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Eu Merger Regulation Notes

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EU Merger Regulation
EUMR has a distinct rationale from Articles 101 and 102 TFEU - EUMR is about ex-ante control rather than ex post facto - it is about predicting the consequences and effects on the market of a merger, rather than responding to such effects or relevant agreements.
Competition authorities look at a counterfactual - what the market structure will look like with and without a concentration.
Council Regulation 139/2004 (the European Merger Regulation) on the control of concentrations between undertakings ("Regulation 139/2004") permits effective control of all concentrations - any concentration which would significantly impede effective competition, in the internal market or a substantial part of it, should be declared incompatible with the internal market.
MANDATORY NOTIFICATION AND SUSPENSION
Pursuant to Article 4(1) of Regulation 139/2004, any concentration with a 'Community dimension'
must be notified to EC. This is unless Article 4(4) or Article 4(5) (see below) are applicable and employed.
Article 6: Once notification has occurred, EC will investigate the concentration's compliance with
EUMR regime.

Article 7: Concentration with Community dimension, or one examined pursuant to Article 4(5)
cannot be implemented until declared compatible with internal market.
o i.e. the concentration is suspended.
Article 11: EC may require request information from the notifying parties or other undertakings in order to carry out their duties under the Regulation.
o Mitsubishi Heavy Industries [2001] (EC decision): M failed to respond to request for information; €50,000 fine imposed as it was necessary within the meaning of
Article 11(1) for the proper assessment of notified operation with internal market.
 M's failure to provide the information meant that EC was required to estimate the overall size of market and market share of participants - this was not as reliable as first-hand information from M.

Remedies

Article 8(2): EC may take commitments from the undertakings to modify the concentration so as to make it compatible with the internal market.
o EC must take commitments relating to future conduct into account when assessing the likelihood of the concentration impeding effective competition (Tetra Laval
[2005]).
o EC may attach conditions and obligations to its decisions to ensure compliance with the commitments the undertakings entered into.
 These may be to divest assets to a third party to protect the market structure - twofold aims of this:
a) Reduce market share of merged X and Y;
b) Create a new competitor for X and Y.
o There is a distinction between structural remedies and 'other' remedies:
 Structural:
- Largely based on divestitures.
 There are preferred.
 Other:
- Often behavioural remedies.
- Quasi-behavioural remedies such as termination of contractual agreements, facilitation of market entry etc. may also be considered. Intel/McAfee: Behavioural commitments relating to ensuring inoperability information was accessible by rival security solutions vendors were accepted.
 Indeed held that in conglomerate cases, behavioural commitments appear best suited to address the concerns.
Gencor [1999]: Commitments must enable EC to conclude that the concentration would not create or strengthen a dominant position.
- Commitments given not to infringe Article 102 TFEU (i.e. not abuse dominant position) are irrelevant - they relate to a promise not to abuse a dominant position (Tetra Laval [2005]).
- Structural commitments preferable - they prevent once and for all the emergence or strengthening of dominant position.

Fines

Article 14:
o Article 14(1): If the undertakings, intentionally or negligently, supply incorrect or misleading information or fail to respond or produce required records in an investigation, they can be fined 1% aggregate turnover.
o Article 14(2): Fine of up to 10% aggregate turnover where undertakings fail to notify of a concentration prior to its implementation.
 Samsung/AST [1999]:
- Provisions of EUMR cover intentional and negligent circumvention of rules.
- Existence of bad faith only relevant in relation to quantity of the fine.
 Article 14(3) requires regard to the nature and gravity of the infringement to be had in setting fine level.
- Regardless, it is likely that any multinational corporation with extensive activities in Europe will know of the need to respect EUMR controls -
likely to be true to any company meeting Community thresholds in Article

1. - In setting the fine, regard was had to:
 Duration of infringement;
 This was an aggravating factor in Electrabel [2012].
 Mitigating factors such as:
a) Lack of anticompetitive harm to competition; and
 This was not held to be a mitigating factor in Electrabel
[2012], though.
b) Samsung's cooperation.
c) NOTE: Likely that unintentionality is also a mitigating factor.
 This was not held to be a mitigating factor in Electrabel
[2012], though.
 Aggravating factors such as the size of the undertakings. EXAMINATION OF THE CONCENTRATION BY EC
Per Regulation 139/2004, two things to be established for a proposed transaction to be barred:

1. The case comes within EUMR jurisdiction:

I. Proposed transaction gives rise to a concentration within the meaning of Article 3;

II. One of these three satisfied:
i. Concentration has a 'Community dimension' within meaning of Article 1;
ii. Referral to EC via request by 1+ Member States (Article 22);
- Must:
 Affect trade between Member States; and
 Threaten to significantly affect competition within the territory of the Member State(s) making the request.
iii. Request by the undertakings (notifying parties) to the transaction that the concentration be examined (Article 4(5)).
- Transaction must be capable of being reviewed under national competition laws of at least three Member States.

2. Concentration is incompatible with [internal] market within the meaning of Article 2.
(1) is a question of jurisdiction - the Commission Consolidated Jurisdictional Notice ("Jurisdictional
Notice") is also relevant here. (2) is a question of substantive analysis. Hence, answer (1) first; then,
examine (2), beginning with market definition.
1 - Does the case come within EUMR jurisdiction?

1.1 - Is there a concentration?
Per Article 3 of Regulation 139/2004, a concentration arises where a change of control on a lasting basis results from:
a) Merger of 2+ previously independent undertakings or parts of undertakings; or b) Acquisition of (in)direct control, by 1+ persons already controlling at least one undertakings, or by 1+ undertakings, of the whole or parts of 1+ other undertakings.
NOTE: Once the existence of a concentration is established, Articles 101 and 102 TFEU are disapplied.

1.1.1 - Undertaking?
The EU legislator did not define 'undertaking'- it is an ambiguous concept.
The Court has adopted a functional definition of 'undertaking' - is the entity active on the market?

Hofner [1991]: 'Undertaking' encompasses every entity engaged in economic activity,
regardless of legal status of entity and way it is financed.
o Functional definition relies on nature of activity rather than form of entity.
 In SAT [1994], Euro-control financed by contributions of Member States which established it, carrying out public/state tasks in the public interest -
activities were not of an economic nature.
o Offering goods and services on a given market is characteristic of economic activity
(FENIN [2006]).
 Distinguish between (a) economic act of selling, and (b) buying and distributing - only (a) indicates that X is an undertaking.

Nature of the purchasing activity must be determined according to the subsequent use of the purchased goods.
 AG Maduro: We should establish whether the State-owned organisation would be guided solely by considerations of solidarity, intended to exclude all market considerations - if so,
not an undertaking.

The fact firm X is state-owned will not matter where X is engaged in economic activity.
The functional approach requires each activity to be evaluated in its context (SELEX [2009]) - while
Euro-control did not constitute an 'undertaking' in SAT [1994] in relation to airspace management,
Euro-control could be an 'undertaking' in relation to other activities.

i. Employees:
o Conduct of employees is incorporated into employer's economic unit -
employees do not constitute undertakings in themselves (Jean Claude Becu [1999]).
Subsidiaries:
o Conduct of subsidiary can be imputed to the parent company, even if the subsidiary has a separate legal personality (Telefunken [1983]).
 Particularly so where subsidiary does not decide independently on its own conduct, but carries out parent company's instructions.
- Viho [1996]: Parker Pen and its subsidiaries a single economic unit -
subsidiaries did not enjoy real autonomy in determining course of action on the market.
o Where parent company has 100% shareholding in a subsidiary, there is a rebuttable presumption of decisive influence over subsidiary's conduct (AKZO
[2009]).
 Parent company must show that its subsidiary acts independently on the market to avoid liability.

ii. 1.1.2 - Change of control?
Article 3(2) of Regulation 13/2004: Control constituted by rights which confer the possibility of exercising decisive influence on U, including ownership or the right to use all or part of the assets of
U.

Decisive influence need not be exercised to exist - existence of control within Article 3(3)
requires the possibility of exercising the influence be effective (Cementbouw [2006]).
o Shareholders need not even have direct voting rights to exercise decisive influence.
 Article 3(4)(b): X can have the power to exercise the rights even if one does not hold them.
It is not necessary that substantial shareholder hold a majority share.
o Ariomari-Prioux [1990]: Disparity of shareholding a key factor in finding decisive influence.
 A only held 39% of shares in W, but the other 61% were held by 107,000 owners, none of whom owned more than 4%.
 Likewise in Electrabel [2012] - E held 49.45% shareholding, but had de facto control as it was assured of having de facto absolute majority at GMs.
- EC will look at shareholding meeting attendances and voter patterns.
A concentration may occur on a legal or de facto basis, may take the form of sole or joint control, and extend to whole or parts of 1+ U (Jurisdictional Notice).
o Control can thus be acquired by the purchase of shares or on a contractual basis e.g. by transferring control of management.

1.1.2.1 - Sole control Jurisdictional Notice:

Acquired if one U alone can exercise decisive influence on an undertaking. Two general situations of sole control:

i. Solely controlling U enjoys power to determine strategic commercial decisions of other U - typically acquired by acquiring majority of voting rights;

ii. 'Negative sole control': Only one shareholder is able to veto strategic decisions in
U, but this shareholder does not have the power alone to impose such decisions.
Can be acquired on a de jure or de facto basis.
o De jure:
 Usually acquired where U acquires majority of voting rights.
 May also occur whether minority shareholding has special rights attached to it e.g. preferential shares.
o De facto:
 May occur where, based on past voting pattern, EC can infer that shareholder is likely to achieve majority at shareholders' meetings.
- Important considerations are disparity of shareholdings and structural,
economic or familial links with other important shareholders.
Sole control can be acquired other than by voting rights e.g. by purchase of assets, by contract etc.

NOTE: This would probably often occur where X acquires Y.

1.1.2.2. - Joint control
Jurisdictional Notice:

Exists where 2+ Us or persons have the possibility of exercising decisive influence over another U.
Decisive influence here normally means the power to block actions determining the strategic commercial behaviour of U.
o Joint control characterised by possibility of a deadlock situation resulting from the power of 2+ parent companies to reject proposed strategic decisions. Seen mainly in two ways:

i. Equality in voting rights of appointment to decision-making bodies;

ii. Veto rights.
Can be acquired on a de jure or de facto basis.

NOTE: This would probably often occur where X and Y merge. However, it also applies where several jointly controlled undertakings acquire another undertaking.

1.1.2.3 - Joint ventures
Article 3(4): The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall constitute a concentration.
All the functions of an autonomous economic entity = "full function joint venture" - only this type of joint venture can be considered a concentration.
What distinguishes this from 1.1.2.2 is that, although JVs may be economically autonomous from an operational viewpoint, they may not necessarily be autonomous with regard to adoption of strategic decisions.
Jurisdictional Notice on factors when considering 'full functionality':

i. ii.

Sufficient resources to operate independently on a market;
Activities beyond one specific function for the parents; JV not full-function if it takes over one specific function within parent companies'
business activities without its own access to or presence on the market.
 e.g. where JV limited to R&D or production.
Sale/purchase relations with the parents;
o Permissible that, for a start-up period, the JV relies almost entirely on sales or purchases from its parent company.
 This won't normally exceed 3 years.
o However, full-function status questionable where sales from JV to parent company intended to be made on a lasting basis - JV must be geared to play active role on market and be operationally autonomous.
 Energia Italia/Interpower [2003]: JV had neither its own customers nor an independent commercial strategy - depended on sales of its parent companies for greatest part of turnover.
 This reliance on parent companies is a decisive factor in showing lack of independent activity and commercial strategy.
Operation on a lasting basis;
Changes in the activities of the joint venture;
o If the scope of JV is enlarged without additional assets, contracts, know-how or rights being transferred, there will be no new concentration produced from this enlargement.
o

iii. iv.

v. 1.1.3 - On a lasting basis?

Jurisdictional Notice:
o Change of control on a lasting basis not excluded by fact that agreement is entered into for definite period, provided that the agreement is renewable.
o Even where there is a definite end-date, period envisaged can be sufficiently long to lead to a lasting change of control.
 Where X and Y purchase Z to later divide up the assets and there is (a) a legally binding agreement, and (b) no uncertainty about the division of assets occurring in a short time-frame, this will not be a concentration.
- Acquired assets not held undivided on a lasting basis, but only for time necessary to complete immediate split-up of acquired assets.
- Where (a) and (b) are not met, the purchase of Z will be a concentration,
involving the entirety of Z.

1.2 - Is one of the three circumstances apparent?

1.2.1 - Does the concentration have a Community dimension within Article 1?
Article 1 of Regulation 139/2004: Whether a concentration has a Community dimension is dependent on aggregate turnover.
Where EC has established its competence in light of Articles 1(2), 1(3) and Article 5, that competence cannot be challenged at any time (Cementbouw [2006]).
The inquiry is as follows:

i. ii.

Does the transaction fall within Article 1(2)?
o Consider Article 5.
If 'no' to (i), does the transaction fall within Article 1(3)?
o Consider Article 5.

1.2.1.1 - Does the transaction fall within Article 1(2)?
Article 1(2) of Regulation 139/2004: Concentration has a Community dimension where -

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