Chapter 8 Eu Merger Remedies Notes
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Chapter 8 Eu Merger Remedies Revision
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Chapter 8 Chapter 8 EU Merger & Remedies Notes
Mergers and acquisitions
Commission has power under the Merger Regulation (MR): (i) to vet major cross-border mergers, acquisitions & full-function JVs; and (ii) to prohibit them when they are incompatible with the internal market The current version of MR entered into force on 1 May 2004. Application of Merger Regulation A merger/acquisition will be assessed as a "concentration" with an EU dimension under MR if, broadly:
2/ more undertakings merge, or 1 / more undertakings acquire direct or indirect control of the whole or part of one or more other undertakings. "Control" means it involves the possibility of exercising decisive influence over another company, whether individually (sole control); OR by 2 or more individuals or undertakings (joint control).
It has an EU dimension - met the relevant turnover thresholds. The thresholds can have the effect of bringing transactions that take place outside the EU within the scope of MR.
One-stop shop principle This principle means once a transaction is caught by MR, companies need only obtain clearance from Commission & need not make notifications to any national authorities within the EEA. In the case of transactions involving EEA countries that do not fall within MR, or which (though the MR thresholds may be met in relation to the EEA countries) also concern jurisdictions outside the EEA, it will be necessary to ensure that the merger notification requirements of each relevant jurisdiction are considered.
Notice on remedies
October 2008 - Commission adopted the current Remedies Notice. Amendments were made to Regulation 802/2004 (the Implementing Regulation) (further amended in 2013).
Remedies Notice provides guidance on the types and form of remedies acceptable to resolve competition problems + the important substantive and procedural issues that notifying parties should consider when proposing remedies to obtain regulatory clearance.
Chapter 8 2003 - Best Practice Guidelines for divestiture commitments & a model text for divestiture commitments and a model text for trustee mandates were published. They were revised in 2013 to be in line with the Remedies Notice and the revised Implementing Regulation.
Procedure and timing for negotiating remedies
Any "concentration" within the meaning of the EU Merger Regulation, which satisfies the relevant thresholds, must be notified to Commission for approval before being implemented.
A formal notification involves completing the Commission's Form CO questionnaire.
Note: pre-notification can now easily last 6 months if it gives rise to substantive questions.
After notification, Commission undertakes an initial analysis of the impact of the transaction on the relevant markets. Commission's review procedure is a 2- stage process (Phase I and Phase II).
Remedies can be offered in either phase by submitting the information + documents prescribed by Commission's standardised remedies form (Form RM).
Initial investigation: Phase I
In-depth investigation: Phase II
25 working days from the notification - Commission makes its initial assessment of the proposed transaction (Art 10(1), EU Merger Regulation).
90 to 25* working days - Commission opens in-depth proceedings & complete its investigation and come to its conclusion on the merger (Art 10(4), EU Merger Regulation).
*Extended to 125 working days if investigation is subject to suspension of deadlines pending responses to information requests.
Within 20 working days from the notification - The parties can submit remedies proposal.
The parties can offer remedies in an attempt to resolve any competition concerns.
Remedy proposals must be submitted within 65 working days from the date of initiation of Phase II proceedings as follows:
If undertakings are submitted in Phase I, the time period within which Commission must take a decision is extended from 25 -35 workings days.
Phase I commitments are acceptable only when the competition problem is readily identifiable and can easily be remedied (paragraph 81, Remedies Notice). Most of the cases in which Phase I commitments have been accepted have been relatively simple and straight-forward divestments of overlapping businesses.
If commitments are offered within the first 55 working days, there is no effect on timing.
If commitments are offered between 55 - 65 working days, the time period within which Commission must take a decision is extended from 90 - 105 working days.
But, where commitments are offered within 55 working days of Phase II proceedings &
the parties subsequently revise the commitments after the 55th working day, the revised commitments are deemed to be new commitments that will automatically extend the Commission's Phase II review from 90 - 105 working days (paragraph 89, Remedies Notice).
At the conclusion of a Phase I investigation, the Commission may:
Clear the concentration (Art 6(1) of the EU Merger Regulation).
Either the 90 or 105 working day period may be extended by another 20 working days by the Commission, with the consent of the parties. Commission can "stop the clock" pending responses
Clear the concentration conditionally subject to remedies (Art 6(2) of the EU Merger Regulation).
Initiate a further in-depth investigation (a Phase II investigation) (Art 6(1)(c) of the EU Merger Regulation).
Given the time constraints in Phase I, submitting remedies proposals in a timely manner is important. Only limited modifications (such as clarifications, refinements or improvements designed to ensure that the commitments are workable and effective, presented as an immediate response to the result of consultations) will be accepted.
to information request. As regards amendments to remedies proposals in Phase II, Commission will only accept modified commitments where such commitments fully and unambiguously resolve the competition concerns identified and where there is sufficient time to allow for an adequate assessment by the Commission and for proper consultation with the member states. If the deadlines for submitting remedies proposals passed, Commission will only consider remedies that offer a clear-cut solution to the competition problem / if exceptional circumstances. Telia/Telenor: Commission accepted commitments that were submitted outside the stipulated period because of exceptional circumstances (i.e. the parties were both state-owned companies and the proposed commitments), which had a direct impact on policy issues of high public interest such as media plurality & the future of the information society, were subject to extended political consultation.
In-depth investigation: Phase II Commission has the right to accept late remedies proposals as the time limit is imposed on the parties and not on Commission. In general, remedies are more targeted and more complex in Phase II. Eg:
T-Mobile Austria: the parties agreed: (i) to divest certain UMTS frequencies and mobile telephony sites owned and used by tele.ring; (ii) the divestments would only be to operators with a lower market share than T-Mobile Austria.
Gaz de France/Suez: the parties agreed to divest various assets to overcome the horizontal overlaps at both the wholesale and retail levels of the gas and electricity markets in France & Belgium (also terminate a link between the operator of gas network infrastructure & the supply of gas and an agreement to invest in enhancing the capacity of the gas network).
Ineos/Solvay JV: the transaction concerned the combination of INEOS and Solvay's European chlorovinyls businesses into a newly created JV. A complex divestment package is accepted (i.e. several production plants & upstream productions assets). The merged entity was also required to enter into JV agreement with the purchaser of the divested business for the production of chlorine.
Commission is becoming more sophisticated in its approach to assessment of proposed remedies, more open to complex remedy solutions. However, remedies can be too complex:
Deutsche Börse/LSE: the parties proposed a remedy consisting of the divestment of LCH.Clearnet SA, LSE's France-based clearing house to address a complex set of behavioural measures but not the divestiture of LSE's fixed income trading platform (MTS). Commission: the merger was prohibited as the parties were not able to demonstrate that these measures would have been effective in practice to ensure that LCH.Clearnet SA would be a viable competitor.
Hutchison 3G UK/ Telefonica U: Hutchsion offered a complex package of remedies aimed at strengthening the development of existing mobile virtual operators or supporting the market entry of new ones, including giving access to a share of the merged entity's network capacity to one or two mobile virtual operators; divesting O2's stake in the Tesco Mobile JV + certain behavioural remedies. Commission: prohibited the merger as even with such access, the mobile virtual operators would
Chapter 8 have been commercially and technically dependent on the merged entity. Also, such behavioural remedies would have been difficult to implement and monitor effectively.
At the end of Phase II investigation, the Commission may:
Clear the concentration
Approve the merger conditionally subject to remedies (Art 8(2), EU Merger Regulation).
Prohibit the concentration (Art 8(3), EU Merger Regulation).
If accepted, the remedies are formally attached to the Commission's clearance as conditions. These conditions do not need to be reviewed by a court to become effective. However, they can form part of an appeal against the Commission's decision to the EU General Court.
The nature of remedies
If Commission finds that a merger creates a significant impediment to competition in the relevant markets, it can prohibit the transaction from being implemented after a Phase II investigation (but rare). Majority of transactions that raise competition concerns are cleared on the basis of commitments rather than being prohibited.
EDP v Commission: It is for the merging parties to propose remedies & to show that the remedies offered eliminate the problems and restore effective competition. Commission carries the burden of proof that the conditions for a prohibition of the concentration are met, irrespective of whether remedies have been offered. This is reflected in the Remedies Notice.
Staples/Office Depot: Commission has been lowering its threshold for remedial intervention and is consistently presuming that mergers in concentrated markets are anti-competitive (especially three-to-two mergers).
2 types: structural or behavioural remedies.
Structural remedies - cause a permanent change in the structure of the market concerned. The Commission prefers these remedies as easier to implement & do not require long-term monitoring measures. (Eg, divestment of assets/ shares, termination of exclusive distribution agreements /severance of vertical links with customers) Behavioural remedies - require a commitment by the merging parties not to act in a certain manner in future and involve long-term monitoring and reporting obligations. (Eg, requirements to grant access to products on equal terms).
Recent years, Commission has accepted a combined remedy i.e. both behavioural and structural elements. But, the benchmark for the acceptance of behavioural remedies is that they should be as effective as divestiture.
In its Remedies Notice, the Commission identifies the 3 categories of merger remedies:-
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