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June 30, 2023

EU Merger Control: What To Expect From the Commission’s Revised Simplified Procedure and Amended Notification Forms

Advisory

On April 20, 2023, the European Commission (Commission) formally adopted the 2023 Merger Simplification Package1 (the Simplification Package), designed to simplify and streamline its procedure under the EU Merger Regulation.2 The Simplification Package consists of a revised Notice on Simplified Procedure (Notice), Implementing Regulation (including a revised set of filing forms — Form CO, Short Form CO, Form RS, and Form RM), and Communication on the transmission of documents.

The Simplification Package will enter into force on September 1, 2023. Case teams are ready to start pre-notification contacts based on the revised notification forms for cases that are expected to be formally notified on or after September 1, 2023.

The principal changes are as follows:

  • Expansion and clarification of the transaction categories that qualify for simplified review
  • Streamlining of the information requirements in simplified cases
  • Amendments to the information requirements in non-simplified cases
  • Introduction of an electronic merger filing system

The amendments are welcomed, as they reduce the administrative burden for companies involved in EU merger reviews. This also frees up Commission resources that can be redeployed to more complex cases. The Simplification Package was published in draft form in May 2022.3 The final text largely corresponds to the draft text.

Expansion and Clarification of the Transaction Categories That Qualify for Simplified Review

Expansion of the Simplified Procedure

The existing simplified review procedure effectively reduced the overall burden on companies and the Commission without leading to enforcement gaps because the transactions that qualify for the existing simplified procedure do not typically raise substantive antitrust concerns. However, after conducting an extensive review, the Commission concluded that certain transactions that slightly exceeded the existing eligibility criteria for the simplified procedure are similarly generally unproblematic on substance and, therefore, could also be treated under the simplified procedure.

The Notice, therefore, extends the simplified merger review procedure to three new categories of transactions:

  • Horizontal transactions where under all plausible market definitions, the combined market share of the parties to the concentration is higher than 20% but lower than 50%, and the Herfindahl-Hirschman Index (HHI)4 delta is below 1505
  • Vertical transactions where under all plausible market definitions, the individual and combined upstream market shares of the parties to the concentration are below 30%, and their combined purchasing share is below 30%6
  • Vertical transactions where under all plausible market definitions, the individual and combined upstream and downstream market shares of the parties to the concentration are below 50%, the HHI delta is below 150, and the company with the smaller market share is the same in the upstream and downstream markets7

The existing categories of transactions qualifying for simplified review remain largely unchanged. The Notice, however, slightly changes the scope of the category relating to extraterritorial joint ventures. Under the current rules, this category applies to the acquisition of joint control of a joint venture if the joint venture, or activities transferred by the parties to the joint venture, has a European Economic Area (EEA)-wide turnover of less than €100 million and the value of the assets located in the EEA also is less than €100 million. Under the Notice, this category is slightly reduced in two respects:

  • First, the joint venture’s annual EEA turnover must not only be below €100 million in the last financial year, but also must be expected to stay below €100 million in the next three years.
  • Second, when establishing the asset value in cases where the parties transfer assets to the joint venture, all assets that the parties intend to transfer to the joint venture at some stage, even if the transfer occurs in the future, are counted at the time of the transaction.

The table below summarizes the categories of concentrations eligible for the simplified procedure under the Simplification Package. Changes from the current rules are marked in blue.

Categories of Concentrations Eligible for the Simplified Procedure Under the Simplification Package

Extraterritorial Joint Ventures
(Points 5(a) and (b) of the Notice)

  • Acquisition of joint control of a joint venture with no current or expected (in the three years from notification) EEA turnover and to which the parties have not planned at the time of notification to transfer any EEA assets (point 5(a))
  • Acquisition of joint control of a joint venture with current (including turnover of the contributed activities) or expected (in the three years from notification) EEA turnover and value of asset transfers in the EEA planned at the time of notification below €100 million (point 5(b))
No Horizontal or Vertical Relationship Between Parties
(Point 5(c) of the Notice)
  • Parties have no overlapping activities (horizontal overlaps) and also are not active in markets that are upstream or downstream to each other (vertical relationships) on any market within the EEA or including the EEA
Minor Horizontal or Vertical Relationships Between Parties
(Point 5(d) of the Notice)
Horizontal relationships:
  • Combined market share below 20% (point 5(d)(i)(aa))
  • Combined market share above 20% but below 50%, and HHI delta below 150 (point 5(d)(i)(bb))

Vertical relationships:

  • Individual and combined market shares below 30% in each vertically related market (5(d)(ii)(aa))
  • Individual and combined upstream market shares below 30% and parties’ combined purchasing share below 30% (point 5(d)(ii)(bb))
  • Individual and combined upstream and downstream market shares below 50%, HHI delta below 150, and the company with the smaller market share is the same in the upstream and downstream markets (point 5(d)(ii)(cc))
Switch From Joint Control to Sole Control
(Point 5(e) of the Notice)
  •  A party acquires sole control of an undertaking over which it already has joint control

 

Flexibility Clauses

In a further welcome development, the Notice expands the scope of the simplified procedure even further by introducing so-called flexibility clauses. These allow the Commission, at the request of the notifying parties, to treat transactions as simplified cases even if the above-mentioned thresholds are slightly exceeded.

This flexibility concerns:

  • Extraterritorial joint ventures, if the annual current turnover of the joint venture and the turnover of the contributed activities is below €150 million in the EEA and the total value of asset transfers to the joint venture in the EEA planned at the time of notification is below €150 million (point 9 of the Notice)
  • Minor horizontal or vertical relationships between the parties, if:
    • In horizontal overlap cases, the parties' combined market share exceeds 20% but is below 25%
    • In vertical relationships, the parties' individual and combined market shares exceed 30% on the upstream or downstream markets, but the market shares are either below 35% on the upstream and downstream markets or below 50% on one vertically related market while being below 10% on all the other vertically related markets (point 8 of the Notice)

Safeguards and Exclusions

The Notice also includes clearer and more detailed descriptions of the situations in which the Commission may exercise its discretion to exclude a transaction from the simplified procedure even if it otherwise qualifies for it.

The Notice mentions 10 such exclusion situations,8 at least two of which are new:

  • Where one party has “significant” non-controlling shareholdings in companies active in the market(s) where another party is active or where one or more of the competitors of one party to the concentration has “significant” non-controlling shareholdings in any of the other parties9
  • Where a transaction may increase the market power of the parties by combining technological, financial, or other resources, or competitively valuable assets, such as raw materials, intellectual property rights (e.g., patents, know-how, designs, and brands), infrastructure, a significant user base or commercially valuable data inventories, even if the parties to the transaction do not operate in the same market10

Streamlining of the Information Requirements in Simplified Cases

In a welcomed move towards reducing the administrative burden involved in a merger filing, the Simplification Package significantly reduces the amount of information parties must provide to the Commission in simplified cases.

The current Short Form CO largely consists of open text questions that require the parties to draft narrative responses. It will be replaced by a revised Short Form CO that will mostly include multiple choice questions and tables to be completed with words and figures. As a result, notifications of simplified cases should become faster, less burdensome, and less costly to prepare.

In addition, specific sections of the revised Short Form CO will not have to be completed in transactions that:

  • Concern a joint venture with no turnover or assets in the EEA (point 5(a) of the Notice)
  • Do not lead to any horizontal overlaps or vertical relationships between the parties (point 5(c) of the Notice)

In these "super-simplified" cases, the parties are also encouraged to notify directly without first engaging in the otherwise recommended pre-notification contacts with the Commission. This will significantly reduce the time and burden involved in filing super-simplified cases.

Amendments to the Information Requirements in Non-Simplified Cases

The Simplification Package also affects the Form CO that is used to notify normal, i.e., non-simplified, cases. Some of these changes reduce the burden on the parties, but others will increase the burden. The key points are:

  • Clearer explanations regarding the possibility for the parties to request a waiver from the obligation to provide certain information requested in the Form CO11
  • Given the increased importance of pipeline products for the substantive assessment, the revised Form CO and, similarly, the revised Short Form CO ask for information on horizontal overlaps and vertical relationships involving pipeline products.12 The information concerns the parties and their competitors' pipeline products, the stage of development, and the estimated sales and expected market shares over the next three to five years.
  • Removal from the Form CO of questions asking for information on cooperative agreements, trade between the Member States and imports from outside the EEA, and trade associations13
  • Introduction of new questions requiring the parties to describe the data that they collect and store in the ordinary course of their business and that could be useful for quantitative economic analysis.14 The required description will include, for example, the type of data, the time period for which the data is available, and the source of the data, e.g., CRM software.
  • Introduction of new questions asking whether any of the parties' competitor holds a significant non-controlling shareholding, i.e., above 10%, in any of the parties15

Introduction of an Electronic Merger Filing System

The Commission will introduce a fully electronic notification system. Currently, notifications must be submitted in hard copy, i.e., paper copies and CD-ROMs. During COVID-19, the obligation to submit hard copy filings was temporarily suspended, but the Commission still required a signed paper document during the review process. This will no longer be necessary in the future.

Notifications will have to be signed electronically using at least one Qualified Electronic Signature (QES), complying with the requirements set out in Regulation (EU) No 910/2014 (the eIDAS Regulation). To sign documents using a QES, a certificate for electronic signatures is needed. As part of the eIDAS Regulation, these certificates can be purchased from specific providers, named Qualified Trust Service Providers (QTSP). Providers of qualified certificates for electronic signatures are listed in the corresponding national Trusted List.

Conclusion

The amendments have largely received positive feedback. Extending the simplified procedure to additional categories of transactions is to be welcomed. These categories of cases have almost never raised substantive concerns when reviewed by the Commission under the normal review procedure in the past.

The reduced information requirements under the revised Short Form CO will benefit all transactions notified as simplified cases.

On balance, the changes to the full Form CO increase the amount of information to be submitted, but in many past cases, the Commission already requested the information that in the future will have to be provided as part of the Form CO, for example on pipeline products and data collected by the parties. Accordingly, in practice, the burden arguably does not increase significantly.

Overall, the Simplification Package is a helpful development for companies involved in M&A transactions.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. European Commission’s press release, “Mergers: Commission further cuts red tape for merging businesses,” April 20, 2023.

  2. Council Regulation (EC) No 139/2004 of January 20, 2004 on the control of concentrations between undertakings.

  3. What to Expect From a Revised Simplified EU Merger Control System,” Arnold & Porter, by Axel Gutermuth and Lukas Šimas, October 7, 2022.

  4. The HHI is calculated by summing the squares of the individual market shares of all the firms in the market. See point 16 of the Commission’s Guidelines on the assessment of horizontal mergers under the EU Merger Regulation. However, to calculate the HHI delta resulting from the concentration, it is sufficient to subtract from the square of the merged entity’s market share post-concentration the sum of the squares of the parties’ individual market shares.

  5. Point 5(d)(i)(bb) of the Notice.

  6. Point 5(d)(ii)(bb) of the Notice.

  7. Point 5(d)(ii)(cc) of the Notice.

  8. Section II.C of the Notice. The list is not exhaustive (point 11 of the Notice).

  9. Section II.C.3, point 15 of the Notice.

  10. Section II.C.4, point 16 of the Notice.

  11. Applicable for Sections 3.4, 3.5, 3.6 and 3.7 and Section 10 of the revised Form CO.

  12. Section 8 of the revised Form CO and revised Short Form CO.

  13. Section 8 of the revised Form CO.

  14. Annex I to the Implementing Regulation, Introduction, Section G.

  15. Section 3.7 of the revised Form CO.