This article has been written by Tanya Gupta, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho.

Introduction

Mergers & Acquisition are regulated by competition law. As merger & acquisition results into decrease of competition in the market so there is a need to regulate it. The regulating merger parties are regulated by European Union merger law which is a part of European Union laws. Merger control deals with many merger transactions because it is bad for other competitors in the market & less availability of products & services for the consumers due to which it lessens the competition in the market and makes the structure of monopoly & oligopoly. Therefore the EU checks the mergers which come under the ambit of merger Regulation of the EU law.

Regulatory authority for merger control 

Regulatory framework for the assessment of mergers, acquisition & certain joint ventures which is collectively called as concentrations are provided by Regulation 139/2004 on the control of concentrations which meet prescribed threshold and have an EU dimension. In European Economic Area concentrations with an EU dimension reviewed with an exclusive jurisdiction by European Commission. 

The EU merger control regions are regulated by merger Regulations which are supplemented by several detailed notices & guidelines on both the procedural & substantive aspects. Merger control at an EU level is administered by the Europe Commission Directorate General for competition CDG COMP.

Triggering events/thresholds 

If a lasting change occurs in the control of an undertaking then it is referred to as ‘concentration’. So a concentration arises in following situation.

Two or more previously independent undertakings merged. 

Acquisition of one undertaking by one or more undertaking directly or indirectly. 

When fully functional a joint venture is created. 

There is no such particular shareholding or other quantitative threshold which can measure whether a change of control has occurred. 

Conversion of sole control to joint control & vice versa or acquisition of it can constitute a concentration. 

Sole Control – When acquiring undertaking acquires a majority of voting rights of another undertaking which gives them power to exercise decisive influence over the target undertaking.

Joint Control – When two or more acquiring undertaking exercise decisive influence over target undertaking if then it is said to have joint control over target undertaking.

Threshold

If either of two turnover thresholds is met by concentrations which have an EU dimension then it has to be notified before commission unless it fulfills two third exceptions.

The two turnover thresholds are as followed- 

• If combined aggregate worldwide turnover of all the undertakings is more than EUR 5 billion. 
• If aggregate wide turnover of each of at least two of undertaking exceeds EUR 250 million.

Two-third exceptions – If quantitative concentrations meet with the thresholds, then no EU dimensions if each of undertaking achieves more than two-third of its aggregate EU wide turnover in one and same members state then it is called two-third exceptions. 

Notifications required for mergers 

It is mandatory for merger parties to notify before European Commission about concentration with an EU dimension. There is no such prescribed deadline for a concentration to be notified. Yet for notifiable transactions parties must submit notifications to the Commission in advance so that they can give sufficient time to the commission to review the transaction and these types of transaction cannot be executed before a positive response from commission. 

The acquiring undertaking is solely responsible for submitting notification for the acquisition of sole control.  

The two or more undertakings jointly are responsible for submitting the notifications for acquisition of joint control or creation of full function joint venture.

Form of notification

Form CO is used for making the notifications before European Commission for implementing regulation 139/2004. The process of completion of form CO is a time consuming exercise and needs detailed information. In complicated cases, when there is a horizontal overlap or overlap between vertical relationships in the market it takes several months to complete CO form. Horizontally affected market means where combined market share is 20% or more as well as where both the parties are active. On the other hand vertically affected market means where the individual or combined market share of the parties is more 30% or more.

Form CO requires the followings things:

• Sales data of the parties.
• Estimates of market share for principal market participants. 
• Main customers.
• Full description of competitive structure of the market.

In a simple transaction a simplified procedure has to be followed. The parties can submit “short form CO” simple transactions. There are no filing fees for a notification.

Applicable Procedures & timetable

Pre notification consultations

A pre-notification discussion with the commission is a standard practice. There is no such particular time limit for the completion of consultations. It all depends upon the complexity of the case.

Phase I

When the Commission has received complete form CO notification, phase I will commence. If the complete notification is notified before commission they have 25 working days to complete its review and adopt decisions accordingly. But if it seems form CO to be incomplete then it will be rejected and request for detailed information.

During Phase I, Commission on well call upon the third parties for their view point on the transaction and they will require both third parties and merger parties to complete questionnaires on the solvent markets. 

If parties submit remedies or commission receives a referral request from member state then automatically 25 working days. The commission can either do one of the following things.

• Clear the transaction
• Commences Phase II due to serious doubts regarding transaction in relevant market. 

Phase II

When Phase II investigations, Commission has 90 working days to give its review and takes decisions accordingly phase II investigations require detailed information & produces documents & data accordingly. First, the Commission issues Statements of Objection and give the opportunity for an oral hearing.

If notifying parties offer commitments after 55 working days then 90 days working can be extended  15 working days and if requested by parties with in 15 working days of Phase II. 

Then 90 working days can be extended by 20 working days. AT the end of Phase II Commission can either do one of the following action:

• Clear the transaction; 
• Prohibit the transaction.

Publicity and Confidentially 

In the official journal of the EU and Commission website, a non-confidential notice of every notification is published. In the form CO the parties will provide the notice. The information which is to be included in the notice are:  

• Parties name.
• Involved economic sectors.
• On the basis of information provided the application for a simplified procedure or not.
• Comments of the third parties according to their viewpoints to the transaction

When Phase I & II is completed the Commission issues press releases to indicate its decision.

Automatic Confidentiality 

It is an obligation on commission officials to restrict from disclosing any type of confidential information which they receive during a merger or pre-notification consultation. 

Right of Third Parties 

Third Parties play a significant role in the merger review process where either they can directly oppose the transaction or respond to the Commission’s viewpoint regarding the nature of the market.

When Phase I commence, a notice has been published on the commission website and EU journal so that any interested third parties can comment on it. Between Phase I & II Commission sends questionnaires and requests them for their viewpoint. On the transaction, third parties have the right to be heard before the commission if they have shown sufficient interest in the transaction.

Remedies, Penalties and Appeal

Merger parties generally offer remedies to prevent transactions from being restricted or to commence the Phase II investigation. The form RM must be used by merger parties to submit their remedies. Remedies can be accepted in both the Phase I & II. If the parties want that the remedies should be accepted by the Commission then they have decreased the competition which arises from the transaction. The Commission has specific guidelines on the types of remedies which are acceptable by them.

If the parties fail to notify accurately the commission can impose a fine on undertaking which is upto 10% of their aggregate worldwide turnover. If any incorrect information is provided while notifying then fine upto 1% of aggregate worldwide turnover can be imposed.

If it seems by the parties that the decision taken by commission is inappropriate then they can appeal first to the General Court and then finally to European court of Justice Decision which is reviewable can include following things:

• Approve or prohibit the transaction.
• Acceptance of remedies.
• To conclude that the transaction does not fall within scope of Merger Regulations.