This article has been written by Lakshmi. V. Pillai of 5th year pursuing B.A. LL.B from GLS Law College, Ahmedabad. The article covers the basic concepts of Merger Regulation under EU law. This article describes the essentials which need to be looked after by the firms while doing the merging, acquisition of control or taking control of JV in the EU market. The Article also covers the concept of referrals which can be made by the parties or by the Member states, under the EU Competition Law.

Introduction

The competition law regulates the merger and acquisitions. As Merger and Acquisitions (“M&A”) leads to the concentration of economic power in a smaller number of parties which can lead to distortion of competition in the market there is a need to regulate it. European Union merger law is a part of the European Union laws. The EU merger law is charged with regulating mergers between two or more entities.

One of the major reasons why businesses are motivated to do a merger is the reduction of transaction costs in negotiating bilateral contracts. And another advantage is, increase in the economy of scale of the party and product in the market. Further, with the merger, the firm acquires market share which directly impacts the market power of the company. And this increase in market power will strengthen the negotiating position of the firm. When we look from the perspective of the firm it is absolutely a good marketing strategy, though this is bad for competitors and downstream entities like for consumers and distributors. Such mergers can result in the making of monopoly and oligopoly structure in the market. Both these structures can weaken the competition in the market, as a single or a small group of people get the power to regulate the market. Therefore, to stop the small number of parties from regulating the market, the EU checks on the mergers which comes under the ambit of the Merger Regulations of the EU law.

Overview of EU Merger Control

Brief description of the EU system of merger control

When there is a merger between two or more corporate entities it is regulated by the Competition law. While firms propose to merger they have to comply with the laws and regulations. Only with the prior permission of the European Commission, the firm can go ahead with the merger. The Commission has exclusive competence over the matters of the merger. The Commission only check those operations which have an impact on the community and that can be termed as ‘community dimension’. The Commission has jurisdiction over the matters even if they impede or not impede the competition. Therefore, while merging the rules and regulations need to be taken into consideration by the companies. If the merger fails to comply with the laws then it is blocked in the market. By this, we understand that a merger is a part of the Competition law and the provisions are provided so that the companies do not acquire the power on the free market and harm the interests of the society, the economy and the consumers as a whole. As the level of control may lead to a hike in prices, less innovation, and production which are anti-competitive in nature. However, if the merging promotes consumer welfare then under such circumstances mergers do not come under the purview of the regulations. 

Under the EU law there are two main legislative texts:

1. EC Merger Regulation;
2. The Implementing Regulation.

The EC Merger Regulation contains the main rules for assessment of concentration, whereas the Implementing Regulation contains about concerns regarding procedural issues which includes- notification, deadlines, right to be heard etc. There are certain forms which are needed to be submitted while doing mergers. Those forms are:

1. Form CO- the official form for standard merger notification;
2. Short Form CO- for simplified merger notifications;
3. Form RS- referral requests.

Institutional arrangements

The Directorate-General for Competition (DG COMP) of European Commission (“EC”) administers the subject of merger control at the EU level. It is considered as one of the most experienced antitrust enforcers in the world. Margrethe Vestager is the current head of the DG COMP, he will be serving this position for five years which will end by 2019. The fines ordered by the DG COMP between 2010-2012 in total was €5.4 bn. The matters covered by DG COMP are as follows:

1. An antitrust agreement under Article 101 and 102 of the Treaty on the Functioning of the European Union (‘TFEU’);
2. Mergers;
3. Article 106 of the TFEU- Liberalisation;
4. Article 107-109 of the TFEU- State Aid;
5. International cooperation. 

The implementing regulation and the Commission’s Notices and Guidelines

The implementing regulation

The implementing regulation has forms which are to be used and submitted while merging is planned by the firm.

Form RS: This is the form used by the parties requesting for the pre-notification referral procedures.

When firms want to do formal notifications, then they have to use the following forms:

Form CO: This form generally has the information which must be notified by the parties while submitting a full-form notification.

This form includes extensive information about the parties. The information shall include:

1. The transaction and the relevant markets.
2. Contact details for customers, trade associations, competitors and potential suppliers.

The mentioned details will be used by the commission to consult while doing investigations. 

Short Form CO: This form is used when it is qualified for the simplified procedure of the Commission and notified concentration are unlikely to raise competition concerns. Under this, only a short- form clearance decision will be issued by the Commission.

The simplified procedure is available for the following mergers:

1. The assets and turnover are below €100 million in EEA (European Economic Area) in the proposed Joint Venture (JV).
2. When the concentrations between parties not having horizontal market overlap or vertical relationships.
3. When the concentration has a horizontal market overlap but it is less than 20% and in the vertical relationships, it is less than 30%.
4. In the concentrations when there is a move made from joint to sole control of a pre-existing JV.

Commissions Notices and Guidelines

The commission from time to time issues various notices and guidelines to explain the application of the Merger Regulation regime. 

Till date the Commission has issued notices and guidelines on the following subjects:

1. The consolidated rules and limit of the jurisdiction of the Commission;
2. Guidelines on explaining the simplified procedure;
3. Guidelines on the referral of cases;
4. Notices on topics like non- horizontal, horizontal, relevant market, remedies and ancillary restraints in which the subject is explained and guidelines are provided.
5. Guidelines on the role of the hearing officer;
6. Guidelines on access to the file;
7. Guidelines on the abandonment of concentration. 

Best Practice Guidelines

The documents published by the Commission which gives out the procedure which needs to be followed by the firm. Hitherto, the Commission has given following best practice guidelines for the mergers regulated by the EU competition law:

1. Guidance on the preparation of public versions of Commission decisions adopted under the Merger Regulation; 

This Guidance outlines:

1. what undertakings can claim for redaction as business secrets and confidential information and what is not usually considered to be confidential information;
2. how confidentiality for business secrets and other confidential information can be claimed;
3. what the Commission usually redacts on its own initiative in the public version of a decision, and
4. the procedure that should be followed to settle confidentiality claims in the context of the publication of the Commission decision and the related publications. 

2. The conduct of EC on merger control proceedings;

3. The Commission’s Model Texts for Divestiture Commitments and the Trustee Mandate under the EC Merger Regulation. This includes the standard models which are based upon the experience gained by the Commission till date in the cases of merger and remedies available thereto.

Access to the Commission’s decisions

After Phase I and Phase II, the Commission issues their press release stating their decisions. The Commission also sometimes publish the non-confidential versions of its decisions at the end of Phase I and II. However, before such publications made by the Commission, the parties are given the opportunity to identify any business secrets which shall be requested to be excluded from the publication. In the ‘Guidance on the preparation of public versions of Commission decisions under the Merger Regulation’, the Commission outlines the subjects which can be considered under the confidential information.

Jurisdiction

The merger regulation of the EU competition law lays down the conditions under which the National Competition Authorities (NCAs) or the EC can have jurisdiction over ‘concentration’ mentioned in the EU competition law.

However, it should be understood that if the concentration come under the ambit of an EU dimension then only the EC COMP have the right to investigate such matters. Whereas, those which are not within the EU dimension will be investigated by the NCA as per their domestic merger control rules. There is an exception to the above general rule, the firm can relocate the jurisdiction between the Commission and the NCAs. There are two ways to it:

1. Pre-notification– Under Article 4 of the EC Merger Regulation, the firm can send a pre-notification referral to the EC using Form RS. The EC will forward the Form to all NCA’s and thereafter all NCA’s will review the Form. If there is any objection by any of the NCA then the matter will be dealt with by the respective NCA.
2. Post-notification– Under Article 9 of the EC Merger Regulation, the Member State NCA can ask the EC to refer the merger under its jurisdiction if the merger is affecting or threatens the competition in the member state market, to take appropriate steps to protect public security or to protect the prudential rules for financial services.

Article 3: Meaning of a concentration

Under Article 3 of the EC Merger Regulation, the definition of the concentration is given. By the general meaning of concentration, we understand that concentration means control by the undertaking because of the change in the shares during merging. 

The meaning of the “Concentration” includes:

1. A change of control which lasts for a long time:

• This change occurs when there is a merger of two or more previously independent undertakings or part of it;
• When the acquisition is of direct or indirect control in whole or in parts of one or more other undertakings;
• The establishment of a Joint Venture where this involves the acquisition of joint control of a full-function JV undertaking. 

2. This also includes control over the rights and contracts or any other means through which the party will get the decisive influence on an undertaking.

However, there are some exceptions to the definition of the “concentration” under Article 3 (5) of the EU Merger Regulation which are:

• Institutions like credit institutions or other financial institutions;
• The office-holder who acquires control as per the requirement of the law.

Article 3(1)(a): mergers 

The term ‘merger’ basically means when the concentration of the undertaking is deemed to arise a change of control for a lasting basis on two or more previously independent undertakings or parts of undertakings.

Article 3(1)(b): acquisition of control

The term ‘acquisition of control’ means a change in the control by controlling at least

• one or;
• one or more undertakings,

through the purchase of securities or assets, through the way of contract or by any other means, either by direct or indirect control of the whole or parts of one or more undertakings.

The concept of control 

Control basically constituted by contracts, rights or any other means either in combination or in separate, which confers the possibility of exercising a decisive influence on an undertaking. There are two types of control: 

• Sole control 

When a transaction gives the possibility of exercising decisive influence of control to one single undertaking over the part or whole of another undertaking, then such control can be termed as ‘sole control’.

• Joint control 

The term ‘joint control’ is used when a transaction gives the possibility of exercising decisive influence of control to two or more undertakings over the part or whole of another undertaking.

Changes in the quality of control

While there is sole or joint control, in two ways we can have changes in the quality of control:

1. When there is a change in the basic control system, i.e. change in the joint or sole controlling system of the concentration.
2. If there is an increase in the number of shareholders or if there is a change in the identity of controlling shareholders, then that can result in changes in the quality of the control. And this scenario can occur before or after the joint transaction.

However, if there is negative or positive sole control change occurs then that will not be considered under this concept. As the mentioned change would not affect the incentives of a negatively controlling shareholder nor the nature of the control structure. Thereby, we understand that mere changes in the level of shareholding by the same shareholders without changing the power or control structure of the control of the company on the undertaking would not be notifiable or considered change in the concentration.

The changes in the quality of control can occur under two circumstances:

1. Firstly, when there is new entry one or more entrants in the panel of controlling shareholders not considering the aspect that whether they are replacing the existing one or not;
2. Secondly, when there is a reduction in the number of controlling shareholders.

Joint ventures- the concept of full-functioning

To consider the JV under the EU Merger Regulation the following conditions are to be there which gives rise to such concentration:

1. Operational autonomy

When a JV is made, it needs to be distinct from its parent company. A JV which is depended on its parent company for its raw material or production will not be considered as autonomous. Therefore, the JV must have sufficient resources, staff, assets (intangible or tangible) and facilities which gives it autonomous power to run the venture.

2. Activities beyond one specific function for the parents

One of the essential features for the JV to be considered as a full functioning entity is that they should be doing their functions independent of the activities performed by the parent company.

For instance, if there is a JV for the management of real estate, and the JV is made just for holding the real estate of the parent company then such JV will not be considered as autonomous. However, if the JV is actively participating in the management of the real estate and have a presence in the market, this indicates the full functionality of the JV.

3. Sale/purchase relations between the joint venture and its parents

When the undertaking is autonomous it shall work independently. However, for the initial years (not exceeding three years- this time limit can vary as per the marketing conditions) when it depends on the parent company for sales or purchase then that will not normally affect its full functioning character. However, a strong marketing power or the presence of the parent company in the downstream or upstream market is a factor which is to be considered while evaluating the full-functioning character of the JV in the market.

Under this point, we can consider two aspects, sales and trade markets. To consider the JV as a full functioning company, the sales of the company shall not only to be with the parent company. The same condition will be applicable in the trade market, wherein the distribution of the products by the JV is only for the parent company. In both these cases what is essentially to be considered is the operation of the JV is not only with the parent company, but it is working independently in the market with others as well. If this condition is established then the autonomy of the JV can be considered.

5. Operation on a lasting basis

Another essential feature to be considered while considering the concentration of the JV is the operation of the company in the market is for a long-lasting basis or not. This can be determined by the clauses in the agreement regarding the dissolution of the JV. 

The duration for the JV can also be determined by the purpose of the company for which it has been established. If the JV is made specifically for the construction of railway tracks and thereafter the JV if not involved in the maintenance of the railway track then the JV will not be working on a long-lasting basis.

6. Change in the activities of the joint venture 

The changes can be as following:

• A substantial amount of additional assets, contracts, know-how or rights being transferred to the JV by the parent company; 
• A change in the organisational structure of a JV which make it qualify under the full- functionality criteria;
• When the activity of a JV changed efficiently in a way that earlier it was supplying or purchasing to the parent company only, now it started taking significant activities apart from the service provided to the parent company. 

Exceptions

As per Article 3 (5) of the EU Merger Regulation, there are three exceptional situations where the acquisition will not be considered under the concentration of the Merger Regulation.

1. When the undertaking only does normal activities which include the transactions and dealings of the securities and the securities which are held on only a temporary basis.
2. When there is no change of control and if the control is acquired by an officeholder according to the EU law.
3. When a financial holding company acquires the control under such circumstances the concentration will not be considered under the Merger Regulation. 

However, it is important to understand that the exceptions mentioned under Article 3 (5) of the EU Merger law are applicable in limited circumstances, like: 

• When there is the acquisition of control by way of purchase and not only through the acquisition of assets.
• When the transaction comes under the ambit of the ‘concentration’ naturally then only exception mentioned under Article 3 (5) (a) and (c) is applicable. 
• And when the transaction is not just a part of a single or broader transaction. 

The typical investment fund structures are also exempted from the ambit of Article 3 (5) because their rights are not limited to voting rights, as they also adopt decisions to appoint the members of the supervisory bodies and management of the undertakings or even restructure those undertakings as per the requirement. 

Further, one more situation to be discussed under the exception is the companies which are acquired while they are under the insolvency proceedings. It is to be noted that if a JV is made out and the operation meets the criteria as outlined in the law then it will be normally considered under the term of the ‘concentration’. However, if the restructuring programme is like a typical fund structure then the exception set out in Article 3(5)(a) will not be normally applicable. 

Being an insolvent can be considered as an exception when a merger scheme is proposed. Because it is already drowning into the water, saving it would not be competitive. The case of Shell’s Harburg refinery by Nynas in Nynas/Shell/Harburg Refinery was similar to this. The acquisition was allowed as otherwise, it will result in the closure of the refinery.

Article 1: Concentrations having a Union dimension

Thresholds

The threshold under the EU Merger law is to be considered purely on a quantitative basis. While checking the threshold the impact of the operation or the market position of the parties to the concentration is not considered. The object is to determine whether the transaction has a community dimension or not. And if there is a community dimension then the merging shall be notified to the respective authorities. 

There are two sets of thresholds provided under Article 1 of the EU Merger law which is applicable to consider a concentration under the ‘Community dimension’. They are provided under Article 1(2) and Article 1(3) of the EU Merger Law. 

Article 1(2)

Under this, there are three different criteria applicable:

• The worldwide turnover will be considered as an overall dimension of the undertaking concerned;
• The community turnover means the minimum level of threshold of the activities which is conducted in the community;
• By the two-thirds rule means the exclusion of the purely domestic transactions from community jurisdiction.

Article 1(3)

As per Article1(2) when the concentration is not covered under the community dimension then this Article shall be applicable. The threshold in Article 1(3) is determined when the concentration is affecting three member states of the EU. Article 1(3) shall deem to be applicable even when there is a lower turnover threshold at both community-wide and worldwide but there is a minimum level of activities which is affecting at least three member states.

As per Article 1(2) of the Merger Regulations, a concentration has a Community dimension if the following conditions are followed:

• When the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5 000 million; and
• When the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million.

Provided that each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State

The term ‘turnover’ includes ordinary activities and after turnover taxes of all the undertakings concerned.

The ‘undertaking concerned’, in the case of acquisition of parts of undertakings only the turnover relating to the parts which are the subject of the concentration, shall be taken into account with regard to the seller(s).

In case, these thresholds are not met a concentration has nevertheless Community dimension, if

• the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 2 500 million, and
• in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million, and
• in each of at least three Member States included for the purpose of the second point above, the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million, and
• the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

Notion of undertaking concerned

To clearly understand the subject matter first we need to understand the terminologies. While understanding this concept the learner shall not misinterpret the term ‘undertaking concerned’ with ‘the notion of the undertaking’. The ‘undertaking concerned’ herein to be referred from the point of view of Article 1 and 5. This terminology is basically referred to the various undertakings which may be involved in the procedure of merging. And the word ‘notion of the undertaking concerned’ refers to the notification which needs to be sent to the notifying parties, third parties, the parties which can be subject to fines or penalty payments and other involved parties as per Chapter IV of the Implementing Regulation.

Under the Merger Regulation, a notification is required to be sent when the undertakings concerned are participating in a ‘concentration’ as per Article 3(1). Once the jurisdiction is determined then under Article 5 the threshold is calculated. However, Article 5(4) gives out the detailed criteria to identify which undertaking can be concerned.

The Merger Regulation lays out the circumstances under which the notion of the undertaking to be made in each criteria:

1. Merger- The notion in the merger to be sent for each of the undertakings concerned in the transaction.
2. Acquisition of control- In the case of acquisition of control the undertakings which need to be notified are the ‘undertaking concerned’. In the matter of acquisition, there can be one or more undertakings which are participating as a whole or part in the transaction. Under this head, we can have different transactions.

Relevant date for establishing jurisdiction

Earlier there was a time period in which the relevant date was triggered. As per Article 4(1) the following time period were the relevant dates in which the undertaking used to comply to inform the authority regarding their transaction:

1. The announcement of a public bid; or
2. The acquisition of a controlling interest; or
3.  The conclusion of a final agreement.

However, in the amended law, there are no such obligations on parties to notify within a certain time period. But at the same time, the parties can not implement the planned concentration before informing the respective authority/ies. In Article 4(1)(2), it says that a notification regarding the transaction shall be made to the authority with good faith intention while concluding the agreement. And Article 4(1)(1) says that when it is concluded that the concentration is coming under the ambit of the Merger Law, then following the conclusion of the agreement, during the announcement of a public bid or the acquisition of a controlling interest, the authority shall be notified. From here we can conclude that even though no as such specific dates are mentioned though if the undertaking does not occur to notify on time then the dates of the event mentioned will be decisive.

Therefore, we conclude that the relevant date for the undertaking for establishing jurisdiction over a concentration are:

1. The announcement of a public bid;
2. The date on which the conclusion of a binding legal document;
3. The date of the first notification;
4. After the manifestation of good faith to do so.

whichever is the earlier date, the undertaking on that date shall inform the authority. 

Turnover

In Article 5 of the Merger Regulation the concept of “turnover” is used. The term turnover comes under the heading of the sale in the accounts of the company.

In the case of products- the turnover can be easily understood by identifying each commercial act regarding the transfer of ownership.

In the case of services- the turnover is understood by considering the total amount of sales.

However, in the case of advertising and package holidays, the application of services becomes a little complicated as there are intermediaries. But in the end for all services, the point is about how much service reached to the customers and the ultimate payment by the customer for the full service.

As per Article 5(1), the amount of the turnover shall include the turnover which is based on the ‘ordinary activities’ of the undertaking. The ‘ordinary activities’ generally excludes those items which come under the head of ‘extraordinary income’ or ‘financial income’.

The aid received by the undertaking is also included under the head of the turnover. The aid herein referred to as is the aid which is granted by public bodies which are directly linked to the sale of products. Therefore aid can be considered as the income received by undertaking due to the sale of products or services including the price paid by the consumer. 

The term ‘Net’ turnover, basically means the turnover which can be considered after the deduction of all components as per the Merger Regulation. The main aim of determining the ‘turnover’ is to understand the turnover is such a way to understand the economic strength of the undertaking. During the calculation of the ‘Net turnover’ rebates and taxes are also deducted. And the ‘internal’ turnover also is not considered under the ‘net’ turnover which comes under the sales which were made between the concerned undertaking with the group to which concerned undertaking belongs.

Therefore, we understand that the ‘amount’ which are taken into consideration under the EU Merger Regulation is only the sales which are made between the group of undertaking with third parties on one hand and with each other on the other.

In addition to this under Article 5(5)(a) of the Merger Regulation, the double-counting of the turnover should be avoided. As per Article 5(4)(b) ‘Double counting’ means the turnover which results from the sale of products or the provision of services between the joint venture and each of the undertakings concerned. 

Turnover calculation and financial accounts: The general rules are that the Commission always relies upon accurate and reliable figures. If any adjustments are made in the figures in the accounts then that needs to be as per the regulations. If the undertaking belongs to a non-member country, then under such circumstances the Commission can convert the accounts as per the standards of the Community regulations if seems it to be necessary. 

So as per Article 5(4) of the Merger Regulation, the following turnovers shall be added together:

1. The undertaking concerned;
2. The undertakings to which the concerned undertaking is connected directly or indirectly by way of- 

• owing more than half of the business assets or capital; or 
• having half of the voting rights; or 
• having the right to manage the affairs of the undertaking; or 
• having the power to appoint more than half the members of the supervisory board. 

1. Those undertakings which are directly or indirectly connected to the concerned undertakings have the powers like mentioned in (b);
2. Those undertakings which have powers like mentioned in (a) to (d) on the matters as mentioned in (b).

It is to be noted that there are many ways through which a relationship can be made and rights can be exercised, the Commission is only concerned with those rights which are de jure in nature.

Further, it is important to understand that there is a difference between Article 3 (2) and Article 5 (4). Article 3(2) defines the term ‘control’ in the Merger Regulation. Control means the possibility of the undertaking to have the power to exercise a decisive influence on an undertaking. That means it is not necessary to prove that the decisive influence will take place or not. But if the influence is taking place then that will lead to an effective change in the undertaking. Article 5 (4) lays out the specific criteria of the undertakings whose turnover can be considered under the undertaking concerned. In the case of Article 3 (2), the economic dependence of the undertaking is also considered even if it just leads to de facto control. However, Article 5(4) would not arise on a de facto basis when due to strong common interests between different minority shareholders of the joint venture company on the basis of shareholders’ attendance. The difference is reflected by the fact that the term used in 5(4) is the word ‘right to manage’ rather than ‘power’. 

The allocation of turnover can be further differentiated into three subheadings on the basis of difference of the way through which the turnover has been constituted:

1. Allocation of turnover of the undertakings identified;
2. Allocation of turnover in case of investment funds;
3. Allocation of turnover for state-owned undertakings.

Geographic allocation of turnover

There is no discrimination between the ‘services provided’ and ‘products sold’ in the merger regulation for the geographic allocation of the turnover. The basic principle is the turnover of that place is to be calculated where there is an alternative for the product or the service. And the real competition occurs where the actual delivery of the product and service happens. 

In the case of sales of goods or sale of moveable mobile goods, the delivery place is considered important for the allocation of the turnover. However, in case if there is a parent company which have many subsidiaries, the allocation of turnover is calculated at the place where the delivery of the goods are made. The main reason for that is the competition of the goods with the other subsidiary goods are considered for the allocation.

In the case of services, there are further three categories, the categories will be explained here by examples:

Service provider travels– a non-European company providing plane repairing services to a European country. 

Customer travels- European customer books a car directly in the USA (service is provided outside the community).

In both of the above circumstances, the place where the service was provided will be considered for the allocation of turnover.

Both service and customer not travelling– supply of software, both the parties in this example can be outside or inside the community, the turnover allocated to the place of the customer will be taken into consideration.

Conversion of turnover into Euros

When the turnover figures are converted into Euro, great care should be taken while the exchange rate is used. The first step is to convert the annual turnover of a company to the average rate for the twelve months concerned. The average rate can be obtained from the DG Competition’s website. And while taking the audited annual turnover, the figures should be converted as such that it shall not be broken into quarterly or monthly figures which then need to be converted individually. The same procedure applies even when sales are in a range of currencies.

The total turnover given in the consolidated audited accounts and in that company’s reporting currency is converted into euros at the yearly average rate. Local currency sales should not be converted directly into euros since these figures are not from the consolidated audited accounts of the company.

Provisions for credit and other financial institutions and insurance undertakings

Due to the specific nature of the sector, Article 5(3) contains specific rules for the calculation of turnover of credit and other financial institutions as well as insurance undertakings.

‘Credit institution’ means an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account.

‘Financial institution’ means an undertaking other than a credit institution, the principal activity of which is to acquire holdings or to carry on one or more of the activities listed in points 2 to 12 of Annex I.

Article 5(3) of the Merger Regulation sets out the methods of calculation of turnover for credit and other financial institutions and for insurance undertakings.

Article 21: one-stop merger control

In the EU system of Merger Regulation, the control of concentrations within EEA (European Economic Area) is based on the ‘one-stop shop’ principle. This gives the Commission the exclusive jurisdiction to review the matters which comes under the definition of Article 3 of the EU Merger Regulation on ‘concentration’ and met the thresholds mentioned in Article 1(2) or (3) of the EU Merger Regulation. When the transaction comes under the cover of one-stop shop principle they are precluded from applying under their national competition laws to such concentrations with an EU dimension as per the virtue of Article 21(3). If the thresholds are below than the requirements, then the undertaking has to apply to the Member States. The Commission in such cases does not have jurisdiction to deal with such transactions.

The benefits of one-stop merger control

Before the principle of ‘one-stop shop’, the industries had to take permission from the Commission and as well as the Member states. And secondly, the Commission had the power to intervene only after the merger had taken place. 

So after the amendment in the Merger Regulation, this principle came into practice and the above problems were resolved. Therefore, it is beneficial to the Competition authorities and businesses alike:

Benefits to the Competition authority:

• Increases administrative efficiency;
• Avoiding duplication of the work; and
• Avoids the fragmentation of the enforcement effort;
• Reduces the potentially incoherent treatment by multiple authorities. 

Benefits to the Business people:

• Reduce the cost and burden of multiple filing;
• Eliminate the risk of conflicting decisions by different competition authorities under diverse legal regimes.

The benefits of more flexible jurisdictional rules

In this case, even though Commission takes the stand first, however, the Member State authority can ask its interference if there is a competition problem which takes place in the distinct market within its territory. Under such circumstances, the Commission may take case itself or transfer the matter to the Member state. However, only one set of authority will be dealing with the matter. 

Article 4(4) and Article 9: referral of concentrations having a Union dimensions to the competent authorities of the Member states

Before starting with the topic of pre and post referrals we need to understand when referrals are used. The referrals are made when there is a compelling reason for departing from ‘original jurisdiction’.

There are two types of referrals: 

The pre-notification referrals under Article 4(4) and Article 4(5) are only made available to the undertakings. Whereas, the post-notification referrals are made by the member state under Article 9 and Article 22.

It is to be noted that making pre-filing referrals the undertakings have to comply with tight deadlines. While filing pre referrals the undertaking shall have a straightforward objective to establish and the scope of the geographic market must be clear. 

And one more thing to be noted is that post-notification referral shall not be made or to be avoided to the greatest extent possible.

Pre-notification referrals: Article 4(4)

The pre-notification referral is made by the reasoned submission of the parties regarding the concentration. Before making the pre-notification referrals two things need to be considered: 

• The merging fulfils the legal requirements which are set out in the Merger Regulation.
• The pre-notification referral shall be abided by the guiding principles outlined in the Merger Regulation.

As per Article 4 (4) there are certain legal requirements which are to be followed:

1. The concentration must be significantly affecting the competition in the market or markets;
2. The market herein referred should be in any of the Member State;
3. The market shall have characteristics of a distinct market.

While making such referrals the requesting parties shall indicate that there can be a potential impact on competition in a distinct market. Even if it is preliminary, then too without prejudice to the outcome of the investigation of the commission the undertaking has to demonstrate the potential effect. The requesting parties also need to show the geographic market where the competition is occurring.

Other factors to be considered: 

• To check the authority to whom the referral made is a proper authority or not.
• This referral can also be made when the parties are having a competition effect on different markets but all the time coordination is required and the commission can individually deal with such matters.

Post-notification referrals: Article 9

A Member State has two options under Article 9 to request referral of a case following its notification to the Commission.

Article 9(2)(a)

• The concentration must be significantly affecting the market of the Member State;
• The market referred by the Member State shall be within the jurisdiction of the Member State;
• The market shall consist of all characteristics of a distinct market.

Therefore, when the Member state makes the referral it can be on prima-facie evidence, but that shall not be prejudiced by the outcome of the investigation. And the Member State while also needs to prove that the concentration to which referral is made shall be more than national or narrower than national in scope. 

Article 9(2)(b)

Under Article 9 (2) (b), the following requirements are to be met:

• The concentration is affecting the market;
• The market referred by the Member State shall be within the jurisdiction of the Member State;
• The market shall consist of all characteristics of a distinct market;
• The market must not constitute a substantial part of the common market. 

The most important thing for the Merger state here to prove is the market to which the competition is affecting is not a substantial part of the common market. Such practices are generally applicable to the markets which are limited to a narrow geographic scope, within a Member State.

Article 4(4) and Article 9 in practice

Article 4(4) is made by the undertaking when the concentration has a community dimension but may significantly affect competition in a distinct market within a Member State.

And the undertaking can request this kind of referral on Form RS. Then the request is transmitted to all other Member States by the Commission without delay.

However, the remainders of both the Articles differ:

Under Article 4(4) timeline is as follows- 

• The Member States have 15 days to submit and express their agreement or disagreement after getting a referral from the party to the Commission. 
• If the Member State keep silence then that deem to be considered as agreement.
• If no Member States disagree, then the Commission has 10 days to accept or reject the referral. Silence on the part of the Commission will be considered as assent. And then after the assent from both the authorities the Member State can apply national law to the referred part of the case. 

The Article 9 is applicable when a Member State may request the Commission refer to it a concentration within Community dimension, or a part thereof, which has been notified to the Commission and which threatens to significantly affect competition within a distinct market within that Member State (Article 9(2)(a)), or which affects such a distinct market not constituting a substantial part of the common market (Article 9(2)(b)). 

Under Article 9 timeline is as follows-

• The Member State within 15 working days from the reception of the copy of Form CO from the undertaking shall request to the Commission regarding the particular case. 
• The Commission first will look into the matter and check whether the required legal criteria are fulfilled or not.
• After checking the legal essentials the Commission may then decide to refer the case, or a part thereof, exercising its administrative discretion.
• In the case of a referral request made pursuant to Article 9(2)(b), the Commission must (i.e. has no discretion) make the referral if the legal criteria are met. The decision must be taken within 35 working days from notification or, where the Commission has initiated proceedings, within 65 working days.
• If the referral is made, the Member State concerned applies its own national competition law, subject only to Article 9(6) and (8).

Article 4(5) and Article 22: referral of concentrations not having a Union dimension by Member states to the Commission

Pre-notification referrals: Article 4(5)

There are two basic requirement:

1. The transaction mentioned for reference shall be a concentration as per the meaning of Article 3 of the Merger Regulation.
2. At least by three Member states, the concentration mentioned shall be applicable and capable of being reviewed.

 Other matters to be considered:

• To check whether Commission is an appropriate authority for the investigation.
• To check whether the merging covers more than one member state and giving an economic impact of the concentration to more than one member state. 
• To check whether the case comes under cross-border in nature.

Post-notification referrals: Article 22

Two legal requirements which are required under Article 22 are as follows:

• There shall be effect on trade between the Member States because of the Concentration; and
• The concentration will significantly affect the competition in the territory of the Member State or the state which is making the referral.

Other factors to be considered:

• The Member States feels that the Commission is more effective to investigate on this matter.
• The matter shall have serious competition concern and the market shall be wider than the national market of the Member State.
• Even if the market is narrower than the national market if there is a substantial economic impact on the market because of this particular concentration then the Member State has right to concern such matters to the Commission.

Article 4(5) and Article 22 in practice

Article 4(5) (that the concentration does not have a Community dimension but is capable of being reviewed under the national competition laws of at least three Member States). And the undertaking can request this kind of referral on Form RS. Then the request is transmitted to all other Member States by the Commission without delay.

Under Article 4(5) timeline-

• The Member States have 15 days from the date they receive the request, for the submission to express agreement or disagreement regarding the request.

• If any Member State disagrees then the Commission will examine the matter. If there is no expressed disagreement, then that means the case has acquired the dimension of the Community dimension.
• And after that, the Commission has exclusive jurisdiction over it. In such case, the parties have to notify the Commission under the Form CO.
• On the other hand, if one or more competent Member States have expressed their disagreement, the Commission informs all Member States and the undertakings concerned without delay of any such expression of disagreement and the referral process ends. It is then for the parties to comply with any applicable national notification rules.

Under Article 22, a Member State may request that the Commission examine a concentration which has no Community dimension but which affects trade between the Member States and threatens to significantly affect competition within its territory. 

The timeline for Article 22 is as follows:

• The request must be made within 15 working days from the date of national notification or, where no notification is required, the date when the concentration was ‘made known’ to the Member State concerned. 
• The Commission transmits the request to all Member States. Any other Member States can decide to join the request within a period of 15 working days from the date they receive a copy of the initial request.
• All national time limits relating to the concentration are suspended a decision has been taken as to where it will be examined; a Member State can restart the national time limits before the expiry of the 15 working day period by informing the Commission and the merging parties that it does not wish to join the request. 
• At the latest 10 working days following the expiry of the 15 working day period, the Commission must decide whether to accept the case from the requesting Member State(s). 
• If the Commission accepts jurisdiction, national proceedings in the referring Member State(s) are terminated and the Commission examines the case pursuant to Article 22(4) of the Merger Regulation on behalf of the requesting State(s). The non-requesting States can continue to apply national law.

Article 21(4): legitimate interest clause

Article 21 (4) states that the Member State can take appropriate steps if required to protect the legitimate interests other than the points or concerns which are mentioned in the Regulation. The concerns which are raised by the Member State shall be compatible with the general principles and other provisions of Community law.

Legitimate interests provided under the Merger Regulation is a non-exhaustive list. They are as follows:

• Public security;
• Prudential rules; and
• Plurality of the media.

As per Article 21 (4), the Member State can initiate the request if it feels that the case is covered under the legitimate interests as provided in the Merger Regulation and thereby, the same can be communicated to the Commission. Within 25 days the Commission must decide on the matter. When the above essentials are fulfilled then the Commission has the sole jurisdiction on the matter and the Member State can also do parallel investigation on the matter. However, it is to be noted that Article 21 (4) is rarely used by the Member States. 

Conclusion

In this article, we understand various basic concepts of the EU Merger Regulation. It is so important for the undertakings to properly understand the law and concepts when they take part in the transactions of merging with the firms who are in the territory of the European Union or otherwise whose market is covered in the EU.

References

• https://ec.europa.eu/competition/mergers/legislation/legislation.html
• https://www.mbda.gov/news/blog/2012/04/5-types-company-mergers
• https://ec.europa.eu/competition/mergers/legislation/guidance_on_preparation_of_public_versions_mergers_26052015.pdf
• https://ec.europa.eu/competition/mergers/legislation/merger_compilation.pdf
• https://ec.europa.eu/commission/presscorner/detail/en/IP_90_156
• https://www.slaughterandmay.com/media/1501891/eu-competition-newsletter-05-nov-11-nov-2010.pdf
• https://ec.europa.eu/competition/mergers/legislation/merger_law_2013_web.pdf

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