information to assess the extent to

which the target business's activities outside the EEA were integrated with those within it, and could not therefore assess to what

extent implementation of the concentration outside the EEA could affect competition in the certain EEA markets.

For details of further cases in which derogation requests have been considered by the Commission, see Legal update, Commission

publishes decisions on applications for derogation from suspension obligations (www.practicallaw.com/9-521-3389).

Completion in breach

Failure by the parties to comply with the suspension requirement, by implementing a concentration before the outcome of the

Commission's investigation, does not automatically affect the validity of the merger, as this will depend on the outcome of the

Commission's investigation. The parties will, however, be liable to fines (see below).

Fines

Parties can be fined up to 10% of the aggregate turnover of the parties concerned if they fail to notify a merger prior to implementation,

implement a merger in contravention of the suspension requirement or a prohibition decision, or fail to comply with a remedial

undertaking. Fines of up to 1% of aggregate worldwide turnover may also be imposed for submission of false or misleading information

or failure to respond to an information request or to comply with a Commission investigation (Article 14, Merger Regulation). Periodic

penalty payments of up to 5% of aggregate daily worldwide turnover can also be imposed (Article 15, Merger Regulation).

The Commission has only imposed fines under the Merger Regulation in a handful of cases.

In February 1998, the Commission imposed a fine for the first time under EU merger control when Samsung failed to notify in due time

its acquisition of AST Research (Case IV/M.920). A relatively small fine of EUR33,000 was imposed because the breach was not

intentional and the concentration had no damaging effect on competition. A.P. Møller were fined EUR219,000 in July 1999, for three

separate failures to notify mergers in due time, the earliest of which dated back to 1997 (Case IV/M.969 A.P. Møller). Again, the failure

to notify was unintentional and there had been no harm to competition.

The Commission has also fined Sanofi and Synthélabo EUR50,000 each for supplying incorrect information in relation to their merger

(Case COMP/M.1397 Sanofi-Synthélabo). This was the first time that the Commission imposed a fine in such a case and it was the

maximum permitted under the merger control regime in this situation at that time (they could now be fined up to 1% of aggregate

turnover). The companies failed to indicate in their notification that they were both involved in the same active substance area. Their

omission was discovered following complaints from competitors after the merger was cleared (see Incomplete notification).



In December 1999, the Commission imposed fines in two separate instances even though in both cases the notification had been

withdrawn after the Commission had opened a Phase II investigation. In Deutsche Post/Trans-o-flex (Case IV/M.1447), the Commission

fined Deustche Post EUR50,000 for having for having failed to notify the acquisition in 1997 of a minority share in Trans-o-flex, a high-

speed delivery service provider. It further considered that the concentration notified in 1999 might not have led to Deutsche acquiring

control over Trans-o-flex, since its minority share could have led it to acquire control in 1997. In KLM/Martinair (Case IV.M.1328), the

Commission fined KLM for submitting incorrect information as to the activities of its subsidiary, Transavia. The Commission

subsequently discovered that Transavia operated flights to all Mediterranean destinations that were also served by Martinair, the

second largest Dutch airline. This overlap in activities had been omitted from the original notification.

In 2001, the Commission fined Deutsche BP EUR35,000 for negligently providing incorrect and misleading information in the Deutsch

BP/Erdölchemie case (Case COMP/M.2345). Deutsche BP had failed to disclose relevant co-operation agreements between the

Deutsche BP group and its competitors and also its presence in certain vertically related markets.

In July 2004, the Commission fined Tetra Laval EUR45,000 for each of two separate infringements of its obligation to provide complete

information (COMP/M.3255). First, Tetra Laval failed to provide information about relevant new technology in its Form CO. Second, it

failed to provide this information in response to a further information request. The infringements occurred in the context of the

Commission's first investigation of Tetra's acquisition of Sidel (COMP/M.2416 Tetra Laval/Sidel). The information that Tetra failed to

provide was subsequently relevant to the Commission's ultimate conditional clearance of this transaction.

In June 2009, the Commission decided to fine Electrabel EUR20 million for acquiring control of Compagnie Nationale du Rhone (CDR)

without having received prior approval from the Commission under the EU Merger Regulation. The Commission found that Electrabel

had acquired de facto control of CDR in December 2003. However, the acquisition of CDR was not notified until March 2008 (following

discussions with the Commission from August 2007). The Commission found that Electrabel had acted negligently in breaching the

notification obligations (as a large and experienced company it ought to have known that the 2003 transaction was a notifiable

concentration) and that this amounted to a serious breach. However, in setting the fine, the Commission also took into account the fact

that the transaction did not give rise to competition concerns and that Electrabel subsequently informed the Commission about the

transaction voluntarily.

The high level of the fine imposed in this case reflects the seriousness with which the Commission views failure to notify. In announcing

this decision, the then Competition Commissioner Neelie Kroes stated that "implementing a transaction which has not received the

clearance foreseen in EU law constitutes a serious breach of the Merger Regulation. This decision sends a clear signal that the

Commission will not tolerate breaches of this fundamental rule of the EU merger system".

Electrabel lodged an appeal with the General Court, seeking either the annulment of the Commission's decision or a reduction in the

fine imposed. It claimed, in particular, that the Commission's decision contained contradictory reasoning as to whether the infringement

amounted to a failure to notify or advance implementation of the concentration (Case T-332/09 - Electrabel v Commission). However,

on 12 December 2012, the General Court dismissed the appeal in its entirety (see Legal update, General Court dismisses Electrabel

appeal regarding implementation of merger without prior approval (www.practicallaw.com/7-523-1030)).

The General Court held that the Commission had been correct to find that Electrabel had acquired de facto sole control of CDR. It noted

that a minority shareholder may be considered to hold de facto sole control of a company within the meaning of the EU merger rules if it

is virtually certain of obtaining a majority at future shareholder meetings because the remaining shareholders are widely dispersed.

The General Court also held that early implementation of a concentration, in violation of EU law, is liable to bring about significant

changes in the competition situation and is therefore not a mere formal or procedural infringement. The fact that Electrabel's acquisition

of control was ultimately found not to raise any competition issues was not a decisive factor for determining the gravity of the

infringement. In addition, the fact that the infringement was committed through negligence was not a sufficient reason for reducing the

fine. In July 2014, the ECJ dismissed a further appeal by Electrabel (Case C-84/13 - Electrabel v Commission; Legal update, ECJ

dismisses Electrabel appeal against General Court judgment on fine imposed for implementing merger without prior

approval (www.practicallaw.com/8-573-0867)).

In July 2014, the Commission fined Marine Harvest EUR 20 million for implementing the acquisition of Morpol prior to its notification to

and clearance by the Commission, in breach of Articles 4(1) and 7(1) of the EU Merger Regulation. The transaction was notified to the

Commission in August 2013 and the Commission conditionally approved the acquisition in September 2013. However, the Commission

considered that Marine Harvest acquired control of Morpol in December 2012, when it acquired a 48.5% stake in the company (see

Legal update, Commission fines Marine Harvest for acquiring control of Morpol prior to clearance (www.practicallaw.com/0-575-5927)).

Marine Harvest has lodged an appeal against this decision (Case T-704/14 - Marine Harvest v European Commission) (see Legal

update, Marine Harvest appeal against fine for breach of notification requirements (www.practicallaw.com/7-588-6265)).

The Commission can also fine a company who is not a notifying party in merger proceedings for failure to supply accurate information.

In July 2000, the Commission imposed a fine of EUR50,000 on Mitsubishi for providing incomplete information in relation to the

investigation of the Ahlström/Kvaerner case (Case IV/M.1431). A periodic penalty payment totalling EUR900,000 (based on a then

maximum daily penalty of EUR25,000) was also imposed on Mitsubishi for the two-month period between the date of request of the



information and the date that the investigation was closed. This was the first time that the Commission has fined a third party for

furnishing incomplete information in a merger investigation. It was also the first time the Commission imposed a periodic penalty

payment under the EU merger control regime.

In October 2014, having issued a statement of objections in February 2014, the Commission d closed proceedings brought against

Munksjö and Ahlstrom in relation to the alleged provision of misleading information in the notification of their merger (see Legal update,

Commission closes investigation into alleged provision of misleading information in merger notification by Munksjo and

Ahlstrom (www.practicallaw.com/3-586-1605)). The Commission had been concerned about discrepancies between market share

estimates provided in the merger notification and information in the parties' internal documents. However, in response to a statement of

objections, the parties provided contemporaneous evidence explaining these discrepancies and showing valid reasons for their

reassessment of market shares.

The Commission closed the infringement proceedings on the basis that it has now received the necessary information. However, it

warned that any discrepancies between the information provided in the merger notification and that contained in the merging parties'

internal documents should always be justified by the parties in a timely manner.

Commission's review procedure

The Commission's review procedure is, potentially, a two-stage process.

Initial investigation: Phase I

The Commission has up to 25 working days from the notification in which to make its initial assessment of the proposed transaction

(Article 10(1), Merger Regulation). The period is increased to 35 working days if the parties have submitted undertakings for

consideration (see Remedies), or if the Commission receives a request from a member state for transaction to be referred back to its

NCA (see Referral back to member states).

The Commission must within the 25/35 working day period either:

• Decide that it does not have jurisdiction, on the basis that the concentration falls outside the scope of the Merger Regulation (in

which case the parties should consider whether further notifications, at national level are required);

• Clear the concentration, on the ground that it does not raise serious doubts as to its compatibility with the internal market; or

• Open an in-depth (Phase II) investigation (see below), where it finds that the concentration does raise serious doubts as to its

compatibility with the internal market (Article 6(1)(c)).

Simplified procedure

Concentrations that satisfy the criteria for clearance under the simplified procedure (see Simplified procedure for certain concentrations)

will be declared compatible with the internal market at the end of the 25 working day review period applicable to Phase I. The

Commission issues a decision in short-form with summary information relating to the parties, the nature of the transaction and economic

sectors concerned, and specifies under which ground(s) of the Notice on Simplified Procedure the decision has been taken. There is no

press release, but the clearance is announced in the Commission's Midday Express.

In its Notice on Simplified Procedure, the Commission has reserved the discretion to revert to the standard procedure in certain

circumstances where the simplified procedure is unsuitable, for example, in the case of:

• Difficulty in defining the relevant market or determining the parties' market shares.

• Where certain special circumstances (specified in the Horizontal Merger Guidelines) exist, such as:

• Where the market is already concentrated.

• Where the proposed concentration would eliminate an important competitive force.

• Where the proposed concentration would combine two important innovators.

• Where the proposed concentration involves a firm that has promising pipeline products.

• Where there are indications that the proposed concentration would allow the merging parties to hinder the expansion of their

competitors.



• Concentrations which increase the parties' market power even if there is no overlap in the activities of the parties. For example,

where at least two parties to the concentration are present in closely related neighbouring markets, particularly where one or more of

the parties to the concentration holds individually a market share of 30 % or more in any product market in which there is no

horizontal or vertical relationship between the parties but which is a neighbouring market to a market where another party is active

• Where issues of co-ordination between the parent companies of a joint venture arise.

• Following substantial concerns raised by member states or third parties, or a request from a member state to have the concentration

referred back under Article 9 of the Merger Regulation.

• Where the simplified procedure has been used because the transaction involves a change from joint to sole control, the Commission

may revert to the normal Phase I procedure where the acquiring company and the joint venture are direct competitors with

substantial combined market shares and the removal of the other joint venture parent will remove a degree of independence held by

the joint venture.

• Where neither the Commission nor the competent authorities of member states have reviewed the prior acquisition of joint control of

the joint venture in question.

In-depth investigation: Phase II

When the Commission does open in-depth proceedings it has a basic period of 90 working days in which to complete its investigation

and come to its conclusion on the merger (Article 10(4), Merger Regulation). This basic period can be extended. Where the parties offer

undertakings for consideration on or after the 55th working day from the initiation of the Phase II proceedings, the 90 working day time

period will automatically be extended to 105 working days. In addition, either the 90 or 105 working day period may be extended by a

further period of 20 working days at the parties' request (the request must be made within 15 working days from the initiation of

proceedings) or by the Commission, with the agreement of the parties (Article 10(3), Merger Regulation).

At the end of the 90 working day period (subject to extensions) it may:

• Clear the concentration(with or without undertakings as to, for example, structural changes or behavioural obligations (see

Remedies)); or

• Prohibit the concentration.

Where the Commission prohibits the concentration, it may require divestment or order any other action which it considers appropriate to

restore conditions of "effective competition". In Kesko/Tuko (Case IV/M.784), for example, the transaction had already been

implemented by the time the Commission issued its prohibition. In order to undo the transaction, the Commission ordered the

divestment of the consumer goods business of Tuko OY to a viable competitor and the appointment of an independent administrator to

supervise the operation and management of the business to be transferred.

In January 2002, the Commission ordered divestitures in two further cases involving completed acquisitions: Schneider/Legrand and

Tetra Laval/Sidel. Both Commission decisions were overturned on appeal (see box, Airtours/First Choice, Schneider/Legrand and Tetra

Laval/Sidel).

In some cases, the parties may withdraw a notification and abandon their merger plans altogether following the initiation of a Phase II

investigation. It is not unusual for the Commission to publish the reasons that would have led it to prohibit the merger had it not been

abandoned (see Commission press releases concerning Ahlström/Kvaerner (above) and Alcan/Péchiney (Case IV/M.1715)) However,

complete abandonment of a transaction will in general prevent the issue or publication of a formal decision.

In WorldCom/Sprint (Case IV/M.1741), the companies informed the Commission of their intention to withdraw their notification of the

deal the day before the prohibition was adopted. The Commission still took a formal decision, taking the view that it could only accept a

withdrawal if the deal was no longer legally binding. The General Court has annulled this decision, taking the view that the

Commission's power to take a decision ceases when an agreement is abandoned, even if the parties continue negotiations with a view

to concluding an agreement in a modified form (Case T-310/00 MCI v Commission [2004] ECR II-3253).

The Commission has published an information note (DG Competition Information note on Art. 6 (1) c 2nd sentence of Regulation

139/2004 (abandonment of concentrations)) available on the Competition Directorate's website, setting out the situations in which it will

be satisfied that the concentration has, in fact, been abandoned such that it is not required to reach a final decision. The Commission

notes that merely withdrawing the notification will not be sufficient. Similarly, minor amendments to the arrangements (such as the

agreed date of implementation) which do not affect the quality and nature of the change of control will not be sufficient to show

abandonment. In general, the Commission will require that the proof of abandonment corresponds in terms of factors such as legal

form, format and intensity to the initial act which made the concentration notifiable in the first place (for example proof that there is a

legally binding cancellation of the transaction agreement).



The General Court considered this issue again in an appeal by Schneider against a decision by the Commission to open a Phase II

procedure but then to close the case almost immediately afterwards when Schneider sold the relevant business (Legrand) to a third

party (Case T-48/03 Schneider Electric SA v Commission, Order of the General Court, 31 January 2006, [2006] ECR II-111). The

General Court found that, after Schneider transferred ownership of Legrand, the notified concentration could only be regarded as having

been abandoned. It was not relevant that Schneider had not formally withdrawn its notification. The General Court considered that the

sale of Legrand was sufficient to deprive the Commission's investigation of any further purpose. The notification by the Commission of

the closure of the case was an inevitable consequence of the factual circumstances which removed the purpose of the investigation.

Schneider appealed the General Court decision to the ECJ. However, in March 2007, the President of the ECJ issued an order

dismissing Schneider's appeal, finding it in part unfounded and in part inadmissible (Case C-188/06P, Schneider Electric SA v

Commission, Order of 9 March 2007). The ECJ confirmed the General Court's conclusion that the decision to initiate Phase II

proceedings under Article 6(1)(c) of the Merger Regulation is merely a preparatory act and is not an actionable decision.

Time limits

If the Commission fails to take a decision within the Phase I or Phase II binding time limits mentioned above, the concentration is

deemed to have been cleared (Article 10(6), Merger Regulation).

Time may, however, be extended in a number of circumstances:

• Phase I investigations. The basic 25 working day period can be extended if the Commission deems that the parties have submitted

incomplete or incorrect information or if it requires them to furnish substantial additional information. The Commission will declare a

notification incomplete if the Form CO omits information or contains inaccurate information (see Incomplete notification). In this case,

the 25 working day period will start to run from when the Commission has received the additional information. If it becomes apparent

that the Commission has serious doubts about the transaction, the parties may choose to withdraw the original filing. This enables

the parties to restructure the deal and to re-notify the transaction in order to overcome the Commission's objections. The advantages

of withdrawing a notification and re-notifying are twofold: it avoids the Commission placing conditions on the parties and avoids the

Phase II investigation. The Phase I period will then start to run from the date of re-notification.

This happened, for example, In BP/Amoco (Case IV/M.1293) and Industri Kapital/Persop (Case IV/M.1963), which was re-notified

and cleared subject to undertakings (Industri Kapital/Perstop (II) (Case IV/M.2396)).

• Phase II investigations. The 90 working day period (with any extended period) can also be suspended while the Commission

awaits a response to a request for further information where it is made by way of decision. The period can also be suspended while

the Commission carries out an investigation which it has ordered by way of a decision pursuant to Article 13 of the Merger

Regulation (Article 10(4), see Powers of investigation).

Again, if it appears that the Commission is likely to prohibit the transaction, the parties may choose to withdraw the notification on

the basis of the deal being restructured or abandoned.

Priority rule

Where two or more mergers in the same sector are notified to the Commission in close proximity, the Commission operates on a "first

in" or "priority" rule basis. The effect of this priority rule has recently been demonstrated in the context of two merger notifications in the

hard disk sector (Case COMP/M.6203 - Western Digital Corporation/ Hitachi Global Storage Technologies Holdings and Case

COMP/M.6214 - Seagate Technology/ The HDD Business of Samsung). Notified only one day ahead of Western Digital/Hitachi, the

Seagate/Samsung review benefited from the priority rule at the expense of Western Digital/Hitachi.

Under the priority rule, the Commission's review of Seagate/Samsung disregarded the subsequently notified Western Digital/Hitachi

deal. However, in its review of Western Digital/Hitachi, the Commission took into account the effects brought about by the

Seagate/Samsung transaction. Indeed, on 19 October 2011, the Commission cleared the Seagate/Samsung merger unconditionally,

noting in its press release that the merging entity would continue to face competition from, inter alia, Western Digital and Hitachi.

However, on 23 November 2011, the Commission approved, but only subject to conditions, the Western Digital/Hitachi transaction.

Not only were the two transactions notified only one day apart, but Western Digital was understood to have engaged with the

Commission informally before Samsung notified its deal, which had not been public beforehand. The fairness of a rule that has no

formal basis in the Merger Regulation has therefore been questioned, even though it has been consistent Commission practice.

Advisory Committee

Representatives of the member states in the Advisory Committee on Concentrations must be consulted by the Commission in Phase II

cases. The role of the Advisory Committee is to provide a means by which member states can express their views to the Commission

on certain important aspects of the Commission's investigations under the Merger Regulation. The Commission is required to "take the

utmost account" of opinions delivered by the Advisory Committee (Article 19(6), Merger Regulation).



Powers of investigation

Information requests

The Commission has power to request information (Article 11, Merger Regulation). The Commission may by simple request or by

decision require the notifying parties and any other undertaking to provide all necessary information. Failure to respond to an

information request made by decision can lead to penalties. Further, an information request made by decision, under Article 11(3) of the

Merger Regulation, will lead to the suspension of the time limits for the Commission's merger review (Article 10(4) of the Merger

Regulation).

In February 2009, the General Court dismissed an appeal by a party to a merger against a Commission decision under Article 11(3) that

requested further information during the course of a Phase II investigation (so suspending the deadline for the Commission's decision)

(Case T-145/06 - Omya AG v Commission, judgment of 4 February 2009; see Legal update, CFI dismisses appeal against information

request issued during a Phase II merger investigation (www.practicallaw.com/0-384-9052)). The General Court concluded that the

merging party (Omya) had not demonstrated that the information requested (which related to the correction of previously provided data)

could not reasonably be considered by the Commission to be necessary at the time that it adopted the decision. Omya had not shown

that the information originally provided was materially correct or that the corrected information was not necessary for the Commission's

assessment. Further, the Commission had not misused its powers in requesting the information and there had been no breach of

Omya's legitimate expectations.

In its judgment, the General Court noted that the requirements of speed which characterise an investigation under the Merger

Regulation must be reconciled with the objective of effective review of concentrations. Such effective review requires that the

Commission conduct its reviews with great care and requires that the Commission obtains complete and correct information. The

Commission is subject to the principle of proportionality in exercising its powers under Article 11 of the Merger Regulation. Therefore it

should not impose disproportionately burdensome information provision obligations on undertakings. However, the Commission does

not infringe the principle of proportionality by suspending the procedure until the required information has been communicated to it.

Dawn raids

The Commission also has other wide-ranging powers of investigation (including powers to conduct interviews) and may carry out on-the

-spot investigations by entering and sealing premises, taking documents and seeking explanations (Article 13, Merger Regulation). The

Commission may exercise these "dawn raid" powers at any time prior to notification, as well as during Phases I and II. The powers in

the Merger Regulation are now the same as those which apply under Regulation 1/2003 in respect of suspected infringements of

Articles 101 and 102 (see Competition regime, Dawn raids (www.practicallaw.com/A14489)).

The first occasion on which the Commission used its powers to carry out a "dawn raid" in relation to a merger was in the

Skanska/Scancem case (see box, Skanska/Scancem case).

In December 2007, the Commission announced that it carried out unannounced inspections of two S PVC producers in the UK under its

revised powers under Article 13 of the Merger Regulation. The inspections were conducted on the grounds that the Commission had

reason to believe that the companies may have violated Article 7(1) of the Merger Regulation (Commission MEMO/07/573).

More recently, the Commission conducted dawn raids in relation to the Caterpillar/MWM merger (Case COMP/M.6106) on the grounds

that the Commission had reason to believe that the parties may have: (i) provided misleading information in response to requests for

information (contrary to Article 11 of the Merger Regulation); (ii) provided misleading information in the notification of the proposed

concentration and/or withheld information relevant to the competitive assessment in this case; and (iii) implemented the notified

concentration before it has been cleared by the Commission (contrary to Article 7(1) of the Merger Regulation). The merger was

ultimately unconditionally cleared by the Commission after a Phase II review.

Econometric evidence

The Commission has increasingly recognised the importance of sophisticated econometric techniques in competition cases which, in

addition to criticism levied at the Commission's econometric analysis following the high profile overruling by the General Court of three

Commission decisions led to the appointment of a Chief Competition Economist to oversee the Competition Directorate's activities

(Airtours/FirstChoice (M.1524, Case T-342/99 ECR [2002] II-2585), Schneider/Legrand (M.2283, Case T-77/02 ECR [2002] II-4201) and

Tetra Laval/Sidel (M.2416, Case T-80/02 ECR [2002] II-4519)) (see box, Airtours/First Choice, Schneider/Legrand and Tetra

Laval/Sidel).

Following the appointment of a Chief Competition Economist, the Commission has been increasingly using economic data in its

assessment of mergers to support the construction of its legal cases. The cases of Ryanair/Aer Lingus (COMP/M.4439) and

Unilever/Sara Lee Body Care (COMP/M.5658) provide useful examples of the types of economic data that the Commission has relied

upon in merger cases:



• Ryanair/Aer Lingus I. Despite the availability of extensive qualitative evidence, the Commission opted to conduct three sets of

empirical analysis (passenger surveys, price correlation analysis and price regression analysis) with the aim of providing further data

on the absence of airport substitutability and the closeness of competition between the merging parties. The Commission

economists were able to do this because the available data was complete, accurate and adequate for the methodologies used. The

econometric analysis showed that prices were significantly higher in markets in which only one of the two carriers were present. This

result was consistent with the qualitative evidence which suggested that Ryanair and Aer Lingus were close competitors and that the

transaction would adversely affect a significant number of passengers (in particular, it would have eliminated Ryanair on more than

30 routes on which 14 million passengers fly each year). The Commission therefore decided to prohibit the merger and, following an

appeal to the General Court, this finding was upheld, with the General Court noting that the economic evidence was useful, even if

not necessarily mandatory.

However, not all cases will necessarily be suitable for sophisticated quantitative econometric analysis as in the Ryanair/Aer Lingus

case. For example, the Commission was unable to replicate the same level of sophisticated economic analysis in the first

Olympic/Aegean (Case COMP/5830), which was ultimately prohibited by the Commission. This was because not all the necessary

data was available ( insufficient quality, no historical data, no variability in the data to identify references for comparison, etc) to

implement the empirical methodologies. As a result, the Commission economists were only able to conduct a modest analysis.

However, this merger was subsequently approved, following a second Phase II investigation, in October 2013, on the basis of further

evidence about the impending financial failure of Olympic (Case COMP/M.6796 Olympic/Aegean II).

• Unilever/Sara Lee. In this case, the Commission opted to conduct a merger simulation in order to estimate the likely price increases

in deodorant markets post merger. The Commission's merger simulation covered eight markets, and the results showed price

increases of between 1% and 6%, but with higher increases for certain brands and sub-segments. This is a notable case as it is the

first time in many years where the Commission chose to object to a merger after a Phase II investigation on the basis of, among

other pieces of information, a merger simulation conducted by its own economists. Ultimately, in order to remedy the Commission's

concerns, Unilever had to offer to divest Sara Lee's Sanex Brand.

Previously the Commission had referred to a merger simulation in Kraft/Cadbury (COMP/5644). However, in that case the

Commission carried out its own economic analysis. It did not use its own merger simulation, but rather refered to a merger

simulation undertaken by the parties which provided further evidence that the transaction was unlikely to give rise to significant price

increases and/or competition concerns in the market for chocolate tablets in the UK.

These cases indicate that, alongside qualitative data, economic evidence is increasingly an essential tool in the Commission's

assessment process, especially with regards to its task of predicting the likely effects of a merger on price. The Commission has not yet

explicitly, however, employed metrics such as the Upward Pricing Pressure (UPP) or Illustrative Price Rise (IPR) tests to assess

closeness of competition and predict merger effects, unlike the UK competition authorities, for example, which are in the practice

increasingly using such techniques, in particular in retail merger cases, looking at fascia issues in certain local areas (for example,

Asda/Netto, Unilever/Alberto Culver, Zipcar/Streetcar). It remains to be seen to what extent the Commission will utilise such techniques

and concepts in future cases.

To further the use of economic evidence in future merger cases, in October 2011, the Commission published Best Practices for data

collection and submission of economic evidence in merger cases (see Legal update, Commission publishes final version of best

practices for the submission of economic evidence and data collection (www.practicallaw.com/9-509-2957)).

The Best Practices are largely a codification of existing practice and provide practical advice on the generation and communication of

economic and econometric analyses to make sure that each analysis submitted to the Commission fully states the economic reasoning

and the observations on which it relies, and explains the relevance of its findings for the case, and the robustness of the results. A key

emphasis of the Best Practices is that parties intending to submit economic data should inform the Commission as early as possible so

that discussions concerning the empirical approaches and the relevant data can take place. These discussions will allow the

Commission to explain which data will be relevant, and how best for the parties to present it. To date, the Best Practices have helped

parties present improved submissions, assisted the Commission in gathering quantitative data and limited the scope of data requests.

Remedies

Formal undertakings (also referred to as "commitments") may be given by the parties in order to meet specific competition objections

raised by the Commission in the investigation and so obtain clearance of the transaction. Undertakings can be given either in Phase I,

so that the Commission does not have to launch a Phase II investigation, or during the Phase II investigation.

Undertakings should be submitted within specified time limits, which are usually strictly adhered to by the Commission:

• Where undertakings are submitted in Phase I, the time period within which the Commission must take a decision is extended from

25 to 35 working days (Article 10(1), Merger Regulation). To provide the Commission with sufficient time to examine undertakings

offered, they must be submitted within 20 working days from the date of notification.



• Where undertakings are submitted in Phase II, the time period within which the Commission must take a decision is extended from

90 to 105 working days (Article 10(3), Merger Regulation). To provide the Commission with sufficient time to examine undertakings

offered, they must be submitted within 55 working days from the date of initiation of Phase II proceedings.

To avoid a Phase II investigation, the parties must identify early on where potential competition problems may arise and, where there

are areas in which the parties' businesses overlap, be ready to make an "up-front" offer to divest overlapping businesses.

If deadlines are not respected, the Commission will generally only consider remedies in the limited situation that they offer a clear-cut

solution to the competition problem and do not require further market testing. In Airtours/First Choice (Case COMP/M.1524), for

example, the Commission refused to consider the revised package of undertakings suggested by the parties as these had been

proposed out of time. However, in SEB/Moulinex (Case COMP/M. 2621), the Commission did accept undertakings offered after the

expiry of the Phase I deadline. The General Court confirmed that the Commission had the right to accept late undertakings as the time

limit is imposed on the parties and not on the Commission (Case T-114/02 - Babyliss v Commission [2003] II-1279 and Case T-119/02

Philips v Commission [2003] II-1433).

The possibility of furnishing formal undertakings to the Commission to allay competition concerns is also subject to practical

considerations. In particular, the consent of third parties may be required for significant divestments, for example where trustees have

been appointed as a result of previous financial transactions (such as bond issues).

Companies can be fined up to 10% of their aggregate worldwide turnover by the Commission for failing to comply with an undertaking

once it has been given and this can form the basis of a decision by the Commission to revoke a conditional clearance decision (Articles

8(6)(b) and 14(2)(d), Merger Regulation).

Notice on remedies

The Commission adopted a notice on remedies to competition problems raised by mergers and acquisitions (OJ 2001 68/3) in

December 2000. Following a study in 2005 (see further Legal update, Commission publishes study on past merger

remedies (www.practicallaw.com/0-201-4694)) and consultation in April 2007 (see Legal update, Commission consults on revised

Remedies Notice (www.practicallaw.com/6-312-5952)), the Commission adopted a revised Notice on remedies and Implementing

Regulation in October 2008 (OJ 2008 C267/1)) (the Remedies Notice) (see Legal update, Commission publishes new Remedies Notice

and amendments to Implementing Regulation (www.practicallaw.com/8-383-7955)). The Remedies Notice provides guidance on the

types and form of remedies acceptable to resolve competition problems as well as the important substantive and procedural issues that

notifying parties should consider when proposing remedies to obtain regulatory clearance.

The Commission also maintains best practice guidelines for divestiture commitments, consisting of a model text for divestiture

commitments and a model text for trustee mandates (updated in December 2013 and available on the Competition Directorate's

website). The Commission's aim in publishing the best practice guidelines and model texts was to make the negotiation of remedy

undertakings within tight timetables easier. The model texts contain the standard terms that should be included in all divestment

undertakings (the divestiture process and the obligations of the parties) and the role and function of the trustee. The fact that these

model texts are designed for a standard divestment commitment does not mean that the Commission will not be prepared to negotiate

more complicated forms of commitment in appropriate cases (paragraph 21, Remedies Notice).

The Commission has maintained its position that it is for the parties to the merger to put forward suitable remedies that eliminate

competition concerns entirely and have to be comprehensive and effective from all points of view. Further, the Commission maintains

the view that structural commitments are generally preferable. However, it does not rule out the possibility that other types of

commitments may also be capable of preventing the identified significant impediment to effective competition. This has to be examined

on a case-by-case basis.

The Remedies Notice sets out:

• The general principles under which remedies can be proposed and implemented in merger proceedings.

• An overview of the main types of remedies that have been accepted in merger cases to date (for example, divestiture provisions,

termination of exclusive agreements and licensing arrangements to provide access to infrastructure and key technology).

• The procedure for the submission of commitments. When offering Phase I or Phase II commitments, the undertakings concerned

must submit the information and documents prescribed by a Form RM (as set out in the Implementing Regulation).

• The specific requirements for the implementation of remedies in Phase I and Phase II proceedings.

• The major elements for implementing divestiture commitments, including the appointment of a trustee for oversight, preservation of

assets and/or activities to be divested, and Commission approval of the potential purchaser.

The two principal aims underlying the Remedies Notice are to make sure that the remedies proposed by the parties to a transaction:



• Fully resolve the competition concerns raised by the Commission and thereby eliminate the creation or strengthening of a dominant

position. Remedies must, therefore, be clear-cut and must entirely remove the competition concerns.

• Are fully implemented effectively and within a short period. They should not require additional monitoring once they have been

implemented.

Accordingly, the Commission on the whole favours structural remedies (for example, divestment of assets or shares, termination of

exclusive distribution agreements or severance of vertical links with customers) over behavioural remedies (for example, requirements

to grant access to products on equal terms) as the latter require continual monitoring and are often more complex to draft.

It is for the merging parties to propose ways to address the competition problems identified by the Commission and to show that the

remedies offered eliminate the problems and restore effective competition. The General Court confirmed in the EDP case that it is for

the parties to propose adequate remedies in due time with a view to solve fully the competition concerns identified by the Commission

(Case T-87/05 EDP-Energias de Portugal SA v Commission [2005] ECR II-3745).

However, the General Court also held in the EDP case that, in so far as the burden of proof is concerned, a concentration modified by

commitments is subject to the same criteria as an unmodified concentration. It follows that the Commission carries the burden of proof

that the conditions for a prohibition of the concentration are met, irrespective of whether remedies have been offered.

The following are examples of some of the difference types of remedies which are referred to in the Remedies Notice or have been

acceptable to the Commission in the past.

Up-front buyer remedy

The Commission has drawn on the US experience in applying remedies. This includes the "fix-it-first" approach to remedies in cases

where the viability of the divestiture package depends to a large extent on the identity of the purchaser of the businesses or assets

being divested (see Remedies Notice, paragraph 50). An "up-front buyer" remedy effectively transfers the risk of a failed remedy to the

merging parties by preventing the parties from completing the concentration until a binding sale agreement with a purchaser approved

by the Commission has been concluded. This differs from other divestment undertakings where, although the divestment must be made

to a suitable purchaser and approved by the Commission, the parties are given a period of time after clearance of the transaction to find

such a purchaser and are not barred from completing.

Up-front buyer remedies have been used in a number of cases including Post Office/TPG/SSPL (Case IV/M.1915), Nestlé/Ralston

Purina (Case COMP.M.2337) and Hexion / Huntsman (Case COMP/M.4835), although the Commission does not routinely insist on an

up-front buyer (compared to certain NCAs such as in the UK).

The General Court has confirmed that the Commission is entitled to reject a potential purchaser of divested assets when it appears that

the purchaser will not be able to fulfil the objective of the remedies in ensuring the maintenance of effective competition (Case T-342/00

Petrolessence v Commission [2003] II-1161).

Crown jewels remedy

The possibility of accepting what the Commission informally refers to as a "crown jewels" remedy (or an alternative divestiture

commitment) is explicitly envisaged in the Remedies Notice (paragraphs 44 to 46) for cases in which the implementation of the parties'

preferred divestiture option might be uncertain or difficult. In such circumstances, the parties may be required to provide an alternative

solution, which has to be at least equally, if not more, effective than the preferred remedy in restoring effective competition. Such

alternative remedies are a means of facilitating the divestiture process and increasing the chances of finding a buyer for the business to

be divested. This type of remedy has been seen in previous cases, for example, AXA/GRE (Case IV/M.1453) and Industri Kapital/Dyno

(see Phase II undertakings). An up-front buyer solution was for the first time coupled with a "crown jewels" remedy, in the

Nestlé/Ralston Purina case (Case COMP/M.2337) (see box, Nestlé/Ralston Purina).

Temporary commitments

Remedies to give access to necessary infrastructure or key technology may be acceptable in specific circumstances where they are

considered sufficient to restore effective competition in the relevant market. This may even be on a temporary basis, especially in the

case of dynamic high-technology markets. For example, in AOL/Time Warner (Case COMP/M.1845) the parties offered a package of

structural and behavioural commitments aimed at breaking the links between Bertelsmann AG (the German media group) and AOL.

Those relating to the period up to Bertelsmann’s exit were of a temporary nature. In Vodafone Airtouch/Mannesmann (Case

COMP/M.1795), the Commission accepted an undertaking from Vodafone Airtouch to provide access to its roaming arrangements by

third party operators for a period of three years from the date of the Commission's decision.

Behavioural remedies and brand licensing



Whilst the Commission typically prefers structural remedies over intellectual property (IP) licensing and behavioural remedies, in some

recent cases the Commission has been prepared to accept at least a form of behavioural remedy. For example, in Intel/McAfee (Case

COMP/M.5984), the Commission had concerns about the bundling of Intel's central processing units (CPUs) and chipsets with McAfee's

security solutions, including concerns about a lack of interoperability between CPUs, chipsets and security solutions. The Commission

accepted commitments to ensure the interoperability of the merged entity's products with those of competitors, including the provision of

information and a commitment not to actively impede competitors' security solutions from running on Intel CPUs or chipsets (and vice

versa).

Interoperability type remedies were also accepted by the Commission in Cisco/Tandberg (Case COMP/M.5669) and access and other

behavioural remedies were accepted in Deutsche Bahn/EWS (Case COMP/4746), where Deutsche Bahn agreed to fulfil EWS'

expansion plans in France over the next five years through investments in key assets and personnel and to provide fair and non-

discriminatory access to EWS facilities in France for third party rail operators.

Although the Commission has only accepted brand remedies in exceptional cases, it will generally prefer the divestiture of packages of

brands and supporting assets over the granting of an IP licence (especially where divestiture seems feasible). The potential breadth of a

significant brand remedy was acutely demonstrated in Unilever/Sara Lee Body Care in which the Commission allowed the merger with

a commitment to divest Sara Lee's Sanex brand of deodorants. Despite the fact that deodorant market competition concerns were

found in only seven member states, the remedy ultimately agreed with the Commission was EU-wide. The remedy also required

licensing the entire range of Sanex brand products, including the unaffected product markets of shower gels and hand soaps.

Review clauses

Irrespective of the type of remedy, commitments will usually include a review clause (although commitments need not necessarily

contain a formal review clause for the parties to successfully argue that the commitments should be waived (see Case IV/M.950 -

Hoffman-La Roche/Boehringer (OJ 2011 C189/31)). This may allow the Commission, upon request by the parties showing good cause,

to grant an extension of deadlines or, in exceptional circumstances, to waive, modify or substitute the commitments (paragraph 71,

Remedies Notice), although this will very rarely be relevant for divestiture commitments (paragraph 73, Remedies Notice).

The Commission will grant waivers only in exceptional circumstances, if it can be shown that:

• Market circumstances have changed significantly and on a permanent basis, with a sufficiently long time-span having passed

between the Commission decision and the request by the parties.

• Experience gained in the application of the remedy demonstrates that the objective pursued with the remedy will be better achieved

if modalities of the commitment are changed.

• Third parties have been consulted and the modification has been found not to affect the overall effectiveness of the remedy.

• Third party rights would not be affected by the waiver.

Phase I undertakings

Most of the cases in which Phase I undertakings have been accepted have been relatively simple and straightforward divestments of

overlapping businesses. This happened in Owens-Illinois/BTR Packaging (Case IV/M.1109), which was the first case in which the

Commission used its powers to accept undertakings in Phase I (following the formalisation of such powers in March 1998) and in

Neste/Ivo (Case IV/M.931), which concerned a concentration between two Finnish companies, IVO and Neste, who were both active in

the energy sector.

In July 2005, the Commission cleared the acquisition of Gillette by Procter & Gamble subject to the condition that Procter & Gamble

divest the whole of its battery toothbrush business (Case COMP/M.3732, Gilletter/Procter & Gamble). These conditions were

considered to be sufficient to remove the competition concerns resulting from the direct horizontal overlaps between the parties (which

would have given rise to market shares of over 50% in a number of member states). The Commission also concluded that no anti-

competitive conglomerate effects would arise by virtue of the merged entity's portfolio of products or its category management

strategies and so did not require remedies in this regard.

Nonetheless, a small number of cases have involved significant divestments of various business interests, such as in the case of Air

Liquide/ Messr Targets (Case COMP/M.3314), in which the Commission required divestment of business activities in Germany

representing EUR200 million in sales.

Other examples include Hoechst/Rhône Poulenc (Aventis) (Case IV/M.1378), Exxon/Mobil (Case IV/M.1383) and New Holland/Case

(Case COMP/M.1571). The latter case concerned the acquisition of the Case Corporation by New Holland (a wholly-owned subsidiary

of Fiat): both companies were active in agricultural machinery products. The undertakings given included the divestiture of various

product ranges and brands, including the assignment of intellectual property rights, which had the effect of significantly reducing the

market share of the merged entity in a number of markets where the Commission had identified competition concerns.



In the Unilever/Bestfoods (Case IV/M.1990) case the parties made extensive concessions to resolve competition concerns. The

divestiture package, the total value of which was estimated at EUR500 million in terms of annual retail sales, also included appropriate

supply arrangements, manufacturing facilities, sales forces and intellectual property rights associated with the individual businesses.

The Commission stated that the divestiture package ensured that the respective purchasers would not only acquire the market share

attached with the portfolios but also their full brand value.

Licensing as a remedy in the pharmaceutical and related sectors has also become common practice, even in Phase I cases (see, for

example, Case IV/M.1846 -GlaxoWellcome/Smithkline Beecham). In such cases, the licence is typically exclusive, long-term and

includes both patent and trade mark rights. However, the Commission has shown itself willing to accept that divestment can also be

achieved through shorter-term licensing, as a means of divesting consumer brands, as demonstrated by the Nestlé/Ralston Purina case

(see box, Nestlé/Ralston Purina).

In Air France/KLM (Case COMP/M.3280), the Commission accepted a package of remedies including commitments to give up landing

and take-off slots and behavioural remedies requiring the parties not to increase the level of their offering on the affected air routes and

to enter into certain agreements with competitors. Although these remedies are more complex than is common in Phase I cases, in this

case the Commission had the benefit of precedents set in earlier cases concerning airline alliances, which had been considered under

Article 101 of the TFEU (formerly Article 81 of the EC Treaty). This decision was appealed by easyJet, but it was upheld by the General

Court in July 2006. The General Court held that the Commission had not erred in its assessment of the effects of the merger on the

markets concerned or in its appraisal of the suitability of the remedies to address the competition concerns identified (Case T-177/04 -

easyJet v Commission, judgment of 4 July 2006).

The Commission accepted a similar package of conditions in relation to its conditional clearance, in July 2005, of Lufthansa's

acquisition of Swiss, including behavioural undertakings as well as undertakings by the German and Swiss aviation authorities to refrain

from regulating prices on a number of routes (Case COMP/M.3770 -Lufthansa/Swiss).

ANother example of a case in which the Commission has accepted complex Phase I behavioural remedies in Alcatel/Finmeccania/

Alcatel Alenia Space + Telespazio (Case COMP/M.3680). In order to resolve concerns about the parties' near monopoly position in

relation to certain key satellite components, the Commission required the parties to licence certain technology to third parties and

required relevant equipment to be supplied at prices which do not exceed the benchmark price list prices charged for comparable

equipment. Customers are able to complain about pricing to the European Space Agency, which can make a binding arbitration award

on the price. This solution therefore addressed concerns about pricing without the regulator resorting to price control. It also shows a

willingness on the Commission's part to accept inventive solutions to reconcile the parties' commercial aims with competition policy.

Phase II undertakings

Although the majority of remedies accepted by the Commission, even in Phase II, follow the principle that simple, structural remedies

are the ideal solution, the Commission has shown a willingness to accept remedies which are somewhat more complicated than a

straight forward divestment.

For example, in the EdF/EnBw case (Case IV/M.1853), the Commission accepted a package of remedies, which included three

elements - two of which were relatively standard and an innovative third element. This third element of the EdF remedy sought to

address the competition concerns that had arisen in relation to so-called "eligible" customers in France, i.e. those whose electricity

supply is open to competition.

To resolve these concerns, EdF undertook to provide competitors with access to generation capacity located in France in the form of

virtual power plants (5000 MW) and back-to-back agreements to existing co-generation power purchase agreements with a maximum of

1000 MW. This was on the basis that a divestiture of power plants could not be envisaged as an appropriate solution, both for economic

reasons (it was very unlikely that newcomers would have taken the risk of acquiring such a plant) and legal reasons in the case of

nuclear plants. Under the terms of the commitments, the contracts for the virtual power plants were to be awarded through an open, non

-discriminatory public auction open to utilities and energy traders alike. The arrangements for access to generation capacity were

required to remain in place for a period of five years and could only be terminated on the basis of a reasoned request by EdF. It was

anticipated by the Commission that over that period the electricity market in France would have developed so as to allow sufficient

alternative supply sources to be made available. Similar considerations applied to the package of remedies accepted in

Verbund/Energie Allianz (Case COMP/2947), which raised competition concerns on the Austrian electricity market.

Crown jewel remedies have also been applied in Phase II cases. For example, in Industri Kapital/Dyno (Nordkem) (COMP/M.1813), the

Commission’s investigation revealed particular competition problems in two sectors: formaldehyde, a base chemical, and formaldehyde

based resins in Finland, and in plastic materials handling systems in the Nordic area. In order to remove these competition concerns,

Industri Kapital proposed to divest the formaldehyde and resin plant of Dyno in Kitee, Finland. In the event that this divestment did not

take place within the time period foreseen, Industri Kapital agreed, by way of a "crown jewel" remedy, to divest the alternative

formaldehyde and resin plant of Neste in Hamina, Finland. Industri Kapital also pledged to sell Dyno’s shares in Polimoon to an

independent purchaser or, alternatively, to divest its complete holding in Arca. The latter undertakings removed the link between Industri

Kapital (Arca) and Polimoon in the field of materials handling systems.



In Newscorp/Telepiu (Case COMP/2876), the Commission accepted a complex package of behavioural remedies (in addition to a

divestment remedy), designed to lower barriers to entry to the Italian pay-TV market and open access to premium television content

(controlled by the parties). The undertakings required Newscorp to waive exclusive rights in relation to non-satellite broadcast of

blockbuster movies, football matches and other sport rights and to offer "wholesale" non bundled prices. Newscorp undertook to offer

improved terms to satellite operators to allow unilateral termination and shorter contracts and not to block cheaper access to delayed

release rights for films. Further, Newscorp accepted undertakings relating to the licensing and terms of licensing of technology for which

it was the "gatekeeper", including third party rights to use its own platform on fair, reasonable and non-discriminatory basis.

In September 2010, the General Court dismissed an appeal against the Commission's decision to grant conditional approval of the

Lagardere/Vivendi Universal Publishing (VUP) merger. The Commission concluded that the full merger of Lagardère and VUP (now

known as Editis) would produce a company that was seven times the size of its nearest rivals and would be dominant in a number of

markets in the French language publishing sector. In order to meet the competition concerns identified by the Commission, Lagardère

agreed to divest Editis and to retain only certain approved assets that comprise around 40% of the total Editis turnover.

However, the General Court annulled the Commission's decision to approve the purchaser of the divestment assets. The Commission's

decision approving the purchaser was adopted on the basis of the report of a trustee who was not independent (T-279/04 and T-452/04

Éditions Jacob SA v Commission, judgments of 13 September 2010; see Legal update, General Court upholds conditional approval of

Lagardere/VUP merger but annuls approval of purchaser of divestment assets (www.practicallaw.com/4-503-3201)).

The General Court's decision was appealed and, in March 2012, the Advocate General recommended that the General Court's

judgment be overturned (see Legal update, Advocate General opinion on independence of trustee in Lagardere/Natexis/VUP

merger (www.practicallaw.com/3-518-6671)). However, in November 2012, the ECJ dismissed the appeal and upheld the General

Court's judgment (Joined Cases C-553/10 P and C-554/10 P - Commission v Éditions Odile Jacob and Lagardère v Éditions Odile

Jacob; see Legal update, ECJ dismisses appeals against General Court judgments on Lagardere/VUP merger (www.practicallaw.com/6

-522-2757)).

Third party interventions

Following the notification of a concentration the Commission must (if it is within the scope of the Merger Regulation) publish details of it

in the Official Journal (Article 4(3), Merger Regulation). The Commission will use the Official Journal notice to invite third parties (such

as competitors, customers and suppliers) to comment on the transaction, usually within 10 days from publication of the notice. In

addition, where necessary, the Commission will request third parties to reply to specific questions during the course of the investigation.

The rights of third parties to be heard are contained in Article 18 of the Merger Regulation and also Articles 11 and 16 of the

Implementing Regulation.

In 2010, the Commission introduced the web-based application "eQuestionnaire" in its market investigations in merger cases.

Companies requested to provide information (at present only about notified mergers) will receive an e-mail informing them of the launch

of an investigation and inviting them to log on to eQuestionnaire using a unique access code. After first confirming their contact details

and the receipt of the request for information, companies can fill in the questionnaire directly online or can choose to export the

questionnaire to a text editor, complete the responses there and upload the replies into the application afterwards.

Third parties may also voluntarily submit comments to the Commission at any stage of the proceedings. Substantial criticism from third

parties is likely to trigger a Phase II investigation.

Third parties, and in particular competitors, have in a number of cases played an active and decisive role in merger procedures (see, for

example, Case IV/M.430 Procter & Gamble/VP Schickedanz and Case IV/M.623 Kimberly-Clark/Scott Paper). This may include

attending regular meetings with the Commission from the start of the proceedings, making detailed written submissions on the effect of

the merger (where necessary backed up with specially commissioned market and econometric studies), participating in the oral

hearings and extensive lobbying at both EU (through contacts with the Commissioners and their Cabinet) and national level (see

Advisory Committee). Third party comments, especially those of competitors, can also play a decisive role in determining the adequacy

of remedies proposed by the parties. The Commission will market test all remedies submitted to it with interested third parties.

A number of points concerning third parties rights' to be heard in merger proceedings were clarified by the General Court in

Kaysersberg SA v Commission (Case T-290/94 [1995] ECR 2247) which was an appeal against the Commission's decision in Procter &

Gamble/VP Schickedanz). The General Court underlined the need to reconcile respect for the rights of defence with the efficiency of the

proceedings. In particular, the obligation on the Commission to comply with strict time limits and the need for legal certainty required

sufficient flexibility in the proceedings, which might lead to shorter periods for the submission of observations by third parties.

The General Court considered the question of whether the Commission had exercised its duty of care in relation to third party

complainants in (NVV and others v Commission Case T-151/05, judgment of 7 May 2009). The General Court held that in its

assessment of mergers, the Commission must determine with the necessary care the elements of fact and law which are essential to

the exercise of its discretion by gathering all the necessary facts. This duty implies that the Commission must take account of the facts

and information provided to it by the notifying parties or by any third party active in the administrative procedure. In addition, it must



seek to discover those facts through market investigations or requests for information. However, the General Court again confirmed that

this duty of care must be interpreted in a way which is compatible with the need for speed which characterises the general scheme of

the Merger Regulation and the Commission's obligations to meet tight deadlines (see Legal update,CFI dismisses appeal against

Commission decision in Sovion/HMG merger (www.practicallaw.com/7-385-9108)).

The General Court has also confirmed that consumer associations do have a right to be heard in merger proceedings, provided that the

merger concerns (even indirectly) products or services used by final consumers, and the consumer association has made an application

to be heard during the investigation procedure, as required by Article 18(4) of the Merger Regulation and Article 16 of the Implementing

Regulation. However, the General Court has found that the fact that a consumer association has expressed its wish to be heard in a

letter sent to the Commission prior to the notification of the merger is not sufficient to trigger the right to be heard. Having failed to

express its views after the notification of the merger, the General Court found that consumer association's rights to be heard were not

violated (see Case T-224/10, Association belge des consommateurs test-achats ASBL v European Commission, judgment of 12

October 2011; General Court rules that appeal by consumer body against EDF/Segebel merger was

inadmissible (www.practicallaw.com/4-509-1601)).

For further information on third party interventions in merger cases see Complaints under EU competition law: Complaints under the EU

Merger Regulation (www.practicallaw.com/A29378).. For practical guidance on issues to consider in deciding whether to make a third

party intervention see Intervening effectively in an EU merger control investigation (www.practicallaw.com/4-549-0845).

Access to documents

In June 2012, two judgments of the ECJ provided some clarity about the rights of third parties to seek access to documents submitted

by the parties notifying a merger to the Commission. The first case concerned the Commission's refusal to disclose documents to

Editions Odile Jacob in relation to the Lagardere/ Natexis VUP merger. The second case concerned the Commission's refusal to

disclose documents to Agrofert in relation to the PKN Orlen/ Unipetrol merger. In each case, the Commission had refused to provide the

third parties with certain requested documents. In refusing such access, the Commission had relied on exceptions in Regulation

1049/2001, regarding public access to Parliament, Council and Commission documents (OJ 2001 L145/43).

Regulation 1049/2001 sets out the principles on which Community bodies should provide access to their documents. Citizens of the EU

and any legal or natural person residing in a member state have a right of access to documents of the institutions subject to certain

exceptions:

• Disclosure would undermine the protection of:

• the commercial interests of a natural or legal person, including intellectual property;

• court proceedings and legal advice;

• the purpose of inspections, investigations and audits

unless there is an overriding public interest in disclosure (Article 4(2)).

• The document has been drawn up for internal use and relates to a matter which has not yet been taken, or relates to deliberations

and preliminary internal consultations and disclosure would seriously undermine the institution's decision-making process, unless

there is an overriding public interest in disclosure. Access to a document containing opinions for internal use as part of deliberations

and preliminary consultations within the institution concerned shall be refused even after the decision has been taken if disclosure of

the document would seriously undermine the institution's decision-making process, unless there is an overriding public interest in

disclosure (Article 4(3)).

In each case, on appeal by the third party, the General Court had annulled the Commission's decision, finding that it was required to

conduct an individual examination of each requested document to show that the refusal was justified by one of the exceptions in

Regulation 1049/2001.

The Commission appealed the judgments of the General Court in these two cases to clarify the relationship between the particular rules

on professional secrecy under the EU Merger Regulation and the disclosure obligations in Regulation 1049/2001. It was concerned that

the General Court's judgments interfered with its ability to conduct inquiries under the EU Merger Regulation and had a potentially

adverse effect on the rights of parties that submit documents as part of merger control proceedings to have confidential information

protected.

The ECJ overturned the General Court's rulings. The ECJ held that the General Court erred by failing to take account of the secrecy

rules in the EU Merger Regulation when considering the application of the exceptions to disclosure. The ECJ s recognised that there is

a general presumption that the disclosure of documents submitted to the Commission in the context of merger control proceedings (by

the parties or third parties) undermines the protection of commercial interests of those parties and also the purpose of the Commission's

merger control investigations.



Therefore, the Commission may refuse access to requests for disclosure of such documents (whether the merger control case is open

or closed) in reliance of Article 4(2) of Regulation 1049/2001 without the need to conduct a detailed, individual examination of each

requested document. It would be up to the requesting party to argue that a particular document is not covered by that presumption or

that there is a higher public interest justifying disclosure. This, therefore, provides greater security to companies involved in merger

control proceedings that the sensitive information that they provide to the Commission will not be disclosed

In relation to internal Commission documents and legal advice, however, the ECJ emphasised the difference between cases where the

merger case is still potentially open (due to ongoing appeals) and cases where the Commission's decision is definitive. Where court

proceedings are pending there is a general presumption that disclosure would seriously undermine the Commission's decision-making

process and the protection of legal advice. However, in situations where the Commission's decision is final it must provide individual

justification for relying on the exceptions to disclosure based on protection of legal advice and protection of its decision-making.

See further Legal update, ECJ rulings on disclosure of documents relating to merger control proceedings (www.practicallaw.com/8-520-

1042).

Commission's assessment

The test: compatibility with the internal market

In assessing a concentration the Commission must determine whether it is compatible with the internal market (Article 2(1), Merger

Regulation).

For this purpose, the Commission must take into account:

• The need to maintain and develop effective competition within the internal market in view of, among other things, the structure of all

the markets concerned and the actual or potential competition from undertakings located either within or outside the EU (Article 2(1)

(a)); and

• The market position of the undertakings concerned and their economic and financial power, the alternatives available to suppliers

and users, their access to supplies or markets, any legal or other barriers to entry, supply and demand trends for the relevant

goods and services, the interests of the intermediate and ultimate customers, and the development of technical and economic

progress provided that it is to customers' advantage and does not form an obstacle to competition (Article 2(1)(b)).

Under the Merger Regulation a concentration which would significantly impede effective competition in the internal market or in a

substantial part of it, in particular as a result of the creation or strengthening of a dominant position must be declared incompatible with

the internal market i.e. prohibited (Article 2(3)). Conversely, a concentration which would not significantly impede effective competition

in the internal market or in a substantial part of it must be declared compatible with the internal market, i.e. cleared (Article 2(2)).

This replaced the original substantive test in the 1989 Merger Regulation whereby a merger that created or strengthened a dominant

position as a result of which effective competition would have been significantly impeded in the internal market or a substantial part of it

had to be declared incompatible with the internal market (the dominance test).

The original dominance test had two limbs:

• Whether the concentration creates or strengthens a dominant position; and

• If so, whether the result is that effective competition would be significantly impeded.

The current revised test, however, has a single test: whether the merger significantly impedes effective competition. Dominance is the

prime example of when there may be such a significant impediment to effective competition, but is no longer a pre-requisite for the

application of the test. The rationale for the change was to clarify that "the substantive test contained in the regulation covers all types of

harmful scenarios, whether dominance by a single firm or effects stemming from a situation of oligopoly that might harm the interests of

European consumers" (Commission press release IP/03/1261).

Commission practice and the case law of the ECJ had gone some way to extending the concept of dominance to situations of

"collective dominance" or oligopoly, where two or more of the market participants hold a position of joint dominance, but where the

merging entity does not hold a dominant position on its own (see Collective dominance). However, the leading cases in this area limited

the concept to situations where, due to particular market characteristics, the merger increases the possibility of tacit collusion between

those holding the collectively dominant position ("co-ordinated effects").



However, the Commission believes that in oligopolistic markets harmful effects can sometimes arise where mergers result in the

elimination of important competitive constraints or a reduction in competitive pressure, even where the possibility of tacit collusion or co-

ordinated behaviour is not increased. It was not clear that such "non-co-ordinated effects" would have been caught by the original

dominance test, in the absence of the merged entity being a market leader. The revised substantive test therefore seeks to close this

gap by focusing on the anti-competitive effects of a merger, rather than the structure of the market.

The Recitals to the Merger Regulation make it clear, however, that a significant impediment to effective competition generally arises

from the creation or strengthening of a dominant position (Recital 26). Accordingly, the previous decisions of the Commission and the

case law of the ECJ and General Court will continue to provide precedent for the application of the revised substantive test and the

assessment of dominance.

To coincide with the entry into force of the Merger Regulation, the Commission published guidance on the assessment of horizontal

mergers (mergers between actual or potential competitors) (the Horizontal Guidelines) (OJ 2004 C31/5). These also emphasise the

continued importance of previous case law on dominance (see Horizontal Guidelines).

In November 2007, the Commission adopted guidelines on the assessment of non-horizontal mergers under the Merger Regulation.

The Non-horizontal Guidelines provide guidance on the Commission's assessment of mergers where the parties are active on distinct

relevant markets: vertical mergers or conglomerate mergers. They provide an overview of the type of general issues that arise, provide

guidance on the relevant market share and concentration levels that might give rise to concerns, and review the Commission's analysis

of the possible foreclosure effects or co-ordinated effects arising from non-horizontal mergers (see The Non-horizontal Guidelines).

Substantive assessment

In assessing whether a concentration will significantly impede effective competition, a key assessment is, as explained above, whether

the merger creates or strengthens a dominant position. In assessing dominance, the Article 102 case law (see Practice Article

102 (www.practicallaw.com/A14485)), as well as cases on dominance in the context of the Merger Regulation itself, will be relevant. As

in the case of dominance under Article 102, it is first necessary to define the relevant product and geographic markets.

Relevant market

The Commission will assess a concentration with respect to the relevant product market and the relevant geographic markets affected

by it (the general principles of market definition are summarised briefly here; for more detailed consideration see Competition regime,

Market definition (www.practicallaw.com/A14487)).

The relevant product market comprises all those products or services which are regarded as interchangeable or substitutable by the

consumer, by reason of the characteristics of the products, their prices and intended use. Thus the market includes the products that

form the subject matter of the concentration plus any other products that are generally regarded as substitutable. This is viewed

primarily from the demand side - that is, products to which customers may switch - but supply-side substitutability (capacity for the

production of other products that could easily be switched to the production of the relevant products) will also be taken into account.

The relevant geographic market is the geographical area in which the companies concerned are involved in the supply of products or

services, in which the conditions of competition are sufficiently uniform, and which can be distinguished from neighbouring areas

because, in particular, conditions of competition are appreciably different in those areas. Conditions of competition which would indicate

separate geographic markets include the existence of significant price differentials or transport costs, differences in customer

preferences, and trade barriers (such as licensing requirements or other differences in the regulatory environment).

The Commission will not rely on current competition conditions alone, but will also taken into account market changes anticipated in the

foreseeable future in its assessment of the relevant market (Case IV/M.1882 Pirelli/BICC). The key issue in Pirelli/BICC was the

definition of the geographic market, more precisely whether competition on the markets for the production and sale of power cables to

energy utilities was carried out at national or European level. The Commission recognised that the gradual liberalisation of electricity

markets combined with the EU's public procurement directives had profoundly changed the relationship between power utilities and

cable manufacturers. Therefore, the Commission did not rely just on past market data but took into account the changes which had

already occurred and which could be expected to occur in the foreseeable future in determining the definition of the geographic market.

The case illustrates that the Commission, where appropriate, will take due account of the emergence of European markets.

The Commission has published a detailed Notice on the definition of the relevant market (OJ 1997 C372/3), which is considered further

in Competition regime, Market definition (www.practicallaw.com/A14487).

For specific sectors (such as air transport, telecommunications, insurance, energy and pharmaceuticals), a review of the Commission's

previous decisions may also be useful in determining the relevant product and geographic markets.

Although a review of the Commission's previous decisions may also be useful, the Commission only comes to a firm conclusion on the

scope of the relevant product or geographic market if such a conclusion is necessary to determine whether or not to clear a transaction.

In most cases, the Commission assesses the transaction on the basis of the narrowest market definitions that it considers to be

plausible. If the transaction in question does not give rise to concerns on even these narrowly defined markets, it can usually be cleared

without any detailed economic analysis of the correct scope of the relevant markets.



Therefore, while past decisions in a given sector may offer insights into the way that the Commission will segment markets for the

purposes of assessing transactions that raise no competition concerns, and whether prima facie concerns are likely to be identified by

the Commission on the basis of those markets, they may offer limited guidance on how the Commission would define markets for a

transaction raising substantial competition concerns. Moreover, even where the Commission does come to a firm conclusion on the

scope of a relevant market, this does not bind the Commission in future cases, as market conditions may change over time, or between

different geographic regions (see the judgment of the General Court in Coca-Cola Case T-125/97 [2000] ECR 1732).

Market shares and other factors

In assessing a concentration's compatibility with the internal market, the Commission will first take into account the market share which

the merged entity would have. A market share of below 25% will generally be presumed to be compatible with the internal market

(Recital 32, Merger Regulation). In its Horizontal Guidelines, the Commission states that market shares in excess of 50% may evidence

the existence of a dominant market position, particularly if the competitors’ market shares are low. However, other factors (such as the

number of competitors, capacity constraints and the nature of the market) may mean that combined shares of between 40–50%, or

even below 40%, will be seen to strengthen or create a dominant position.

High market shares, while generally triggering a Phase II investigation, will not necessarily lead to a decision of incompatibility (for

example, market shares of 80% were cleared in Alcatel/Telettra (Case IV/M.042) and Danish Crown/Vestjyske Stagterier (Case

IV/M.1313) and a market share of 60% was cleared in Swedish Match/KAV).

There may also be certain markets in which market shares have less relevance in indicating horizontal competition concerns. For

example, in Microsoft/ Skype (Case COMP/M.6281) , the Commission found that the consumer communications sector is a recent and

fast-growing sector, which is characterised by short innovation cycles. Market shares may, therefore, turn out to be ephemeral. In such

a dynamic context, high market shares are not necessarily indicative of market power or of lasting damage to the market resulting from

a merger. This approach was confirmed by the General Court (Case T-79/12 - Cisco Systems and Messagenet v European

Commission).

In addition, to market shares, the Commission will also consider other indicators of market concentration, such as the Herfindahl-

Hirschman Index (HHI) (see Practice note, How to conduct an HHI analysis (www.practicallaw.com/A28373)).

In order to assess the impact of the merger on competition in the relevant market in light of the relevant market structure (as indicated

by market share), the Commission will take into account the factors referred to in Article 2(1)(a) and (b) of the Merger Regulation (see

above) for example:

• The existence of potential new entrants to the market (if there is strong evidence of such entrants). In a case concerning the market

for the supply of steel and plastic strapping, the Commission found that the parties' combined market share of 40% in steel strapping

caused concern. The Commission, however, found that plastic strapping could be substituted for steel and, since entry into plastic

strapping was relatively easy, the likelihood of a new entrant in the plastic strapping sector was high if the parties raised their prices

(Case IV/M.970 - ITS/Signode/Titan).

The potential entrance by one of the parties to a concentration into the market of another party can, however, give rise to concerns.

For example, in EDP/ENI/GDP (Case COMP/3440), the Commission was concerned by the impact on competition of the removal of

GDP (the incumbent Portuguese gas supplier and EDP (the incumbent electricity supplier) as potential competitors to the other in

relation to gas and electricity. Dismissing an appeal by EDP against the Commission's decision prohibiting this merger, the General

Court found that the Commission did not make a manifest error of assessment when it considered that the concentration would

cause an important potential competitor (GDP) to disappear from all the electricity markets. The General Court agreed with the

Commission that this would strengthen EDP’s dominant positions on each of those markets, with the consequence that effective

competition would be significantly impeded (Case T-87/05 - EDP-Energias de Portugal SA v Commission).

• Low entry barriers to the market(s) in question.

• The availability of alternative products (albeit not substitutable products).

• The existence of countervailing buying power on the part of customers. For example, in a case concerning the merger of two

paper and board companies, the Commission found that, although the number of suppliers of liquid packaging board in the EEA

would be reduced to just three and that entry barriers were high, the merged company faced considerable countervailing buyer

power from their three main customers (the principle customer being Tetra Pak), with there being mutual dependence between

buyers and sellers (Case IV/M.1225 - Enso/Stora).

• The limited impact of the concentration on an entity's market position.

• The existence of vertical links may raise concerns. This point is illustrated in two cases where the merged companies were to

supply digital pay-TV services, but the Commission found that the concentrations would have created or strengthened dominant

positions in certain vertical markets, including technical pay-TV services, set-top box technology and access to cable networks and

therefore prohibited the joint ventures (Case IV/M.993 Bertelsmann/Kirch/Premiere; Case IV/M.1027 Deutsche

Telekom/Betaresearch).



• In Kali und Salz (Cases C-68/94 and C-30/95 ECR [1998] 1375), the ECJ agreed with the Commission's application of the so-called

"failing company defence". According to this, a concentration is not incompatible with the internal market, irrespective of the

parties' market position, if one of the parties is a failing company which would be forced out of the market if the concentration were

not implemented, and if there are no other solutions (alternative purchasers) which are less anti-competitive than the concentration.

The Commission applied the "rescue merger" concept for the second time in BASF/Pantochim/Eurodiol (Case IV/M.2314), approving

the acquisition by BASF of Pantochim and Eurodiol notwithstanding the resultant high market share (in excess of 45%). BASF was

the only company to have made a firm offer and, in the absence of a buyer, the bankruptcy of Pantochim and Eurodiol would have

been unavoidable. The Commission concluded that the bankruptcy would have caused more damage to consumers than the merger

itself.

In Newscorp/Telepiu (Case COMP/M.2876), Newscorp argued that the conditions for the failing company defence were met and that

Stream, its subsidiary, would inevitably exit the market in the event of the merger being blocked. While the Commission considered

that the very strict legal requirements of the defence were not met, in approving the merger, it did take into account the chronic

financial difficulties faced by both companies, the specific features of the Italian market and the disruption that possible closure of

Stream would cause to customers.

During 2013, the Commission accepted a "failing firm" defence in two cases. In Nynas/ Harburg Refinery (COMP/M.6360), the

Commission was satisfied that, absent the merger, the previous owners would not continue to operate the Harburg refinery as it was

economically unsustainable. Nynas would operate the refinery on a different business model, requiring significant investment.

Further, there were no alternative buyers of the Harburg refinery assets. Therefore, the Commission concluded that the most likely

alternative scenario to the proposed transaction would be the closure of the Harburg refinery. As such, the reduction of the number

of competitors in the market would occur anyway and would not be caused by the acquisition itself.

In addition, in Olympic Air/ Aegean Airlines II (COMP/M.6796), the Commission accepted that Olympic Air should be regarded as a

failing firm, which would soon exit the market in the absence of the merger. The Commission had rejected this argument when it first

reviewed, and prohibited, this merger in 2011. However, due to the subsequent deterioration in the financial situation of Olympic,

and the situation the Commission was satisfied that the situation had changed.

• The creation or strengthening of a strong position in neighbouring markets may be important. In Wolters Kluwer/Reed Elsevier

(Case IV/M.1040), the Commission found that the proposed merger of two of the largest publishers of professional and specialist

information gave cause for concern due to the impact of the merger on various neighbouring markets, including academic journals

and books worldwide, professional books on law and taxation in various member states, and educational publishing for schools in

the UK. The Commission found that the combined strength of the parties across a wide range of neighbouring markets could give

rise to competition problems, in that the parties' size and copyright ownership had a foreclosure effect and would discourage market

entrants.

• The Commission is also prepared to assess the possible impact of a concentration on emerging or future markets. In

Vodafone/Vivendi/Canal+ (Case IV/JV.48), in relation to the creation of the Vizzavi Internet portal joint venture, the Commission's

investigation concluded that the joint venture would have led to competitive concerns in the developing national markets for TV-

based internet portals and in the developing national and pan-European markets for mobile phone-based internet portals. The

parties submitted commitments to ensure rival Internet portals would have equal access to the parent companies' set-top boxes and

mobile handsets. In Vivendi/Canal+/Seagram (Case IV/M.2050) the Commission approved the acquisition by French

telecommunications and media company, Vivendi, and its subsidiary, Canal+, of Canada's Seagram. The Commission found that the

transaction as notified significantly affected three markets, namely pay-TV, the emerging pan-European market for portals and the

emerging market for online music. Vivendi offered to give rival portals access to Universal's online music content for five years in

order to remove the competition concerns on the emerging pan-European market for portals and on the emerging market for online

music.

• The Commission will be concerned if a merger would lead to foreclosure of the market through ties with customers and/or

suppliers. In a case concerning the market in certain clinical chemistry testing products, the Commission found that the parties would

benefit from an "installed base" of instruments needed to perform the tests, leading to the risk that customers would become "locked

in" to purchasing the testing products from the parties due to their reliance on the parties for service, maintenance, and so on, of the

instruments. Although the Commission concluded that this situation would have created or strengthened a dominant position, the

concentration was cleared after the parties agreed to a number of undertakings (Case IV/M.950 Hoffmann-La Roche/Boehringer

Mannheim), which the Commission subsequently waived in May 2011 (OJ 2011/C 189/11).

• The so-called portfolio effect was considered in Guinness/Grand Metropolitan (Case IV/M.938). The Commission assessed the

effect of including strong brands belonging to separate markets in a range of drinks, and found that the inclusion of the brands could

give each brand in the portfolio greater strength on the market than if it were sold individually (the "portfolio effect"), thereby

strengthening the competitive position of the portfolio's owner on several markets. In the SEB/Moulinex case the General Court, for

the first time, confirmed the use by the Commission of a competitive analysis including an examination of the portfolio effects of a

merger (Cases T-114/02 and T-119/02, judgment of 3 April 2003). In WorldCom/MCI (Case IV/M.1069), the Commission found that

the "network externalities" effect (where the attraction of a network to its customers is affected by the number of other customers

connected to the same network) would have enabled the merged entity to behave independently of its competitors and customers,

and to degrade the quality of the internet-related services offered by its competitors.



• The Commission assessed the Tetra Laval/Sidel merger on the basis of its conglomerate effects. Although the Commission did

identify certain horizontal and vertical overlaps between the activities of the parties, these would not on their own have resulted in

the creation or strengthening of a dominant position. The Commission found that Tetra Laval's dominance in one market could be

used to leverage its position in another distinct, but closely related market and blocked the merger. On appeal, the General Court

found that while the Merger Regulation allows for the possibility of finding that a dominant position could be created or strengthened

through leveraging the Commission must adduce convincing evidence to support such a finding. The General Court found that the

Commission had failed to reach the required level of proof and annulled the Commission's decision. This view has been upheld by

the ECJ (see also box, Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel).

The Commission's decision blocking the GE/Honeywell merger included an assessment of similar conglomerate issues. The

Commission concluded that there was a risk that the merged entity would be able to leverage the respective market power of the two

companies into the products of one another which would have the effect of foreclosing competitors, severely reducing competition in

the aerospace industry. The General Court upheld the Commission's decision to block this merger on the basis that direct horizontal

overlaps between the parties either created or strengthened dominant positions. However, the General Court found that the

Commission made a number of errors in its assessment of the impact of the conglomerate effects of the merger and had not shown

to the requisite standard of proof that the competitive harm foreseen by the Commission would arise (Case T-210/01 General

Electric v Commission [2005] ECR II-5575 and Case T-209/01 Honeywell v Commission [2005] ECR II-5527).

Following the Tetra Laval and GE/Honeywell) judgments the Commission set out a more cautious approach to conglomerate and

portfolio effects in its Non-horizontal Guidelines, in which it acknowledged that conglomerate mergers in the majority of

circumstances will not lead to any competition problems (see The Non-horizontal Guidelines). This caution may be demonstrated by

the recent Procter & Gamble/Gillette case (Case COMP/M.3732) in which the Commission concluded that, despite the large number

of well-known brands the merged entity would be able to offer, conglomerate effects were unlikely to arise due to continued strong

competition from other suppliers, as well as the ability and incentive for retailers to exercise countervailing power.

Similarly, in Pernod Ricard/Allied Domecq (Case COMP/M.3779) the Commission concluded that the merged entity's enlarged

portfolio was unlikely to have significant anti-competitive effects on competition, mainly because of strong competition from Diageo.

• In UPM-Kymmene/Haindl (Case COMP/M.2498) and Norske Skog/Parenco/Walsum (Case COMP/M.2499), the Commission

assessed the effects of "capacity co-ordination" in two merger cases involving the markets for newsprint and wood-containing

magazine paper. In the newsprint market the Commission found that the four largest companies (UPM-Kymmene/Haindl, Stora

Enso, Norske Skog/ Haindl-2 and Holmen), together, held approximately 70% of the market in terms of sales and 80% of the market

in terms of capacity. In the wood-containing magazine paper market, the Commission determined that the top three suppliers (UPM-

Kymmene/Haindl, Stora Enso and M-Real/Myllykoski) accounted for approximately 70% of the market in both sales and capacity.

The Commission observed that the transactions eliminated a significant competitor, Haindl, from the market and that Haindl's cost

structure differed from the other top suppliers. In the newsprint market, the number of competitors would be reduced from five to four

and in the wood-containing magazine paper market, from four to three.

The Commission considered whether the potential for co-ordination of investment in new capacity (in order to limit overall capacity)

or the co-ordination of output downtimes to support short term prices would allow co-ordination between the various competitors and

so support the conclusion that collective dominance would be created (see Collective dominance).

The Commission observed that possibilities for the co-ordination of investment in new capacity could not sustain the creation of tacit

co-ordination in the relevant markets. The co-ordination of output downtimes could lead to collusion so as to support the existence of

a collectively dominant position. However, in this case, the Commission found that the effects would be undermined by fringe players

in these markets who had the ability to increase production so as to make such co-ordinated action unsustainable (see also

COMP/M.6101 - UPM-Kymmene/Myllykoski, which was cleared at Phase II on the basis that, inter alia, the parties' competitors

would have significant spare capacity in relation to magazine paper (specifically the supercalendered paper segment) to react to any

attempts by UPM-Kymmene to raise prices, and demand for magazine paper was forecast to remain stable or even slightly decline,

so sufficient capacity would remain available).

Collective dominance

The Commission took the view that the pre-2004 merger control regime gave it competence to prohibit concentrations which created or

strengthened an oligopolistic market structure, even if the merged entity on its own would not have occupied a dominant position. This

view was confirmed by the ECJ in the Kali und Salz and Gencor judgments (Joined cases C-68/94 and C-30/95 [1988] ECR 1375).

Gencor also appealed against the Commission's decision in Gencor/Lonhro (Case IV/M.659) to prohibit the proposed joint venture

between the two parties, on the basis that the joint venture would create collective dominance consisting of the joint venture and

Amplats (see Case T-102/96 [1997] ECR 879). The General Court followed the ECJ ruling in Kali und Salz, holding that, on the facts of

the Gencor case, the Commission was entitled to conclude that the concentration would have led to the creation of a collective

dominant position, on the basis, amongst other factors, that the products were high value goods, sold throughout the world on the same

terms, that the products were characterised by homogeneity, that there was high market transparency, moderate growth rate and high

barriers to market entry for competitors.



The substantive test to be applied by the Commission in assessing cases involving collective dominance was confirmed by the General

Court in the Airtours/First Choice judgment (Case IV/M.1524, appeal Case T-342/99 [2002] ECR II-2585). The General Court

emphasised that the Commission must ascertain "whether the concentration would have the direct and immediate effect of creating or

strengthening a [collective dominant] position which is such as significantly and lastingly to impede competition in the relevant market".

The risk to competition in the market could arise where, in view of the characteristics of the market, each company holding the position

of collective dominance would recognise their common interest in increasing prices in the market and would be able to adopt such a

common policy without engaging in collusion (i.e. there would be co-ordinated effects resulting from the merger).

The General Court ruled that a collective dominant position requires that the companies reach a common understanding about the

terms of co-ordination and that the following three conditions are met:

• The co-ordinating firms must be able to monitor whether the terms of co-ordination are adhered to (transparency).

• There must be some form of deterrent mechanism in the case of deviation.

• The reaction of outsiders, such as current and future competitors not participating in the co-ordination, should not be able to

jeopardise the results expected from the co-ordination.

In its analysis the Commission should take into account a range of factors, such as transparency in the market, product homogeneity,

market growth, innovation, barriers to entry and the possibilities for retaliation, as well as the position of smaller operators.

Although the General Court agreed with the Commission on the legal test to be applied it was extremely critical of the way in which the

Commission applied the test to the facts of the case. The outcome of the Airtours appeal was widely seen as a blow to the Commission

in this area. Airtours, now known as 'My Travel', lodged an action with the General Court claiming substantial damages from the

Commission. However, in September 2008, the General Court dismissed this action (see the box, Airtours/First Choice,

Schneider/Legrand and Tetra Laval/Sidel).

The Horizontal Guidelines set out the factors that the Commission will generally consider in assessing whether a merger in an

oligopolistic market will increase the likelihood that firms are able to co-ordinate their behaviour to adopt a course of action aimed at

selling at increased prices (without the need to enter into an agreement or concerted practice contrary to Article 101 of the TFEU) or

whether the merger may make such co-ordination easier, more stable or more effective for firms that were already co-ordinating.

The market conditions identified by the General Court in the Airtours case will be used by the Commission to assess the possibility of co

-ordination in an oligopolistic market. These conditions are more likely to be established in simple, stable and transparent markets

involving homogenous products.

In July 2004, the Commission completed its in-depth examination of a joint venture between Sony and Bertelsmann Music Group

(BMG). The Commission assessed the possibility that the joint venture would result in the creation or strengthening of a collective

dominant position in the national markets for recorded music. The Commission found that there was insufficient evidence of such

collective dominance and approved the merger unconditionally (Case COMP/M.3333). Although this case was considered under the pre

-2004 merger control regime, it was the first significant example of the application of the principles set out in the Airtours case in

practice (see box, Sony/BMG).

However, this case could be seen to demonstrate a more cautious approach by the Commission since the Airtours case. It can be

contrasted with EMI/Timewarner (Case COMP/M.1852), where the Commission's opposition based on arguments relating to collective

dominance led to the abandonment of the merger.

The Commission's clearance decision in Sony/BMG was appealed by Impala, a trade association representing independent music

companies (Case T-464/04 - Impala v Commission). On 13 July 2006, the General Court upheld Impala's appeal and annulled the

Commission's decision. The General Court did not challenge the Airtours tests, but found that the Commission had erred in its

application. In particular, the General Court found that the two main reasons why the Commission concluded that there was no

collective dominant position on the relevant markets (the lack of transparency and absence of retaliatory measures) were not

adequately supported by the Commission's reasoning or examination.

However, in July 2008, the ECJ set aside the General Court's decision. The ECJ found that the General Court had made errors in law in

finding that the Commission's decision was not adequately reasoned. It also found that the General Court had erred in its examination

of market transparency for the purposes of assessing collective dominance.

The ECJ set out its views on collective dominance, reframing, but not changing, the Airtours criteria. In particular, it noted that a

mechanical approach should not be taken to the criteria for establishing collective dominance. The verification of each of the criteria

(such as transparency) should not be done in isolation. It concluded that the General Court did not carry out its analysis of the parts of

the Commission's decision relating to market transparency by having regard to a postulated monitoring mechanism forming part of a

plausible theory of tacit co-ordination (see Legal update, ECJ sets aside CFI judgment on SonyBMG joint

venture (www.practicallaw.com/3-382-5436))



After its reassessment, following the General Court's judgment, the Commission again unconditionally approved the Sony/BMG merger

in October 2007. The Commission again applied the Airtours principles, and concluded, after "one of the most thorough analyses of

complex information ever undertaken" that there was no evidence of co-ordinated behaviour in any of the relevant markets, either prior

to the merger or as a result of it. The merger would not, therefore, result in either the creation or strengthening of a single or collective

dominant position.

A merger in an oligopolistic market may also be found to result in a significant impediment to effective competition if it causes the

elimination of important competitive effects, even if there is little likelihood of co-ordination between the members of the oligopoly. The

assessment of such mergers will involve consideration of factors such as the extent of the direct competition between the parties to the

merger, the extent of competition from other market participants, the ability of customers to switch suppliers and barriers to entry and

expansion.

Merger control statistics

As at 1 April 2013, only 24 transactions had been blocked by the Commission out of over 5,000 notified cases (see also box, EU merger

control statistics). Of these 24 cases, three were concentrations that did not have an EU dimension but which had been referred to the

Commission by a member state (see Referral by member states). These figures do not, of course, take account of the number of

transactions that were abandoned following initiation of a Phase II investigation and before a negative decision could be adopted by the

Commission. The Commission did not block any of the transactions that it reviewed between November 2001 and November 2004. The

last merger that it blocked under Regulation 4064/89 was ENI/EDP/GDP (Case COMP/M.3440) in December 2004.

The Commission has only reached five prohibition decisions under the 2004 Merger Regulation (but four of these have been since

January 2011). It prohibited the proposed acquisition by Ryanair or Aer Lingus in June 2007 (COMP/M.4439; Ryanair/Aer Lingus , see

PLC Legal update, Commission prohibits the acquisition of Aer Lingus by Ryanair (www.practicallaw.com/0-369-7973)). Ryanair lodged

an appeal against this decision, which was dismissed in its entirety in July 2010 (Case T-342/07 - Ryanair v Commission). Ryanair

subsequently launched a new bid to acquire Aer Lingus, which was notified to the Commission on 24 July 2012 and which was referred

to a Phase II review on 29 August 2012. On 27 February 2013, the Commission again prohibited Ryanair's bid for Aer Lingus (see

Legal update, Commission prohibits Ryanair's acquisition of Aer Lingus for second time (www.practicallaw.com/2-524-4855)). Ryanair

has again appealed this decision.

In January 2011, the Commission prohibited the proposed merger between Olympic Air and Aegean Airlines (COMP/M.5830 -

Olympic/Aegean Airlines). The Commission concluded that the merger would result in the establishment of a quasi-monopoly on nine

domestic routes from Athens. It did not consider that there was a realistic prospect of new entry on a sufficient scale to constrain the

merged entity. Although the parties offered to divest slots at the relevant Greek airports, the Commission decided that such a remedy

would not be sufficient to resolve its competition concerns as there is no shortage of availability of such slots in Greece (see PLC Legal

update, Commission blocks merger between Olympic Air and Aegean Airlines (www.practicallaw.com/3-504-6077)). However, following

renotification and a second Phase II investigation, the Commission approved this merger in October 2013 on the basis of new evidence

that Olympic should be regarded as a "failing firm" which would soon exit the market in the absence of the merger.

In February 2012, the Commission prohibited the proposed merger between Deutsche Borse and NYSE Euronext. The Commission

concluded that the merger would result in the establishment of a quasi-monopoly in the area of European financial derivatives traded

globally on exchanges. The Commission found that exchange traded derivatives and over the counter derivatives belong to different

product markets and that there are major barriers to entry to these markets due to the fact that trading on the parties' exchanges is

exclusively linked to a clearing house and customers prefer to stay on exchanges where they can pool margin and thereby save

collateral. Although the parties offered to sell certain assets and to provide access to their clearinghouse for some categories of new

contracts, the Commission decided that such a remedy would not be sufficient to resolve its competition concerns. The parties did not

propose to divest sufficient assets so as to create an independent and significant competitor, nor did they propose full access to

clearing facilities to their competitors The Commission, therefore, concluded that the proposed merger would significantly impede

effective competition in the internal market or a substantial part of it (see PLC Legal update, Commission blocks merger between

Deutsche Borse and NYSE Euronext (www.practicallaw.com/9-517-7150)). Deutsche Borse has lodged an appeal against the

Commission's decision (Case T-175/12 - Deutsche Börse v Commission).

In January 2013, the Commission prohibited the proposed acquisition of TNT Express by UPS. The Commission found that the

acquisition would have reduced competition for intra-EEA express small package delivery services in 15 member states, where, in

some cases, DHL would remain the only viable competitor. It concluded that the merger would reduce choice for customers and be

likely to result in price increases. The Commission did not accept that efficiency benefits resulting from the merger would outweigh the

adverse impact on competition. UPS offered a package of remedies, including divestment of TNT's subsidiaries in the relevant member

states. However, the Commission was not satisfied about the effectiveness of the proposed remedy package due to doubts that there

would be any suitable purchaser who would be an effective competitor. UPS did not offer an "up front" buyer commitment that would

have required it to enter into a binding sale agreement prior to completing the merger (see PLC Legal update, Commission prohibits

acquisition of TNT Express by UPS (www.practicallaw.com/7-523-8423)).



Assessment of ancillary restrictions

Certain ancillary agreements may be entered into by the parties to a merger as part of the overall transaction, such as restrictive

covenants, purchase and supply arrangements and intellectual property licences.

To the extent that such restrictions are directly related and necessary to the implementation of a concentration, they will be

characterised as ancillary restrictions.

The Commission changed its policy on ancillary restraints in June 2001 and adopted a new Notice (the 2001 Notice) (OJ 2001 C188/5),

replacing the previous 1990 notice. It announced that it would no longer assess in its merger decision whether the restrictions entered

into by the parties were ancillary. This change in policy was called into question by the General Court in its judgment in Lagardère

Canal+ v Commission (Case T-25/00). In this decision the General Court held that the Commission had an exclusive competence under

Articles 22(1) of the Merger Regulation to decide whether restrictions were ancillary to a merger. Where restrictions are notified to the

Commission on Form CO, the Commission is obliged to give a reasoned response as to the ancillary nature of those restrictions. The

General Court in Lagardère stated that to be considered ancillary a restriction must be economically necessary to the implementation of

a merger.

The current Merger Regulation clarified the Commission's approach to ancillary restraints. Article 6(1) contains wording whereby

ancillary restraints will be "deemed" to have been approved by the merger clearance decision. Such wording is intended to address the

issue raised in Lagardère and confirms the Commission's preferred policy as stated in the 2001 Notice. The Commission should,

however, at the request of the parties assess whether a restriction is ancillary to a merger where the case presents novel or unresolved

questions, not addressed in any previous decision or Commission Notice, that give rise to genuine uncertainty (Recital 21, 2004 Merger

Regulation).

In light of this change, the Commission adopted a new Notice on ancillary restraints (the 2004 Notice) (OJ 2005 C56/23). The 2004

Notice, on the whole, follows the format of the Commission's 2001 Notice and provides valuable further guidance as to when restraints

will be ancillary. Clauses which cannot be considered ancillary are not per se illegal, but they are not automatically covered by the

merger decision.

According to the Notice, to be treated as ancillary, restrictions must:

• Have a direct link to the establishment of the concentration.

• Be judged on an objective basis to be necessary to the implementation of the concentration (so that without them the concentration

could not be implemented, or could only be implemented under more uncertain conditions, or at a substantially higher cost, over an

appreciably longer period or with considerably less probability of success).

• Be proportionate, so that their duration, subject matter, and geographical field of application do not exceed what the implementation

of the concentration reasonably requires.

Ancillary restraints are to be distinguished from the contractual arrangements which constitute the concentration itself (such as

provisions relating to the transfer of shares), and which are the subject of the Commission's analysis under the Merger Regulation.

The Notice regards the following as ancillary where the concentration involves the acquisition of sole control:

• Non-compete obligations. Where the transfer includes both goodwill and know-how, the non-compete clause is justified only for a

period of up to three years and up to two years if the transfer of goodwill only is involved. Longer durations may still be justified in a

limited range of circumstances, for example, where it can be shown that customer loyalty to the seller will persist for more than two

years, or where the scope or nature of the know-how transferred justifies an additional period of protection.

The geographical scope of a non-compete clause must be limited to an area in which the vendor has offered the products or

services before the transfer. Furthermore, the presumption that the acquirer does not need to be protected against competition in

territories previously not penetrated by the vendor can be overturned if it is shown that such protection is required by the particular

circumstances of the case, for example, for territories the vendor was planning to enter at the time of the transaction, provided that

the vendor had already invested in such a move.

Non-compete obligations must be restricted to the products and services which comprise the main activity of the transferred

business/company. Non-compete obligations may bind only the seller, its subsidiaries and agents. The Commission does not

consider as ancillary those non-compete obligations imposed on others, for example resellers.

Further, clauses which limit the seller's right to purchase or hold shares in a company competing with the business transferred shall

be considered directly related and necessary to the implementation of the concentration under the same conditions as for non-

compete clauses, unless they prevent the seller from purchasing or holding shares for investment purposes only, where such a

share holding does not grant, directly or indirectly, management functions or material influence in the competing company.



• Non-solicitation and confidentiality clauses. These are to be evaluated in the same way as non-competition clauses. However,

the scope of these clauses may be narrower than that of non-competition clauses, but they are more likely to be found to be directly

related or necessary to the implementation of the concentration. Moreover, the Commission states that confidentiality clauses

covering technical know-how can exceptionally be accepted for a period of over three years.

• Licensing of technical and commercial property rights and know-how. The Commission considers that licences (whether

exclusive or not) of patents, know-how and other intellectual property rights may be ancillary insofar as they relate to the existing

activities of the business or company being acquired. However, licences that encompass territorial restrictions will not generally be

regarded as ancillary (for example, those limiting the use of a manufacturing process to the geographic areas of activity of the

transferred business or company). Licences need not be limited in time and may be granted for the whole duration of the intellectual

property right concerned, or, in the case of know-how for the duration of its economic life.

• Purchase and supply agreements. The Commission has recognised as ancillary the conclusion of purchase and supply

agreements between the acquirer and the seller. These may be required to ensure the continuity of supply of products necessary to

the activities that may be retained by the seller or taken over by the acquirer, or the continuity of outlets for one of the two parties.

The duration of any such purchase and supply obligations must be limited to a period necessary for the replacement of the

relationship of dependency by autonomy in the market (the 2004 Notice provides that purchase or supply obligations aimed at

guaranteeing quantities previously supplied can be justified by a transitional period of up to five years). However, exclusivity

provisions contained in such purchase and supply agreements will not be viewed as ancillary.

• Service and distribution agreements. Service and distribution agreements will be assessed in a similar manner to supply

agreements.

Where the concentration involves the acquisition of joint control, the following will generally be considered ancillary:

• Obligations on the joint buyers to refrain from making competing offers.

• Sharing out of production facilities, distribution networks and trademarks among the joint acquirers, provided there is no co-

ordination of future conduct between them.

• Arrangements relating to the methods of implementing a break-up of the acquired business or company. In this regard, the principles

explained above in relation to purchase and supply arrangements for a transitional period should be applied by analogy.

These principles also apply in relation to joint ventures, subject to certain differences in their application (see Joint

ventures: (www.practicallaw.com/A14479)Ancillary restrictions (www.practicallaw.com/A14479)).

Appeals against merger decisions

Decisions of the Commission, including merger decisions, may be the subject of appeal to the General Court by way of application for

annulment under Article 263 of the TFEU (formerly Article 230 of the EC Treaty). Such an application may be brought by the addressee

of the decision or by any other person for whom the decision is of direct and individual concern.

The General Court has, however, dismissed an appeal against a decision by the Commission to open a Phase II investigation (Case T-

48/03 Schneider Electric SA v Commission, Order of the General Court, 31 January 2006, [2006] ECR II-111). The General Court

concluded that a decision under Article 6(1)(c) of the Merger Regulation is not an appealable decision as the decision to initiate a Phase

II procedure constitutes a simple preparatory measure which has as its only objective the commencement of an in depth investigation to

enable the Commission to gather the facts needed to reach a definitive decision on the compatibility of the merger with the internal

market. The fact that an Article 6(1)(c) decision prolongs the investigation and requires the undertakings involved to co-operate with the

Commission is a result of the procedural framework of the Merger Regulation. It does not amount to a decision which affects the legal

position of the undertaking.

The General Court has also held that a decision by the Commission not to refer a merger to a member state under Article 9 of the

Merger Regulation is not an appealable decision. Such a decision does not jeopardise procedural rights and judicial protection (Case

T-224/10, Association belge des consommateurs test-achats ASBL v European Commission, judgment of 12 October 2011; see

General Court rules that appeal by consumer body against EDF/Segebel merger was inadmissible (www.practicallaw.com/4-509-

1601)).

The General Court has also held that a Commission decision is not appealable solely on the basis that, from a third party's perspective,

the Commission should have referred a concentration for review by a NCA (Case T-315/10 - Partouche v Commission, judgement of 20

January 2012; see Legal update, General Court issues order dismissing Groupe Partouche appeal (www.practicallaw.com/9-518-

1901)). However, a third party is entitled to challenge the Commission's decision to allow a request for referral under Article 9 (Joint

cases T-346/02 and T-347/02, Cableuropa SA and Aunacable v Commission, see, Legal update, The CFI upholds Commission's

decision under Article 9 EC Merger Regulation (www.practicallaw.com/0-102-4707)).



As was the case in Tetra Laval and Schneider, an appeal may benefit from the General Court's fast track appeal procedure. This

procedure is designed to eliminate several time-consuming procedural steps in the appeal process and enable the General Court to

render judgment much more quickly. Under the standard appeal procedures, the General Court takes up to three years to review

Commission decisions. The General Court handed down its judgments ten months after the appeals in Tetra Laval and Schneider were

lodged and only seven months after the appeal was lodged in the EDP case.

The expedited procedure was used in Impala's appeal against the Sony/BMG merger. However, the General Court took over 18 months

to issue its judgment. The General Court cast some criticism on the insistence by the appellant in using the expedited procedure,

despite the complexity of the issues involved. Further, the General Court found that the appellant had subsequently acted in a way that

had slowed the procedure down. Accordingly, the General Court ordered the appellant (who was successful on the substance of the

appeal) to bear 25% of its own costs (the losing party normally bears all the costs of the victor).

From the General Court, points of law may be appealed to the ECJ (see further the Practice note, Litigation before the European

Community Courts in competition and state aid cases (www.practicallaw.com/7-107-5010).

In March 1998, the ECJ for the first time annulled a Commission merger decision in the Kali und Salz case. The concentration was

ultimately re-notified to the Commission and cleared by it, on the basis that the conditions which had previously created a dominant

duopoly no longer existed. The parties will nevertheless have suffered financially as a result of the initial annulment. Subsequent cases

have addressed the extent to which the Commission is liable to compensate parties for such losses (see Damages actions).

The General Court, in Assicurazioni Generali/Unicredito, upheld the Commission's decision that the joint venture in question was not a

concentration, stating that the conditions for the existence of functional autonomy were not met in this case (Case T-87/96 [1999] ECR

203). In Coca Cola, the General Court ruled that a Commission decision containing a finding of dominance (but not prohibiting the

transaction concerned) did not produce legal effects and, therefore, could not be the subject of challenge under Article 230 of the EC

Treaty (now Article 263 of the TFEU) (Coca-Cola Case T-125/97 [2000] ECR 1732). This case concerned Coca Cola's acquisition of

Amalgamated Beverages, a joint venture between Coca Cola and Cadbury-Schweppes, which was cleared by the Commission in 1997.

Along with Airtours, the General Court's decisions overturning Commission decisions in Schneider/Legrand and Tetra Laval/Sidel were

highly critical of the standard of reasoning used by the Commission and its failure to accurately assess the evidence. In Airtours, the

General Court did reiterate that the Commission had a certain discretion, especially with regard to assessments of an economic nature,

and that the courts of the EU must take this discretion into account when carrying out a review. Despite this, the General Court was

willing to carry out a detailed review of the evidence on which the Commission's decision was based, finding that the Commission had

failed to prove its case on each of the issues considered. The ECJ has confirmed the approach taken by the General Court in most

respects in its judgment on the Commission's appeal in the Tetra Laval case (Case C-12/03 P -Commission v Tetra Laval BV, [2005]

ECR I-987) (see box, Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel).

The Commission has claimed that the judgments handed down in Airtours, Schneider/Legrand and Tetra Laval/Sidel make clear that,

contrary to the claims of the critics, decisions of the Commission are subject to a rigorous and effective judicial review. However, an

effective judicial review which comes too late to resurrect a failed merger will not necessarily satisfy those critics.

The General Court's judgment in the GE/Honeywell appeals confirmed the Commission's conclusions that the merger would create or

strengthen a dominant position in certain markets where horizontal overlaps occurred. These findings were sufficient for the merger to

be held to be incompatible with the internal market, despite the fact that the Commission had made a number of errors in its

assessment of the impact of certain vertical overlaps between the parties and the conglomerate effects of the merger. The General

Court again found that the Commission had failed to meet the relevant standards for proving such complex and uncertain competitive

harm.

The Commission had a run of some success before the General Court during 2005 and 2006. In addition to its overall success in

GE/Honeywell, the General Court upheld the Commission's decision in appeals against the Air France/KLM merger (T-177/04 easyJet

Airline Co. Ltd v Commission, judgment of 4 July 2006), the EDP/ENI/GDP merger (Case T-87/05 EDP-Energias de Portugal SA v

Commission [2005] ECR II-3745) and the Haniel/Cementbouw/JV (T-282/02 Cementbouw Handel & Industrie BV v Commission [2003]

ECR II-319).

However, in July 2006, the General Court again levied harsh criticism against the rigour of the Commission's analysis and reasoning in

its annulment of the Sony/BMG merger (see Sony/BMG). In its judgment, the General Court annulled a merger clearance decision for

the first time, following an appeal by an industry organisation, Impala, thereby requiring the Commission to carry out a fresh

investigation. In its first decision, the Commission had not found evidence of collective dominance as a result of the transaction and

had, therefore, cleared the joint venture between Sony and BMG.

In December 2007, Advocate General gave an opinion recommending that the ECJ should dismiss an appeal by Sony and Bertlesmann

against the General Court's judgment. The Advocate General's opinion did not discuss the substantive application of the tests for

establishing collective dominance. However, it provides a useful review of the extent of the investigation and reasoning which may be

required of the Commission when it authorises a concentration. The Advocate General emphasised that the same standards apply for

the clearance of concentrations under the Merger Regulation as for their prohibition (see Legal update, Advocate General recommends

that ECJ should uphold CFI judgment on Sony/BMG merger (www.practicallaw.com/9-379-9444)).



In July 2008, the ECJ handed down its judgment. While agreeing with the Advocate General that the same standards apply for the

clearance of concentrations as for their prohibition, it found that the General Court had erred in a number of respects. In particular, it

had placed too much reliance on the Commission's provisional conclusions in the statement of objections. Further, it had erred by

requiring the Commission to apply particularly demanding requirements as regards the probative character of the evidence and

arguments put forward by the notifying parties in reply to the statement of objections. The ECJ also found that the General Court had

erred in its approach to assessing collective dominance.

The ECJ judgment does not approve the Commission's approach, but merely criticises the General Court's approach to its assessment

of the Commission's decision. The ECJ referred the case back to the General Court for reconsideration (see ECJ sets aside CFI

judgment on SonyBMG joint venture (www.practicallaw.com/3-382-5436)). However, the General Court later ordered that a further

ruling from it would be devoid of purpose due to the acquisition by Sony of the whole SonyBMG joint venture in 2008

The first judgments in appeals against the Commission's decisions under the current (2004) Merger Regulation upheld the

Commission's decisions. The first two substantive appeals related to Commission Phase I clearance decisions and were brought by

third parties. In Sun Chemical Group and others v Commission, the General Court upheld the Commission's application of the

Horizontal Merger Guidelines (Case T-282/06; see Legal update, CFI dismisses appeal against Commission merger clearance

decision (www.practicallaw.com/2-371-6980)). In NVV v Commission, the General Court upheld the Commission's analysis of market

definition and found that the Commission had appropriately taken into account the rights of third parties to be heard (Case T-151/05;

see Legal update, CFI dismisses appeal against Commission decision in Sovion/HMG merger (www.practicallaw.com/7-385-9108)).

Most significantly so far, in July 2010, the General Court dismissed Ryanair's appeal against the Commission's analysis and

assessment of Ryanair's proposed acquisition of Aer Lingus. This was the first merger blocked under the 2004 Merger Regulation. The

General Court dismissed in their entirety Ryanair's criticisms of the Commission's assessment of the closeness of the competition

between Ryanair and Aer Lingus and the impact of the proposed merger on that competition. It also endorsed the Commission's

assessment of market entry, its point-to-point route analysis and its consideration of claimed efficiencies. Finally, the General Court

found that the Commission had been entitled to reject commitments offered by Ryanair (Case T-324/07 - Ryanair Holdings plc v

Commission; see Legal update, General Court dismisses appeals against Commission decisions on Ryanair/Aer Lingus

merger (www.practicallaw.com/4-502-7163)). Ryanair , however, subsequently launched a new bid to acquire Aer Lingus, which was

notified to the Commission in July 2012. The Commission again blocked the merger and Ryanair has lodged a further appeal.

In December 2013, the General Court dismissed an appeal by third parties against the Commission's Phase I approval of the

acquisition by Microsoft of Skype. The General Court concluded that the Commission had not erred in finding that the merger did not

raise horizontal competition concerns in the consumer communications market, even though the merged entity would have high market

shares in one segment of this market. The consumer communications sector is a recent and fast-growing sector characterised by short

innovation cycles in which large market shares may turn out to be ephemeral. In addition, the General Court held that the Commission

had been correct to rule out possible harmful conglomerate effects in the enterprise communications market (Case T-79/12 - Cisco

Systems and Messagenet v European Commission; see Legal update, General Court dismisses appeal against Microsoft/ Skype


Damages actions

Article 268 of the TFEU (formerly Article 235 of the EC Treaty) gives the European courts jurisdiction in disputes relating to

compensation for damages provided for in Article 340(2) of the TFEU (formerly Article 288(2) of the EC Treaty). Article 340(2) of the

TFEU provides that "in the case of non-contractual liability, the EU shall, in accordance with the general principles common to the laws

of the member states, make good any damage caused by its institutions or by its servants in the performance of their duties".

In 2003, both Airtours (now My Travel) and Schneider Electric SA lodged actions with the General Court to seek damages from the

Commission following its prohibition of their mergers with respectively First Choice and Legrand. While it has always been

acknowledged that in cases where a Commission decision is annulled and loss has been suffered as a result of that decision, it may be

open to any of the parties to bring an action before the General Court for non-contractual liability of the EU institutions under Article 288,

these were the first cases in which it was attempted.

Rules for such applications are strict. The applicant will need to establish that the Commission acted unlawfully in adopting its decision,

that it suffered damage and that there is a direct causal link between the wrongful act and the damage suffered. The action must be

brought within a five-year period that runs from the moment when the wrongful act, actual loss and causal link have been identified by

the applicant.

The General Court handed down its judgment in the Schneider Electric damages action on 11 July 2007 (Case T-351/03 - Schneider

Electric SA v Commission). It ruled that the Commission must compensate Schneider SA partially for certain losses that it incurred as a

result of the Commission's prohibition of its acquisition of Legrand.

The General Court noted that it would not be in the EU interest for the Commission to be held liable for every error that it might make in

analysing a merger. The General Court recognised the complexity of merger control cases, the degree of appreciation required and the

tight time constraints under which the Commission operates. However, it considered that there should be a right to compensation for

damages which result from behaviour of the Commission that is clearly contrary to legal requirements, is prejudicial to the interests of



third parties and is not objectively justifiable in the context of the Commission's normal activities. The limits of non-contractual liability

must, therefore, protect the Commission's discretion and margins of appreciation (which are necessary in conducting its role as a

competition regulator) but must also protect third parties from obvious and inexcusable failures by the Commission.

The General Court, therefore, concluded that the Commission's analytical errors in the assessment of the Schneider/Legrand merger

were not sufficiently manifest or serious to give rise to a right of liability. While not ruling out that sufficiently serious analytical mistakes

could give rise to liability, in this case the Commission's decision had not been annulled on the basis of such mistakes. However, the

Commission's procedural defects in the handling of the case had amounted to a sufficiently manifest and serious breach of Schneider's

rights of defence to give rise to liability (the Commission had relied in its decision on one objection that had not been put to Schneider in

the statement of objections). The General Court, therefore, concluded that the Commission bore a duty to remedy the damaging

consequences of its error.

The General Court rejected Schneider's claim for losses suffered as a result of the reduction in value of the Legrand shares between

their purchase and sale by Schneider. The General Court concluded that even if the Commission's decision had been lawful it cannot

be assumed that the merger would have been approved such that Schneider would have been able to retain all or most of Legrand

(possibly on the basis of agreed commitments). However, the General Court did find the Commission to be liable for the losses incurred

by Schneider in relation to:

• The expenses relating to the second merger control procedure following the General Court's annulment decision.

• The reduction in the sale price for Legrand which Schneider had to agree to due to the delay in completing the sale (while awaiting

the outcome of the ongoing proceedings). The General Court found that Schneider was liable for a third of this loss as it had

assumed the risk of acquiring Legrand prior to clearance in circumstances where it must have known that there was a risk of

prohibition.

This decision was significant in that it held the Commission liable for a serious procedural breach that denied a party of its rights of

defence. It emphasises the care that the Commission must take in how it conducts its analysis. However, the General Court's refusal to

find the Commission liable for analytical errors or to hold it liable for all the alleged losses provided some comfort for the Commission

(for a full summary of the Schneider damages case see Legal update, CFI holds that Schneider must be partially compensated for loss

resulting from prohibition of its merger with Legrand (www.practicallaw.com/2-372-0005)).

Given its precedential importance (as well as its financial implications) the Commission appealed the General Court's judgment in the

Schneider damages case to the ECJ. In particular, the Commission challenged the General Court's conclusion that the breach of

Schneider's rights of defence constituted a sufficiently serious breach of EU law to give a right to damages. Further, it claimed that the

General Court erred in considering that the reduction in price in the sale of Legrand was directly imputable to the Commission's illegality

and so could be recovered (see Case C-440/07 Commission v Schneider Electric SA; Legal update, Details published of Commission's

appeal against judgment on Schneider damages action (www.practicallaw.com/1-380-5788)).

In February 2009, the Advocate General gave his opinion on this appeal. The Advocate General concluded that the General Court had

not erred in finding that the Commission's procedural breaches were sufficiently serious to give rise to non-contractual liability.

However, the Advocate General considered that the General Court erred in finding that the Commission was liable for two-thirds of the

losses incurred by Schneider due to the need to accept a lower sale price for Legrand in order to defer transfer until after proceedings

before the General Court were concluded. He found that Schneider's loses in this regard did not arise directly, immediately and

exclusively from the Commission's unlawful act and, further, that Schneider had broken any causal link. The Advocate General

considered that the Commission should only pay compensation to Schneider to cover the costs that it incurred in dealing with the

Commission's second investigation into the merger (see Legal update, Advocate General's opinion on Commissions appeal against

Schneider damages action (www.practicallaw.com/4-384-8423)).

The ECJ handed down its judgment on 16 July 2009 (see Legal update, ECJ ruling in Commission's appeal against Schneider

damages action (www.practicallaw.com/4-386-6172)), reaching the same conclusion as the Advocate General. The ECJ concluded that

the General Court had not erred in finding that the Commission's procedural breaches were sufficiently serious breaches to give rise to

non-contractual liability. However, the ECJ also considered that the General Court erred in finding that the Commission was liable for

two-thirds of the losses incurred by Schneider due to the need to accept a lower sale price for Legrand in order to defer transfer until

after proceedings before the General Court were concluded. The ECJ therefore, annulled the General Court's ruling in this respect,

substituting its own judgment that the Commission should only pay compensation to Schneider to cover the costs that it incurred in

dealing with the Commission's second investigation into the merger. The ECJ ruled that the following must be deducted from the sum of

those costs:

• The total costs incurred by Schneider in cases before the General Court.

• The fees of legal, tax and banking consultants and other administrative costs incurred in carrying out the divestiture in accordance

with the conditions laid down by the Commission.



• The costs that Schneider would necessarily have incurred in respect of the corrective measures relating to the issue that had not

been set out clearly in the statement of objections, which it would in any event have had to propose before the adoption of the

negative decision, if that decision had been adopted without any breach of its rights of defence.

In September 2008, the General Court handed down its much anticipated judgment in the MyTravel damages appeal. The General

Court held, as in its judgment in Schneider, that it cannot be ruled out in principle that manifest and grave defects underlying the

Commission's economic analysis of a merger could constitute breaches that are sufficiently serious to give rise to non-contractual

liability on the part of the Commission. However, the complexity of merger control situations and the margin of discretion available to the

Commission must be taken into account.

In the circumstances of the Commission's Airtours decision, the General Court concluded that the Commission did not commit a

sufficiently serious infringement of a rule of law in either its assessment of collective dominance or in its consideration of undertakings

offered by Airtours. Therefore, no non-contractual liability arose in this case.

In the MyTravel judgment, the General Court seems to have set a high standard for showing that errors committed by the Commission

amount to a sufficiently serious infringement of a rule of law for the purposes of establishing non-contractual liability. In particular, the

General Court emphasised that the General Court's consideration of whether there are such sufficiently serious infringements is a more

demanding exercise than its assessment of a decision in an action of annulment, where the Court need only examine the lawfulness of

the contested decision.

Therefore, even where the General Court has been highly critical of the Commission's assessment in a judgment annulling a merger

decision, this will not necessarily be sufficient to give rise to non-contractual liability for losses resulting from those errors. Regard must

also be had to the Commission's margin of discretion, the complexity of the merger situation and the time constraints imposed on the

Commission under the Merger Regulation. In this case, the General Court seemed to place considerable weight on the complexity of

the analysis relating to collective dominance in finding that the Commission's errors of assessment were not sufficiently serious

breaches (for a full summary of the MyTravel damages action see Legal update, CFI rejects MyTravel damages

claim (www.practicallaw.com/9-383-2472)).

International co-operation

The increasing frequency of international and even global mergers poses particular challenges in the field of competition enforcement

as these mergers are often subject to review by a number of different agencies. For example, many international mergers will be

reviewed by both the Commission and the US anti-trust agencies, (the US Federal Trade Commission (FTC) and the Antitrust Division

of the Department of Justice (DOJ)). Initially, competition authorities sought to react to these challenges by concluding bilateral

agreements with other key agencies. Increasingly, however, there is a trend towards involving a wider range of countries and agencies

in a multilateral approach to addressing the issues. This is best illustrated by the development of the International Competition Network

(ICN), described in more detail below.

In 1991, the Commission concluded an agreement, applicable since 1995, with the US government regarding the application of their

respective competition laws (OJ 1995 L95/47, as corrected in OJ 1995 L131/38). The aim is to promote co-operation between the

parties' competition authorities, including in the field of merger control.

The Commission will notify the US anti-trust authorities and invite their comments, as soon as it receives a notification of a merger

which may affect important US interests. The US has agreed to do the same when important EU interests may be affected. Further

contact with the US may follow, for example when the Commission decides to open a Phase II investigation, and further US comments

may be invited before a final decision is adopted.

The Commission is under a duty not to disclose to the US any information covered by its professional secrecy obligations (this would

include business secrets submitted in the Form CO or during the merger investigation), save with the express agreement of the parties

to the concentration or the source concerned in the case of third parties.

In March 1999, the Commission adopted a set of non-binding guidelines relating to administrative arrangements between the

Commission and the US anti-trust authorities. These guidelines provide a mechanism for US anti-trust officials to attend certain

Commission competition hearings as observers and, in turn, for Commission officials to attend meetings between the relevant parties

and the US anti-trust authorities. Such attendance is subject to satisfactory arrangements in respect of confidentiality and, in relation to

attendance at meetings of the US authorities, the appropriate consents.

Officials from the two sides on any particular transaction are able to discuss substantive issues such as appropriate product and, to a

lesser extent, geographical market definitions. They may also share complementary analyses of anti-competitive effect as well as

exchanges of views on the proposed remedies, so as to avoid conflicting decisions. In Guinness/Grand Metropolitan (Case No.

IV/M.938), for example, the parties agreed to discussions taking place between the anti-trust authorities on the proposed remedies.

Similarly, in WorldCom/MCI II (Case No. IV/M.1069) particularly close co-operation took place between the EU and US authorities in



relation to remedies and other aspects of the case. Observers from each of the authorities attended key meetings in the other

jurisdiction and there were joint meetings between the US authorities, the Commission and the parties. The Commission and the DOJ

made simultaneous announcements of their intention to block the merger.

On 3 July 2001, the Commission blocked the proposed acquisition by General Electric Co. (GE) of Honeywell International Inc., on the

basis that it would have created or strengthened GE’s dominant position on several markets (General Electric/Honeywell, Case

IV/M.220). This was a controversial decision as the DOJ had approved the merger, subject to relatively minor commitments, and was

the most clear and controversial example of a significant difference in opinion between the authorities in recent years. The decision

attracted significant political criticism although the decision was subsequently upheld by the General Court (Case T-210/01 - General

Electric v Commission [2005] ECR II-5575 and Case T-209/01 - Honeywell v Commission [2005] ECR II-5527) (see Legal update, CFI

dismisses appeals by GE and Honeywell (www.practicallaw.com/1-201-7499)).

In response to this criticism the Commission in particular seems to have emphasised that more could have been done to improve co-

operation in that case and has pointed out that the difference in the timetables, with notification to the Commission often taking place at

a much later date than notification to the DOJ, reduces the potential for co-operation in the early stages.

Interestingly, however, in GE/Honeywell it is far from clear that any degree of co-operation between the authorities examining the case

would have made a difference to the final outcome. In all of the press coverage and commentary on both sides of the Atlantic, there was

nothing to suggest that the DOJ believed it made the wrong decision in clearing the merger, or that the Commission believed it made

the wrong decision in blocking the merger.

The decision did produce calls for increased co-operation, however, and in 2002 the European Commission and US competition

authorities jointly issued a set of best practices on co-operation in reviewing mergers. The best practices include guidance on issues

such as communication between reviewing agencies, co-ordination on timing of notification and review, collecting evidence and

remedies. The guidelines were revised in October 2011, building on experience gained in the significant number of trans-Atlantic inter-

agency merger investigations carried out since 2002..

The Commission has worked closely with the US anti-trust agencies in relation to a number of international mergers, including:

Sanofi/Aventis (Case COMP/M,3354), GE/Amersham (Case COMP/M.3304), Oracle/Peoplesoft (Case COMP/M.3216),

Reuters/Telerate (Case COMP/M.3692) and, more recently Thomson Corporation/Reuters Group (Case COMP/M.4726),

Cisco/Tandberg (Case COMP/M.5669); Intel/McAfee (Case COMP/M.5984); and UTC/Goodrich (Case COMP/M.6410).

The Commission has also entered into a number of other bilateral agreements, for example, with Canada in 1999 and an agreement

with Japan in 2003. A looser "dialogue" on competition policy and legislation (but not individual merger cases) has been in place with

the Chinese merger control regulator, MOFCOM, since 2004.

There have been increasing calls for a move towards multilaterism to cope with the challenges in the area of anti-trust enforcement

posed by global mergers. On 25 October 2001, the International Competition Network (ICN) was launched. The ICN aims to provide a

venue within which anti-trust officials from developed and developing countries can work to address practical enforcement and policy

issues of common concern. The ICN also aims to facilitate procedural and substantive convergence in anti-trust enforcement.

Membership of the ICN expanded from the initial four competition agencies to 80 members in less than a year and includes many of the

younger, developing competition authorities.

The first official meeting of the ICN was hosted by the Italian Anti-trust Authority in the Autumn of 2002. Discussions centred around the

proposed Guiding Principles for Merger Notification and Review, which was drafted by one of the ICN's working groups. At the ICN's

second annual conference in Mexico in June 2003 the ICN members adopted seven non-binding recommended practices. These

provide that competition authorities should:

• Only examine a deal if it has a real impact on their national market.

• Adopt clear and objective notification thresholds.

• Allow for flexibility in the timing of notification (the removal the one-week filing deadline under the 2004 Merger Regulation was

intended to bring the EU merger control regime fully in line with the ICN's recommendations).

• Require only the information strictly necessary for a proper assessment.

• Ensure that the investigation timetables are predictable and no longer than necessary.

• Provide for transparency in their laws, procedures and individual decisions.

• Periodically review their merger control systems.

In the third annual conference in April 2004, the ICN adopted four new recommended practices for merger notifications:



• Conduct of merger investigations. Merger investigations should promote an effective, efficient, transparent and predictable merger

review process. Competition agencies should provide opportunities for discussions between the agency and merging parties;

provide the merging parties with an explanation of competitive concerns; avoid undue delay and unnecessary costs on merging

parties and third parties; and comply with applicable legal privileges and confidentiality practices.

• Procedural fairness. Competition agencies should provide merging parties with sufficient and timely information on the competitive

concerns that form the basis of a proposed adverse decision. Parties should have the opportunity to respond to such concerns and

third parties should be allowed to express their views. Review of agency decisions should also be possible.

• Confidentiality. Confidential information received during a merger investigation should be protected.

• Interagency co-ordination. Competition agencies should seek to co-ordinate reviews that raise competitive issues of common

concern.

The ICN has been focusing on the merger control process as it applies to multi-jurisdictional mergers and on the competition advocacy

role of anti-trust agencies, particularly in emerging economies. The network will continue to develop non-binding recommendations for

consideration by individual enforcement agencies. Where the ICN reaches consensus on particular recommendations, it will be left to

governments to implement them voluntarily (see also International merger notification (www.practicallaw.com/A14483): International co-

operation (www.practicallaw.com/A14483)).

Best Practices for multi-jurisdictional mergers

In November 2011, the Commission issued "best practices" for co-operation between NCAs in relation to multi-jurisdictional mergers,

which fall below the thresholds of the EU Merger Regulation but require notification in several member states (the Best Practices). The

Best Practices are intended to foster and facilitate information sharing between EU NCAs and provide clarity to merging parties and

others on how co-operation among NCAs will operate in merger cases that meet the requirements for notification or investigation in

more than one member state (multi-jurisdictional cases). The Best Practices were developed by the EU Merger Working Group and

cover the following:

• Objectives of co-operation. The Best Practices are intended to promote the achievement of the benefits of co-operation for the

NCAs concerned, for the merging parties and for third parties. Where the parties provide full and consistent information to the NCAs,

co-operation reduces burdens by facilitating the alignment of timing and the overall efficiency, transparency, effectiveness and

timeliness of the merger review processes. Co-operation between NCAs can reduce the risk of conflicting outcomes in cases that

raise serious or difficult analytical issues. In addition, it can contribute to obtaining coherent and consistent remedies.

• Scope of application of Best Practices. Co-operation, beyond the provision of basic case information, will not be necessary or

efficient in every multi-jurisdictional case (for example where it is clear early on that the merger does not raise significant competition

or procedural issues). However, where multi-jurisdictional mergers raise similar or comparable issues in relation to jurisdictional or

substantive questions, the NCAs concerned will decide on a case-by-case basis whether co-operation may be necessary or

appropriate. Co-operation may assist NCAs:

• in forming a view as to whether a transaction qualifies for notification or investigation under their national merger control laws;

• in relation to mergers which impact competition i in more than one member state, or where they affect transnational markets or

national or sub-national markets in multiple member states (if they are the same or similar from a product standpoint); or

• in designing and examining remedies in more than one member state or where remedies in one member state have cross-border

effects (the same remedy is designed to address competition issues in different member states or one remedy affects the

efffectiveness of a different remedy in another member state).

• Role of NCAs. NCAs receiving notification of a multi-jurisdictional merger will inform all other NCAs of this and provide updated

information to the NCAs concerned throughout the proceedings (including any decision to commence second phase proceedings,

remedies and any final decision). In those cases where closer co-operation is necessary or appropriate, the NCAs concerned may

liaise on their progress at key stages of their respective investigations. Where it is helpful to do so, the NCAs concerned may also

discuss their respective jurisdictional and/or substantive analyses. Such discussions may relate to market definition, assessment of

competitive effects, efficiencies, theories of competitive harm, and the empirical evidence needed to test those theories. NCAs

concerned will also, where it is helpful to do so, exchange views on necessary remedial measures or submitted remedies.

• Role of merging parties. Effective co-operation between NCAs requires the active assistance of the merging parties at all stages of

the review process. The parties play an important role in allowing beneficial alignment of procedures. Therefore, in multi-

jurisdictional cases (other than those where it is clear that co-operation is not likely to be beneficial) the merging parties are

encouraged to contact each of the NCAs concerned as soon as practicable and provide them with the following information:

• the name of each jurisdiction in which they intend to make a filing;



• the date of the proposed filing in each jurisdiction;

• the names and activities of the merging parties;

• the geographic areas in which they are active; and

• the sector or sectors involved (short description and NACE code).

The provision of this information by the parties will not of itself be a trigger for co-operation among the NCAs concerned. The parties'

information will assist the NCAs concerned at an early stage to decide whether there might be a need for co-operation in the

particular case.

Much of the information may, if possible, be provided by the parties at the pre-notification stage. Where it is permitted by their

national law, it may be helpful for merging parties and the NCAs concerned to organise pre-notification contacts as early as possible.

It is also in the interest of the merging parties to coordinate the timing and substance of remedy proposals to the NCAs concerned,

so as to minimise the risk of inconsistent results. Joint pre-notification discussions or joint discussions on remedies between the

merging parties and the NCAs concerned may, where circumstances permit, be useful.

• Confidential information. While a certain degree of co-operation is feasible through the exchange of non-confidential information,

waivers of confidentiality executed by merging parties can enable more effective communication between the NCAs. The merging

parties (and third parties) are encouraged to provide waivers of confidentiality to all NCAs where the merger is reviewable, including,

where appropriate, at the pre-notification phase. The merging parties (and third parties) are encouraged to use the ICN model waiver

(this may be adapted to the specific circumstances of the case, but must allow effective information exchange).

Where a waiver is given, the NCAs may share the information without further notice to the parties, but must discuss with each other,

prior to exchange, how to protect confidential information. Confidential information and business secrets are protected under national

laws in all member states. Confidential information so exchanged must not be used for any purpose other than the review of the

relevant merger, unless the national law provides otherwise.

• Alex Nourry is a partner and Jennifer Storey is an associate in the London Antitrust Practice of Clifford Chance LLP.

Commission notices and guidance relating to mergers

• Commission Consolidated Jurisdictional Notice (OJ 2008 C95/1), which replaced

• Notice on the concept of full-function joint ventures (OJ 1998 C66/1).

• Notice on the concept of a concentration (OJ 1998 C66/5).

• Notice on the concept of undertakings concerned (OJ 1998 C66/14).

• Notice on the calculation of turnover (OJ 1998 C66/25).

• Notice on the definition of the relevant market for the purposes of EU competition law (OJ 1997 C372/5).

• Notice on remedies acceptable under Council Regulation 139/2004 and under Commission Regulation 802/2004 (OJ 2008

C267/1).

• Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between

undertakings (OJ 2004 C31/5).

• Best Practice Guidelines for divestiture commitments (available on the Competition Directorate's website).

• Notice on case referral (OJ 2005 C2005 C56/2).

• Notice regarding restrictions ancillary to concentrations (OJ 2005 C2005 C56/23).

• Notice on a simplified procedure for the treatment of certain concentrations (OJ 2013 C366/5).).

• Notice on the rules for access to the Commission file in cases pursuant to Articles 81 and 82 of the EC Treaty, Articles 53, 54

and 57 of the EEA Agreement and Council Regulation (EC) No 139/2004 (OJ 2005 C325/07).

• Note on abandonment of concentrations under Art. 6(1)(c) 2nd sentence of Regulation 139/2004 (available on the Competition



Directorate's website).

• Guidelines on non-horizontal mergers (vertical and conglomerate mergers) (OJ 2008 C265/7).

• Decision on the function and terms of reference of the hearing officer in certain competition proceedings (OJ 2011 L275/29).

• Best Practices for the submission of economic evidence and data collection in cases concerning the application of Articles 101

and 102 of the TFEU and in merger cases (available on Commission website only).

• Best Practice Guidelines: Commissions Model Texts for Divestiture Commitments and The Trustee Mandate (available on

Commission website only).

Merger notifications: Best Practice Guidelines

The Commission originally published Best Practice Guidelines to deal with the increasing problem of incomplete and inadequate

information being provided in notifications. The reasons given by the Commission for this increase include poor drafting and

inadequacy of information, the submission of notifications too early (that is, before sufficiently clear legally binding agreements

are concluded) or by an insufficient number of parties, and the failure to identify potentially affected markets.

The Best Practice Guidelines were substantially revised and extended in 2004 to reflect concerns about the openness and

effectiveness of the Commission's review procedures, particularly following the annulment of three Commission decisions in 2002

(see box,Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel). The Guidelines provide, in brief, as follows:

• Contact with the Commission prior to formal notification is essential in all cases. The parties or their legal representatives

should make a written request (together with a full briefing paper). Following an initial meeting, the parties should provide the

Commission with a substantially complete draft Form CO. In simple cases it may be appropriate simply to provide a draft of

the Form CO prior to formal notification, with the Commission giving any comments over the telephone.

• At pre-notification meetings, the parties and the Commission should discuss what information is to be omitted from the Form

CO.

• Potentially affected markets should be discussed openly with the Commission. Supporting documents and background papers

should be provided to the Commission.

• Notifying parties and their advisers should ensure that the information contained in the Form CO has been carefully prepared

and verified.

• At meetings, cases should preferably be discussed with both legal advisers and business representatives.

• "State-of-Play" meetings will be held at key stages during the merger process.

• The parties will be granted early access to the Commission's file, in particular to key documents such as substantiated

complaints and market studies.

• Where the Commission believes it is desirable, "triangular meetings" with the Commission and third party complainants will be

held.

The Commission has also published best practice guidelines relating to the submission of economic evidence and data collection,

which should be following in making such submissions in merger cases (see Legal update, Commission publishes best practices

for the submission of economic evidence and data collection (www.practicallaw.com/9-501-1579)).

Skanska/Scancem case

The proposed acquisition of control of the Swedish concrete and cement producer, Scancem, by Swedish construction company

Skanska, was the first occasion on which the Commission has used its powers to carry out a dawn raid in relation to a merger

(Case IV/M.1157 Skanska/Scancem).

The Commission launched a dawn raid at the premises of the two companies in order to investigate the notifiability of the

transaction. The background to the investigation was that, in October, 1995, Skanska and the Norwegian company Aker had

each acquired 33.3% of the shares in Scancem and had concluded that, as this did not give Skanska and Aker joint control over

Scancem, the transaction was not notifiable. The Commission did not share this view and had informed the parties that it would



monitor Scancem carefully. Then, in October 1997, Skanska increased its shareholding to 48%, which prompted the Commission

to launch the dawn raid. Skanska subsequently notified the increase in its shareholding, several months after the increase had

taken place. The Commission eventually cleared the concentration subject to undertakings, including undertakings in respect of

the 1995 transaction.

Nestlé/Ralston Purina

In Nestlé/Ralston Purina (Case COMP/M.2337), the Commission identified competition concerns in three national markets during

its Phase I investigation. In Spain, post-transaction, Nestlé would have held a dominant position and would have eliminated its

most prominent competitor in the markets for dry dog food, dry cat food and snacks and treats for cats. It was also found that in

Italy and in Greece the acquisition would have created competition concerns in the markets for dry cat food.

Nestlé offered two alternative remedies. The first alternative remedy offered by Nestlé consisted principally of the licensing of

Nestlé's Friskies and Felix brands in Spain, for use solely in Spain for a period of three years, including the goodwill and assets

and facilities used for those businesses. During the period of the licence, the purchaser would be obliged to re-brand the products

concerned, although Nestlé and Ralston Purina would be prevented from re-introducing or promoting the brands in Spain for a

certain period following either the termination of the license or upon the purchaser ceasing to use the brands.

If the first alternative remedy was not implemented by either a fixed date or the date on which the notified transaction closed, the

parties would be required to implement an alternative "crown jewels" remedy. This alternative involved the divestiture of Ralston

Purina's 50% shareholding in its Spanish joint venture with Agrolimen S.A. (Gallina Blanca Purina), including the right of the joint

venture to continue to be able to use all brands licensed to it by Ralston Purina for a period of up to three years on an exclusive

basis. This was considered to represent a crown jewels remedy because it consisted of a larger and more easily saleable

package compared with the licensing of Nestlé's Friskies and Felix brands.

In the event, the crown jewels remedy came into play with the disposal by Nestlé of Ralston Purina's 50% shareholding in the

joint venture to Agrolimen, although it is not clear whether this was because Nestlé chose not to pursue the first alternative

remedy or simply because it was unsuccessful in implementing it.

EU merger control statistics

Period: 21 September 1990 to 1 December 2013.

Notifications received 5,403

Phase I decisions

Merger Regulation not applicable 52

Clearance, unconditional 4718

Clearance with undertakings 228

Total 4,998

Phase II decisions

Clearance 54

Clearance with undertakings 102

Prohibitions 24

Orders to divest, etc. 4

Total 184

Notifications withdrawn 151



* The 24 prohibited transactions are Aérospatiale-Alenia/De Havilland, MSG/Media Services, Nordic Satellite Distribution,

RTL/Veronica/Endemol, Saint-Gobain/Wacker-Chemie/NOM, Gencor/Lonrho, Kesko/Tuko, Blokker/Toys R' Us, Deutsche

Telekom/Betaresearch, Bertelsmann/Kirch/Première, Airtours/First Choice, Volvo/Scania, WorldCom/Sprint, SCA/Metsä Tissue,

GE/Honeywell, Schneider/Legrand, CVC/Lenzig, Tetra Laval/Sidel, ENI/EDP/GDP, Ryanair/Aer Lingus, Olympic Air/ Aegean

Airlines, Deutsche Borse/ NYSE Euronext, UPS/ TNT Express and Ryanair/ Aer Lingus III

Source: European Commission, Competition Directorate's website

Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel

In 2002, the General Court (formerly the European Court of First Instance (CFI)) overruled three Commission decisions which

had prohibited the mergers of Airtours/First Choice; Schneider/Legrand; and Tetra Laval/Sidel.

Airtours/First Choice: The Airtours/First Choice case (Case COMP/M.1264) involved a takeover bid for First Choice by Airtours.

The Commission prohibited the merger on grounds that it would create a collective dominant position in the UK market for short-

haul foreign package holidays between the merged entity and the other two large tour operators, Thomson and Thomas Cook.

The Commission concluded that there would be an incentive to tacitly restrict market capacity, leading to higher prices and the

marginalisation of smaller operators.

The General Court held that the Commission was entitled to consider collective dominance in its assessment of mergers and in

doing so must ascertain "whether the concentration would have the direct and immediate effect of creating or strengthening a

position of that kind, which is such as significantly and lastingly to impede competition in the relevant markets". However, the

General Court annulled the Commission's decision, finding that it had failed to prove that the merged entity would have an

adverse effect on competition (Case T-342/99 ECR [2002] II 2585). Airtours (now MyTravel) lodged an appeal claiming damages

from the Commission in respect of losses resulting from its inability to complete the merger but this was rejected by the General

Court in September 2008 (see Damages actions).

Schneider/Legrand: The Schneider/Legrand case (Case COMP/M.2283) involved Schneider's acquisition of French electrical

goods company, Legrand. The Commission prohibited the merger on the basis of serious competition issues that were raised on

the French market, which the Commission effectively translated into dominance on other national markets.

In its judgment, the General Court expressly stated that the Commission's economic analysis was vitiated by "several obvious

errors, omissions and contradictions in the Commission's economic reasoning". The General Court found that the Commission

had substantially changed the nature of its case between the Statement of Objections and the final Decision. As such, the parties

had not been in a position to offer adequate remedies, which amounted to a serious procedural irregularity and an infringement of

the parties' rights of defence (Case T-310/01 and T-77/02, judgment 22 October 2002). Schneider subsequently lodged a further

appeal against the Commission's decision to initiate proceedings following its re-examination of the merger (Case T-48/03). This

action was found by the General Court to be inadmissible on the basis that the decision to initiate a Phase II investigation was not

a decision that affected the legal position of Schneider (General Court order of 31 January 2006). Schneider appealed the

General Court's decision to the ECJ, but this appeal was dismissed in March 2007 (Case C-188/06 Schneider Electric SA v

Commission).

Schneider also lodged an action for damages against the Commission. On 11 July 2007, the General Court held the Commission

to be liable for part of Schneider's losses ( see Damages actions). The Commission appealed this judgment to the ECJ. The ECJ

found that the Commission should only be required to compensate Schneider for certain loss resulting from the expenses

incurred by Schneider in respect of its participation in the resumed merger control procedure.

Tetra Laval/Sidel: This case involved a merger between Tetra Laval, active in carton packaging and Sidel, active in PET

packaging. The Commission had prohibited the merger on grounds that it would lead to horizontal effects, vertical foreclosure and

conglomerate effects (Case COMP/ M.2416).

The General Court acknowledged that the Commission may investigate future conglomerate effects in the context of a merger

review. However, it found that the Commission had not established that the merger would create or strengthen a dominant

position and criticised the Commission's economic assessment as speculative, inadequately reasoned and unsupported by

cogent evidence (Case T-5/02 and T-90/02, judgment 25 October 2002).

Conclusion: The General Court has shown itself willing to engage in an effective review of the Commission's merger decisions.

Each of these three judgments raise fundamental questions about the way in which the Commission handles merger cases, in

particular highlighting deficiencies in the Commission's economic expertise and the Commission's burden of proof has also been

expressly raised in merger investigations. The Commission appealed the General Court's judgment in the Tetra Laval/Sidel case

(Cases C-12/03 and C-13/03), but on 25 May 2004, the Advocate General gave his opinion that the Commission's appeal should

be dismissed. However, he found that the General Court had been somewhat overzealous in the scope of its judicial review in



some areas as it had substituted its views for those of the Commission without finding that the Commission had erred. On 15

February 2005, the ECJ rejected the Commission's appeal, finding that the General Court had not erred as to the scope of its

judicial review or the burden of proof imposed on the Commission.

Reform of EU merger control in 2004

On 11 December 2002, the European Commission revealed what it called: "the most far-reaching reform of its merger control

regime since the entry into force of the EU Merger Control Regulation in 1990."

The reform package comprised three parts.

• A revised Merger Regulation.

• Guidelines on the appraisal of mergers between competing companies (discussed in box, Horizontal Guidelines).

• A series of non-legislative measures intended to improve the Commission's decision-making process.

The Commission announced on 27 November 2003, that political agreement had been reached in relation to the text of the

proposed revised Merger Regulation. The Merger Regulation was formally adopted on 20 January 2004. The text was published

on 29 January 2004 (Regulation 139/2004, OJ 2004 L24/1).

Revised EU Merger Regulation

The changes introduced in the Merger Regulation include:

• Jurisdiction/Referrals: A more streamlined system of referrals from the member states to the Commission and vice versa

(Articles 9 and 22), including, amongst other things, the improvement of the substantive criteria for referrals and introducing

the applicability of the referral procedure at the pre-notification stage.

• Key concepts for analysis: Replacement of the old "dominance" test under the ECMR (see box, Horizontal Guidelines),

"concentration" under Article 3 (express inclusion of the criteria that a concentration requires a lasting change in control) and

the relevance of "efficiency" claims in merger investigations.

• Timing: A more flexible timeframe for the Commission's merger review process, including the possibility of notifying a merger

prior to conclusion of a binding agreement and the abolition of the seven-day notification deadline, which allows the parties to

better co-ordinate with filings in other jurisdictions). Introduction of a 25 working day time frame for basic reviews in Phase I, or

35 working days if remedies are offered. Introduction of a 90 working day time frame for basic reviews in Phase II. This is

automatically extended by 15 working days if remedies are offered (unless this is done early in the proceedings) and the

notifying parties are able to request a further extension of 20 working days in complex cases.

• Enforcement: A strengthening of the Commission's fact-finding powers and introduction of higher fines and periodic penalty

payments (these changes mirror the changes to the procedure introduced in 2004 in cases under Articles 101 and 102 of the

TFEU (formerly Articles 81 and 82 of the EC Treaty)).

Non-legislative measures

As a part of its reform package, the Commission took a series of non-legislative measures to improve the quality of its decision-

making process while enhancing the opportunity for merging companies' views to be taken into account throughout the review

process. Measures included:

• Best Practice Guidelines on the conduct of EU merger control proceedings which were published at the same time as the

Merger Regulation (see the box, Merger notifications: Best Practice Guidelines).

• The creation of a post of Chief Competition Economist who is directly attached to the Director General for Competition. The

Chief Competition Economist is involved in merger and other competition investigations.

• The appointment, for all in-depth merger investigations, of a review panel composed of experienced Commission officials. The

panel scrutinises the case team's conclusions at key points of the merger review.

• More staff to support the Hearing Officers have been appointed.



Horizontal Guidelines

The Horizontal Guidelines aim to clearly and comprehensively articulate the substance of the Commission's approach to the

appraisal of horizontal mergers.

The Horizontal Guidelines set out the Commission's approach to assessing market shares and concentration levels. It then

considers the likelihood that a merger would have anti-competitive effects, in the absence of countervailing factors. Finally, it

considers factors that might have a countervailing effect (buyer power, entry and efficiencies) and considers the conditions for the

application of the "failing firm defence".

In the Horizontal Guidelines the Commission sets out in some detail the ways in which horizontal mergers may significantly harm

competition. The Commission identifies two main ways in which horizontal mergers may significantly impede effective competition

(resulting in increased prices, reduced choice and quality of goods and services, diminished technological innovation etc), in

particular as a result of the creation or strengthening of a dominant position:

• Non-co-ordinated effects: The merger eliminates important competitive constraints on one or more firms, which

consequently have increased market power. This can arise by virtue of single firm dominance or in oligopolistic markets (even

in the absence of single firm dominance or co-ordination).

• Co-ordinated effects: The merger changes the nature of competition so that firms that were not previously co-ordinating their

behaviour are now more likely to co-ordinate and harm effective competition (in particular, by raising prices). Alternatively, the

merger may make the conditions for competition easier or more effective for firms that are already co-ordinating.

The Horizontal Guidelines review in detail the market characteristics and circumstances (nature of rivalry, barriers to entry and

expansion, type of products, transparency of the market etc) that are relevant to an assessment in each case.

The guidance given on when a merger will be found to produce non-coordinated effects largely reflects the Commission's past

practice on analysing single firm dominance. Guidance on the analysis of co-ordinated effects in non-collusive oligopolies quite

closely follows the reasoning of the General Court in the Airtours case.

The Horizontal Guidelines address and elaborate on factors that may mitigate an initial finding of likely harm to competition,

including buyer power and ease of market entry. The Commission's approach to "efficiencies" in the assessment of mergers is

also set out in some detail for the first time. The Commission will consider efficiencies but the parties must show that the

efficiencies generated by the merger will outweigh any anti-competitive effects and that they will benefit consumers.

On 9 July 2007, the General Court handed down a judgment in which it considered the application by the Commission of the

Horizontal Guidelines for the first time (Case T-282/06 - Sun Chemical Group BV, Siegwerk Druckfarben AG, and Flint Group

Germany GmbH, v Commission). The General Court held that the Horizontal Guidelines do not set out a "checklist" of factors to

be applied mechanically in every case by the Commission. They provide that the competitive analysis in a particular case will

depend on an overall assessment of the foreseeable impact of the merger in light of all relevant factors and considerations. The

Horizontal Guidelines do not, therefore, require an examination in every case of all of the factors mentioned in them. The

Commission enjoys a discretion as to which factors to take into account (see Legal update, CFI dismisses appeal against

Commission merger clearance decision (www.practicallaw.com/2-371-6980)).

The Non-horizontal Guidelines

The Non-horizontal Guidelines provide guidance on the Commission's approach to assessing non-horizontal mergers:

concentrations where the undertakings concerned are active on distinct relevant markets. The Guidelines distinguish between

two broad classes of non-horizontal mergers:

• Vertical mergers: where the parties operate on different levels of the supply chain (for example, a merger between a

manufacturer and one of its distributors).

• Conglomerate mergers: where the parties are not in a purely horizontal or vertical relationship but are active in closely related

markets (for example, a merger between suppliers of complementary products or products that belong to the same product

range).

The Commission explains that non-horizontal mergers are generally less likely to create competition concerns than horizontal

mergers as they do not entail the loss of direct competition between the merging firms in the same market. Further, vertical and

conglomerate mergers provide substantial scope for efficiencies, due to the complementary nature of the products or services

involved. However, non-horizontal mergers may significantly impede effective competition by changing the ability and incentive to

compete on the part of the merging companies and their competitors in ways that cause harm to consumers (both intermediate

and ultimate consumers).



The Commission states that (as an intitial indicator) it is unlikely to find concern in non-horizontal mergers where the post-merger

market share of the merged entity in each of the markets concerned is below 30% and the post-merger HHI is below 2000. It is

only likely to investigate such mergers "extensively" in special circumstances, such as where one of the following factors are

present:

• The merger involves a company that is likely to expand significantly in the near future, for example due to recent innovation.

• There are significant cross-shareholdings or cross-directorships in the market.

• There is a high likelihood that one of the merging firms would disrupt co-ordinated conduct.

• There are indications of past or ongoing co-ordination.

In that context, the Guidelines examine the situations in which vertical and conglomerate mergers may significantly impede

effective competition through either:

• Non-co-ordinated effects. These are mainly foreclosure: hampering or restricting a rival's access to markets or supplies

(input foreclosure) so reducing the ability and incentive to compete. Anti-competitive foreclosure arises where the merged

entity (and possibly some competitors) can profitably increase the price charged to consumers. The Commission examines

the factors that give the merging entity the ability or incentive to foreclose inputs or access to customers.

• Co-ordinated effects. These arise where the merger changes the nature of competition in such a way that it either makes

existing co-ordination easier or, makes new co-ordination more likely.

Sony/BMG

Under the transaction notified to the Commission on 9 January 2004, Sony and BMG had agreed to merge their recorded music

businesses (including the discovery and development of artists and the recording and marketing of their music) into a 50/50 joint

venture named SonyBMG. The Commission initiated Phase II proceedings in February 2004.

The Commission found that the main markets affected by the concentration were the national markets for recorded music. The

parties combined market share in each of the (then 18) EEA countries ranged between at least 15-20% and at most 30-35% (20-

25% on average). Given the presence of three other major record companies (Universal, Warner and EMI) and a varying number

of independent competitors in each country, the Commission concluded that there was no creation or strengthening of a single

dominant position.

However, in all member states except Greece the merger would result in a reduction of the number of major players from five to

four. In the five big EU markets (UK, France, Germany, Italy and Spain), the four remaining majors would control between 60%

(in Spain) and 90% (in Italy) of the market and had done so for a number of years. The Commission therefore assessed in detail

the possibility that the merger might create or strengthen a collective dominant position between the merged entity and the

remaining three major record companies. In doing so the Commission applied the tests established in the Airtours case.

First it considered whether there was any evidence that prior to the merger there had been a common understanding between

the five major record companies on price. The Commission reviewed the development of the average wholesale net prices on a

quarterly basis for the top 100 single albums of each major in the five largest member states (it also conducted a similar analysis

in the smaller states). On this basis it assessed in a number of ways whether there was any evidence of price parallelism

between the companies. It also considered whether any price co-ordination, on the basis of parallelism in average prices, could

have been reached in using list prices as focal points and whether the discounting practices of each company were aligned and

sufficiently transparent in order to allow efficient monitoring of any price co-ordination.

The Commission found in each country that, to a greater or lesser degree, there was some evidence of price parallelism but that

this was not conclusive of co-ordinated pricing behaviour in the past. It also concluded that there was insufficient evidence that

discounting was sufficiently aligned or transparent to facilitate co-ordination.

However, given that there were some indications of co-ordinated behaviour, the Commission further analysed whether the

markets for recorded music were characterised by features facilitating collective dominance:

• Product homogeneity. The Commission concluded that the heterogeneity in the content of albums, which has implications

on the prices charged, reduces transparency in the market and makes tacit collusion more difficult.



• Transparency. The Commission found that substantial effort on an album by album level is required to identify the level of

discounts. This reduces transparency in the market. Although there are a number of devices in the market to facilitate

monitoring (weekly sales lists and retail prices), the Commission concluded that there was insufficient evidence that these had

enabled the companies to overcome the deficits in transparency relating to discounts.

• Retaliation. Possible methods of retaliation against a company that deviated from a common understanding about price

would be to exclude the deviator from conclusion of new joint ventures, to refuse to licence songs from the deviator's

compilations or to terminate existing joint ventures. However, the Commission found no evidence of any such retaliatory

action, or the threat of this or other action in response to deviation.

On this basis, the Commission concluded that there was not sufficient evidence to show that the merger would result in the

strengthening of an existing collective dominant position in the markets for recorded music in any of the EEA countries. Further, it

concluded that there was insufficient evidence that a reduction from five to four majors would facilitate transparency and

retaliation so such an extent that the creation of collective dominant position was anticipated.

The Commission also examined the existing vertical relationships between Sony BMG's recorded music and Bertelsmann's

downstream TV and radio activities in Germany, France, Belgium, Luxembourg and the Netherlands. The Commission was,

however, satisfied that the proposed joint venture did not rise any significant competition concerns. In addition, the Commission

also assessed the potential effects of the merger in the emerging market for online music licences and online music distribution,

but concluded that there were no serious competition concerns. The Commission granted unconditional clearance decision.

On 13 July 2006, the General Court annulled the Commission's decision following an appeal by a trade association, Impala

(Case T-464/04 Independent Music Publishers and Labels Association (Impala) v Commission, judgment of 13 July 2006).

The General Court reviewed whether the Airtours conditions had been properly applied by the Commission in determining

whether there was a pre-existing collective dominant position and whether a collective dominant position had been created or

enhanced. The General Court found that the Commission had made a manifest error of assessment in concluding that the

recorded music markets were insufficiently transparent to support co-ordination. It had not sufficiently justified its reliance on the

impact of discounting, the evidence relied on did not support the conclusions relied on and the Commission had failed to assess

important issues, such as the real impact of discounts on the transparency of prices.

The General Court also found that in assessing the pre-existence of a collective dominant position, the Commission had failed to

determine sufficiently the absence of retaliation. The General Court concluded that there must be proof of deviation from the

common course of conduct and actual proof of the absence of retaliatory measures.

In summary, the General Court held that the Commission's decision was inadequately reasoned and vitiated by manifest errors.

The Commission had relied too much on the absence of necessary conditions prior to the merger without conducting a full

prospective analysis of the impact of the merger on transparency and the prospects of retaliation.

Concerns were raised that the General Court's judgment could encourage a significant increase in competitor/customer

challenges to the Commission's clearance decisions. If this were to become commonplace or to be utilised by some as a tactic to

disrupt pro-competitive mergers, it would lead to greater uncertainty for companies and increased cost to the Commission merger

control process.

Sony and Bertelsman appealed the General Court's judgment to the ECJ (Case C-413/06 - Bertelsmann AG and Sony

Corporation of America). On 13 December 2007, Advocate General Kokott recommended that the ECJ dismiss the appeal. The

Advocate General considered that the General Court was correct to find that the Commission had failed to state adequate

reasons and had committed a manifest error of appraisal. The General Court had not applied excessively high standards of proof

on the Commission or exceeded its powers of review. The Advocate General examined the standards of review applied by the

General Court and the standards of proof to be applied by the Commission. She found that the same standards apply for the

clearance of concentrations under the Merger Regulation as for their prohibition. While the Advocate General did criticise the

General Court in certain respects, she did not consider that these errors were sufficient to vitiate the General Court's judgment

(see Legal update, Advocate General recommends that ECJ should uphold CFI judgment on Sony/BMG


On 10 July 2008, the ECJ handed down its judgment, reaching a different conclusion in a number of respects to the Advocate

General. The ECJ set aside the General Court judgment on the basis that the General Court made a number of errors law,

although it rejected the appellants' arguments that there is a general presumption that a notified concentration is compatible with

the internal market and that an approval decision can never be annulled for inadequate reasoning.

The ECJ found that the General Court placed too much reliance on the conclusions in the Commission's statement of objections.

Further, the General Court placed too high an investigatory standard on the Commission and erred in relying on confidential

documents which the Commission could not have relied on. The General Court also misconstrued the legal criteria applying to a

collective dominant position: it failed to analyse market transparency in the light of a plausible theory of tacit co-ordination. Finally,



the General Court erred in finding that the Commission had failed to provide an adequate statement of reasons. The ECJ referred

the case back to the General Court for reconsideration (see Legal update, ECJ sets aside CFI judgment on SonyBMG joint

venture (www.practicallaw.com/3-382-5436)).

In the meantime, on 3 October 2007, the Commission announced that, after a further in-depth investigation, it had again

approved the Sony/BMG merger unconditionally. The Commission again applied the Airtours test to consider whether the merger

created or reinforced a collective dominant position of the major record producers in all EEA national markets (SonyBMG,

Universal, Warner and EMI) for recorded music in physical format and the licensing of recorded music in digital format.

The Commission concluded that its qualitative and quantitative analysis, its consideration of third party submissions and its

overall in-depth analysis provided no evidence of co-ordinated behaviour in any of the relevant markets, either prior to the merger

or as a result of it. The Commission, therefore, concluded that the merger would not result in either the creation or strengthening

of a single or collective dominant position. Impala lodged a further appeal against this decision (Case T-229/08 - Impala v

Commission).

In September 2008, the Commission approved the proposed acquisition by Sony of Bertelsmann's 50% share in SonyBMG,

paving the way for Sony to acquire sole ownership of the joint venture (COMP/M.5272 - Sony/ SonyBMG). As a result, in June

2009, the General Court ordered that Impala's appeal against the first Commission decision (which was referred back to the

General Court by the ECJ) is devoid of purpose, and that there is no need to adjudicate on it. Due to the Commission's

September 2008 decision to approve the acquisition of the whole of Sony BMG by Sony Corporation, a judgment by the General

Court would no longer be of practical interest to Impala. Similarly, in September 2009, the General Court ruled that Impala's

appeal against the Commission's second (October 2007) decision to approve the SonyBMG joint venture was devoid of purpose.

Case COMP/M.3333 Sony/BMG, Commission decision of 19 July 2004 and 3 October 2007.

2014 White Paper - proposed changes to make Merger Regulation more effective.

In July 2014, following a consultation in June 2013, the Commission published a White Paper on making EU merger control more

effective (see Legal update, Commission White Paper on making EU merger control more effective (www.practicallaw.com/8-573

-9189)).

The main measures proposed relate to:

• Bringing acquisitions of non-controlling minority shareholdings within the scope of the Merger Regulation (see Proposals for

reform: extension to non-controlling shareholdings).

• Reforming the systems for case referrals between the Commission and member state authorities (Proposals for reform).

The Commission is also proposing the following streamlining and simplifying measures, requiring amendment to the EU Merger

Regulation itself:

• Extra-EEA ioint ventures. The Commission suggests amending Article 1 of the Merger Regulation so that a full-function joint

-venture, located and operating outside the EEA and without any effects on EEA markets, falls outside the Commission's

competence, even if the turnover thresholds are met.

• Exchange of confidential information between Commission and member states. The Commission is considering refining

Articles 19(1) and (2) of the Merger Regulation to ensure that when member states refer cases to the Commission and vice

versa, under Article 22 and Article 9 respectively, the authority that continues the investigation can use the information already

obtained by the authority that referred the case. In addition, it should also clarify that the Commission's ability to exchange

case-related information with national competition authorities (NCAs) includes information obtained by the Commission during

the pre-notification stage.

• Block exemptions: extending the transparency system to certain types of simplified merger case. The Commission is

considering exempting certain categories of mergers from the prior notification requirement. The exemption would include

certain categories of cases currently falling under the simplified procedure, such as cases leading to no "reportable markets"

due to the absence of any horizontal or vertical relationship between the parties. The Merger Regulation could confer this

power upon the Commission, and the Commission could define the exemption’s scope in the Merger Implementing

Regulation.

A possible replacement procedure, in the event of such an exemption, would include extending the targeted transparency

system (for minority shareholdings) to cover the exempt transactions. The Commission would, therefore, be informed by an

information notice and would be free to investigate a case. If it decided not to, the transaction could be implemented after

three weeks without the need for a clearance decision.



• Notification of share transactions outside the stock market. Under Article 4(1) parties may notify a transaction before a

binding sale and purchase agreement is concluded or a public takeover bid is launched, provided they demonstrate a "good

faith intention" to do so. The Commission is considering modifying Article 4(1) to provide more flexibility for notifying mergers

that are executed through share acquisitions on a stock exchange without a public takeover bid.

It may be useful to adapt the criterion of "good faith intention" in order to allow the parties to notify before the level of

shareholding required to exercise (de facto) control is acquired. The acquiring party can demonstrate a clear commitment to

carry out the acquisition by preparing everything necessary (internally and externally) to proceed immediately.

• Clarification of methodology for turnover calculation of joint ventures. The Commission considers that Article 5(4) of the

Merger Regulation should be amended to explicitly articulate the methodology for the calculating a joint venture's relevant

turnover (as currently set out in the Commission's Consolidated Jurisdictional Notice).

• Time limits. The Commission has granted deadline extensions under Article 10(3) of the Merger Regulation in over 50% of

Phase II cases over the past ten years. In some cases, the available time is barely enough for a thorough quantitative

analysis, even with an extended deadline, largely due to the time needed to collect data from the parties and possibly third

parties. The Commission is, therefore, considering introducing greater flexibility by increasing the maximum number of

working days by which the Phase II deadline may be extended under Article 10(3)(2), for example from 20 to 30.

In addition, it could be clarified that Article 10(3)(1)’s automatic 15 working day extension for Phase II deadlines is triggered in

all cases where commitments are offered following a statement of objections and that the exception to the automatic

extension for commitments that are offered before 55 working days only applies if commitments offered are sufficient to

remove the concerns identified without the need for a statement of objections.

• Unwinding of concentrations with regard to minority shareholdings. The Commission is considering modifying Article 8

(4) of the Merger Regulation to align the scope of the Commission’s power to require dissolution of partially implemented

transactions incompatible with the internal market with the scope of the suspension obligation (in Article 7(4)).

This would address the situation, for example, whereby the Commission could not require Ryanair to divest its prior non-

controlling minority shareholding in Aer Lingus, despite blocking the acquisition. The modified Article 8(4) would address such

a scenario by clarifying that when a partially implemented concentration is prohibited, the Commission may order full

divestiture of the acquired stake, even if it would not confer control.

This would align with the proposed reform extending merger control to certain acquisitions of non-controlling minority

shareholdings. If, following the complete dissolution of a prohibited concentration under Article 8(4), the acquirer had a

minority stake in the target company, the acquisition would need to be assessed under the new proposed regime for non-

controlling minority shareholdings.

• Staggered transactions. Article 5(2)(2) of the Merger Regulation establishes that, for the purpose of the turnover calculation

of the undertakings concerned, one or more transactions which take place within a two-year period between the same

persons or undertakings are treated as a single concentration. This prevents circumvention of EU merger control through

staggered transactions.

While the Commission generally assesses the transaction as a whole, this practice raises questions in cases where the first

transaction was notified and cleared by a NCA. The Commission should therefore consider how to tailor the scope of Article 5

(2)(2) to only capture cases of "real" circumvention.

• Qualification of "parking transactions". Article 3(1) defines a concentration as an operation bringing about a lasting change

in the control of the undertakings concerned. In certain instances, however, an undertaking is "parked" with an interim buyer

(such as a bank) on the basis of an agreement that the target will at a later stage be sold on to an ultimate acquirer. The

interim acquirer thus acquires the shares or assets on behalf of the ultimate acquirer, who may also bear the financial risk, in

order to facilitate the ultimate acquisition by the latter. The Merger Regulation should clarify that such "parking transactions"

should be assessed as part of the acquisition of control by the ultimate acquirer.

• Effective sanctions against use of confidential information obtained during merger proceedings. Article 17(1) of the

Merger Regulation provides that information acquired in merger proceedings may only be used for the purposes of the

relevant investigation. However, when private parties and their legal and economic advisors obtain commercially relevant

information about other private parties from the Commission (for example, through access to the file or from third parties

taking part in oral hearings), the Commission currently lacks an effective mechanism for enforcing the limited use obligation.

Therefore, the Merger Regulation should be amended to allow appropriate sanctions against parties and third parties that

receive access to non-public commercial information about other undertakings for the exclusive purpose of the proceeding but

disclose it or use it for other purposes.

• Commission's power to revoke decisions in case of referral based on incorrect or misleading information. According

to Articles 6(3)(a) and 8(6)(a) of the Merger Regulation, the Commission may revoke a decision clearing a merger if that

decision was obtained by deceit or is based on incorrect information for which one of the parties is responsible. However, the



Merger Regulation does not explicitly confer an analogous revocation power for falsely-obtained Article 4(4) referrals to

member states. Therefore, the Merger Regulation should be amended to clarify that referral decisions based on deceit or false

information, for which one of the parties is responsible, can also be revoked.

The consultation on the White Paper is open until 3 October 2014. The Commission will then decide what, if any, legislative

action to take.

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