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Control of concentrations between companies

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Control of concentrations between companies

The regulation on the control of concentrations between companies reformed the regulatory reference framework in depth. Whilst strengthening the one-stop shop principle, it provides a positive incentive for national competition authorities to participate and simplifies the procedure for notifications and investigations.

ACT

Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation).

SUMMARY

Although the results obtained by the application of Regulation No 4064/89 can generally be regarded as positive, experience gained in applying the Regulation and the discussions prompted by the publication of the 2001 Green Paper showed that the system could be improved.

The 1989 Merger Regulation was based on the one-stop shop principle (i.e. the Commission was given sole control over all major cross-border mergers, whereas previously they had to go through a number of different procedures in individual EU countries). However, the 2004 regulation, whilst ensuring that the same merger need not be notified to several competition authorities in the EU, adopts the principle of subsidiarity, whereby a merger is examined by the judicial authority best placed to do so.

This regulation is applicable to all concentrations with an EU dimension. A concentration arises where a change of control on a lasting basis results from:

  • the merger of 2 or more previously independent companies or parts of companies;
  • the acquisition by 1 or more persons (already controlling at least 1 company) or by 1 or more companies of direct or indirect control of 1 or more other companies.

Multiple transactions that are conditional on one another or are closely connected are regarded as a single concentration.

A concentration acquires an EU dimension where:

  • the combined aggregate worldwide turnover of all the companies concerned is more than €5 billion; and
  • the aggregate turnover in the EU of each of at least 2 of the companies concerned is more than €250 million, unless each of the companies concerned generates more than 2/3 of its aggregate EU-wide turnover within a single EU country.

If the above-mentioned thresholds are not reached, a concentration nevertheless has an EU dimension if:

  • the combined aggregate worldwide turnover of all the companies concerned is more than €2.5 billion;
  • in each of at least 3 EU countries, the combined aggregate turnover of all the companies concerned is more than €100 million;
  • in each of at least 3 EU countries, the aggregate turnover of each of at least 2 of the companies concerned is more than €25 million;
  • the aggregate EU-wide turnover of each of at least 2 of the companies concerned is more than €100 million, unless each of the companies concerned generates more than 2/3 of its aggregate EU-wide turnover in one and the same EU country.

Notification procedure: the firms and persons concerned

As a general rule, concentrations with an EU dimension must be notified to the Commission prior to their implementation and following the conclusion of the agreement, the announcement of the public bid or the acquisition of a controlling interest. However, this regulation allows notification before the conclusion of a binding agreement and abolishes the obligation to notify operations within a week of concluding an agreement. This makes the system more flexible and facilitates coordination with other jurisdictions in investigations of mergers.

With a view to coordination with the competent national authorities, this regulation allows the companies or persons concerned to inform the Commission, by means of a reasoned submission, before notifying a concentration. This procedure, referred to as pre-notification, allows the parties to show the Commission that the proposed merger, while resulting in a concentration having a cross-border dimension, affects competition on the market of 1 EU country. If the EU country referred to in the reasoned submission fails to express its disagreement within a period of 15 working days of receiving the submission, with the application to refer the case, the Commission is allowed 25 working days from receipt of the submission within which to refer the whole or part of the case to the competent authorities of that EU country with a view to the application of that country's national competition law.

The same procedure applies where a person or an undertaking wishes to draw the Commission's attention to the cross-border effects which a merger without an EU dimension could have at European level.

Initiation of proceedings: the Commission

Once it has received a notification, the Commission has several powers of decision: to initiate proceedings, to carry out investigations and to impose fines. First, it determines by decision whether:

  • the notified concentration comes under this regulation;
  • the concentration is compatible with the common market;
  • the concentration raises serious doubts as to its compatibility.

Concentrations with an EU dimension cannot, in theory, be implemented either before notification or for 3 weeks following notification. If, however, a concentration has already been implemented and declared incompatible with the common market, the Commission can order the companies concerned to dissolve the concentration or restore the situation prevailing prior to the implementation of the concentration.

The Commission can also adopt interim measures if it finds that a concentration that has been notified, although coming within the scope of this regulation, does not give rise to serious doubts as to its compatibility with the common market or is such that a simple change suffices to bring it into line with the common market.

To enforce compliance with this regulation, the Commission may impose the following sanctions:

  • fines: the Commission may impose fines not exceeding 1% of the aggregate turnover of the company where, intentionally or negligently, it supplies incorrect, incomplete or misleading information or does not supply information within the required time limit. It may also impose fines where seals affixed during an inspection have been broken. It can impose fines of up to 10% of the aggregate turnover of the company concerned where, either intentionally or negligently, it fails to notify a concentration prior to its implementation, implements a concentration in breach of the regulation or fails to comply with a Commission decision.
  • periodic penalty payments: the Commission may impose periodic penalty payments not exceeding 5 % of the average daily aggregate turnover of the company for each working day of delay, calculated from the date set by the Commission in its decision requiring information, ordering inspections, etc.

An Advisory Committee composed of representatives of the EU countries’ authorities must be consulted by the Commission before any decision relating to compatibility, incompatibility or the imposition of fines or periodic penalty payments is taken. The European Court of Justice can abolish, reduce or increase any fines or periodic penalty payments imposed.

Referral procedure: the Commission and the competent authorities of the EU countries

In order to ensure that the competent authority is the one best placed to investigate a concentration, the procedure for referral to the competent authorities of the EU countries has been simplified.

Prior to Regulation (EC) No 139/2004, the turnover and 3+ criteria were applied by identifying concentrations with a cross-border effect (i.e. exclusive EU competence where at least 3 EU countries request a referral). As these 2 criteria proved inadequate, the regulation introduces a new criterion for referral to the competent authorities of the EU countries.

An EU country may, within 15 working days of the date of receipt of the copy of the notification, acting on its own initiative or at the Commission's invitation, declare that a concentration significantly affects competition in its domestic market. The product or service market must present all the characteristics of a distinct market without, however, constituting a substantial part of the common market. The Commission has 65 working days following the notification of the concentration within which to decide whether to deal with case itself under this regulation or to refer the whole or part of the case to the competent authorities of the EU country; if the Commission fails to adopt a decision the case is considered to have been referred to the EU country in question.

Conversely, an EU country can request the Commission to investigate whether a concentration, although without an EU dimension, significantly hampers competition between EU countries and is liable to have a significant effect on competition on the territory of the EU country or countries making the request. The Commission must then inform the competent authorities of the EU countries and companies concerned, fixing a time limit of 15 working days within which any other EU country can join the initial request. If, within 10 working days, the Commission has not adopted a decision to refer or not to refer, it is deemed to have adopted a decision in accordance with the request.

Regulation (EC) No 139/2004, which is applicable from 1 May 2004, replaced Regulation (EEC) No 4064/89.

In July 2014, the Commission issued a White Paper taking stock of the operation of Regulation (EC) No 139/2004. It was the subject of a public consultation and is likely to result in legislative proposals in the course of 2015.

Further information is available from the European Commission's Directorate-General for Competition website.

REFERENCES

Act

Entry into force

Deadline for transposition in the Member States

Official Journal

Regulation No 139/2004

1.5.2004

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OJ L 24 of 29.1.2004, p. 1-22

RELATED ACTS

Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004. (2013/C 366/04) (Official Journal C 366 of 14.12.2013, p. 5-9).

Corrigendum to Commission notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004. (Official Journal C 11 of 15.1.2014, p. 6).

This Commission notice provides for an extension of the simplified procedure for examining mergers that are generally unlikely to raise competition problems. The notification form is shorter and many cases of this type are cleared without a market investigation. The extension of the simplified procedure relates to cases of:

  • horizontal overlap (where the two companies merging are competitors): mergers below a 20% combined market share (i.e. the combined sales of the 2 companies involved in the merger);
  • vertically related markets (where one company sells an input to a market where the other company is active such as, for example, a merger between an engine supplier and a car manufacturer): mergers below a 30% combined market share are checked under the simplified procedure (instead of 25% previously).

20.05.2014

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