Green paper on mergers

1) OBJECTIVE

To launch a widespread debate on the reform of merger control arrangements.

2) ACT

Green Paper on the review of Council Regulation (EEC) No 4064/89 of 11 December 2001 [(COM(2001) 745 final - Not published in the Official Journal].

3) SUMMARY

Background

More than ten years after the entry into force of the Merger Regulation, the Commission is launching a wide-ranging discussion on reforming merger control. New economic, political and legal developments such as the introduction of the euro, the enlargement of the Union and the increasing pace of globalisation of companies and markets have prompted the Commission to undertake a review of Regulation (EEC) No 4064/89 on mergers.

Whenever extensive reforms are undertaken, Green Papers are issued as discussion instruments through which the Commission puts forward specific proposals and invites the parties concerned to comment. In the case of the Green Paper on merger control, the reform is intended to deal with substantive, jurisdictional and procedural issues.

Substantive issues: the dominant position criterion

Whilst the EC Treaty does not prohibit the existence of a dominant position but only the abuse of it, the Merger Regulation acknowledges that, under certain conditions, a merger may lead to abuse of a dominant position. This dominance criterion, which the Commission applies and Member States recognise, differs from the "substantial lessening of competition" criterion applied in other jurisdictions such as the United States, Canada and Australia. That concept involves the authorities checking whether a merger causes a substantial reduction in competition. The Green Paper acknowledges the value and effectiveness of the dominant position concept, but it invites discussion of the advantages that alignment on an approach involving merger assessment could provide at international level.

Jurisdictional issues: the concept of "Community dimension"

The Green Paper puts jurisdictional issues first, especially the question of "Community dimension". The main purpose of the proposals on jurisdictional matters is to increase flexibility, efficiency and speed in processing cases between the Commission and the courts of the Member States.

At present, the Commission has sole power over mergers with a Community dimension. This "one-stop shop" system meets the need for effectiveness since it makes it possible to examine a transaction having cross-border effects, which might otherwise avoid individual scrutiny by the national courts.

The existing Regulation considers that a merger has a Community dimension (Article 1) where the combined aggregate worldwide turnover of all the firms concerned is more than 2.5 billion. If, however, that threshold is not reached, a merger may be regarded as having a Community dimension if a lower threshold is reached in at least three Member States.

That last provision requires the firms concerned to notify a transaction in at least three Member States. However, the number of multiple notifications is growing and will probably only accelerate with the enlargement of the European Union. In order to simplify the procedure and retain the advantages of the "one-stop shop", the Commission proposes automatic Community powers over transactions that must now be the subject of multiple filings in at least three Member States.

There may, however, be cases where the Commission decides to refer a transaction back to the national authorities if the effects do not actually go beyond the national frontiers. If mergers are to be processed as close to the interests concerned as possible, there must be maximum flexibility in the arrangements governing referral to Member States. To guarantee and enhance the flexibility of the system, the Green Paper simplifies the wording of the referral application (Article 9) sent to Member States' authorities so that it no longer contains the requirement to provide evidence that the transaction is liable to create or strengthen a dominant position. The Green Paper also endeavours to find a simpler geographic criterion to define the dimensions and extent of the market concerned than that of a "substantial" part of the relevant market. In addition, the three-week period might be cut to two weeks. And the Commission is also considering altering the procedure for referral by the national authorities to the Commission (Article 22).

The Green Paper also recognises the difficulties of defining the concept of "merger" with sufficient legal certainty in the different specific instances described (Article 3) and opens the debate on the concept of mergers. A review is planned in particular of the provisions concerning minority shareholdings, strategic alliances and multiple transactions. The Green Paper also seeks comments on the applicability of the Merger Regulation to certain types of venture capital transactions and the harmonisation of the concepts of groups and controls.

Procedural issues: a more flexible system

The key to reform of the procedure is the time needed to initiate proceedings in respect of the first (notification) phase and the second (investigation procedure) phase. The most innovative proposal in this respect is the introduction of a suspensory provision, enabling proceedings to be suspended for 20 to 30 days in order to give the parties more time to arrange their defence. This amendment is designed to make the procedure more flexible and improve due process. The Commission also invites the parties to comment on whether notifications could be submitted direct by the notifying parties to the competent national authorities, whether they could be submitted electronically and on the necessary criteria for finding that a notification is incomplete.

Last updated: 23.03.2002