Important changes expected in EU Merger Control

A new approach to referrals from EU member states could result in the EU Commission reviewing mergers that meet neither EU nor national thresholds for merger control

24 September 2020

By Björn Herbers and Christoff Henrik Soltau, CMS Hasche Sigle

"There will be no major overhaul of EU merger controls, but more fine-tuning to concentrate on the things that matter'" – This was the bottom-line of a speech by EU Commissioner Margrethe Vestager at the International Bar Association 24th Annual Competition Conference on 11 September 2020. However, some of that fine-tuning could have significant impact on EU merger-control practice.

The EU watchdog will potentially have the means to pick up mergers that previously remained off the Commission's radar, but the procedure for easy cases could become simpler.

In her speech on the EU Commission's preliminary evaluation of EU Merger Control Rules, Vestager stated that the EU Commission will publish a full report on the evaluation in early 2021. Her remarks now focused on the following three important topics of EU Merger Control:

Thresholds and referral: The EU Commission takes the view that the current turnover-based threshold system works well and that no new thresholds, such as a "value of the transaction" threshold, are warranted. Instead, Vestager indicated that the Commission will likely change its practice in respect to referrals. Pursuant to Article 22 EUMR, a member state can ask the EU Commission to examine a merger that does not have a community dimension, but affects trade between member states and threatens to significantly affect competition within the territory of the member state making the request. Article 22 EUMR does not explicitly set out whether the member state making such a request must have the competence under its domestic thresholds to review the case. In recent years, the Commission has adopted the practice of discouraging national authorities from making an Article 22 EUMR request for cases that they did not have the power to review themselves. This makes sense already from the wording since it is only possible to "refer" something for which they already have competence.

Vestager, however, now indicated that the Commission would change its approach and begin accepting referrals from national competition authorities regardless of whether those authorities have the power to review the cases. In practice, this would give the Commission wide discretion over which mergers to review since there is no turnover threshold a merger would need to meet on either the EU or the national level. This policy change seems far-reaching and in order to maintain some legal certainty, Vestager also indicated that the Commission would adopt a guidance on how and when such referrals would be accepted. According to Ms Vestager this guidance would likely be published in the middle of 2021.

Simplification: Vestager stressed the Commission's commitment to assess how the merger process can be made easier, particularly in cases that do not raise substantive concerns. Such assessments of its procedures will include a review of the Commission's Best Practices, the Notice on the Simplified Procedure and the Merger Implementing Regulation. Vestager also promised that the Commission would review how to cut back on pre-notification discussions. While pre-notification is not prescribed by the Merger Regulation, the Commission currently advises against filing a merger notification without previously discussing the notification with the Case Team in charge of the file. In practice, even obviously unproblematic cases undergo pre-notification talks, which adds to the overall time duration of the merger control process. 

Substantive assessment: Vestager indicated that the Commission would launch an evaluation regarding its substantive assessment of cases. Even though no immediate revision of the Commission's merger guidelines is expected, the Commission is obviously interested in refining its assessment of the impact of digitisation on the economy. Vestager also noted that in the large European economies "several industries are more concentrated now than they were twenty years ago" and that the Commission would like to look into the reasons for such concentration. Before launching this review, however, the Commission will await the outcome of its appeal with the Court of Justice in the landmark "CK Telecoms" case in which the lower-tier General Court found fault in much of the Commission's practices in merger control.

Chile - Merger control status and statistics - September 2020

15 September 2020

By Matias Palma, Alvaro Espinosa and Ignacio Larrain, Philippi Prietocarrizosa Ferrero DU & Uría

There is a broad consensus in Chile that, since its entry into force in 2017, the merger control system has been efficient and has fulfilled its mission of providing certainty regarding which transactions must undergo mandatory merger control. In this context, the work of the Fiscalía Nacional Económica (FNE) has been outstanding both for its professionalism and for giving the general feeling that it is an authority in the vanguard, innovative and respectful of the economic development of the markets. Of course, considering that there is always room for improvement.

During the COVID-19 pandemic, the FNE has been able to continue developing its activities as competition watchdog and, as far as mergers are concerned, has indeed, at the end of May, issued a forceful report with an analysis of digital markets and last mile services. In this same emergency context, the FNE issued a resolution (Exempt Resolution Nº188) in which it provided a series of measures to facilitate the submission of filing forms online, relaxing the formalities for the granting of powers of attorney, and relaxing (very slightly) its criteria for the granting of exemptions from accompanying information that is not reasonably available to the parties.

Linked to the above, and although no resolution or official communication was issued, in a public seminar on the matter, the Head of the Merger Division indicated that despite the circumstances, the FNE did not have a particular understanding of the failing firm merger defense, and that it would continue to apply all its analysis, methodology and assessments in the same way it had done before the pandemic. In this sense, it was informally indicated that the bar for successfully arguing the failing firm defense has not been lowered. 

There are currently no pending changes of the merger control regime in Chile, nor have any particular rules applicable to foreign investments been proposed. 

In statistical terms, from June 1, 2017 (date of the beginning of the merger control regime) until June 30, 2020, the FNE has registered to the following merger control activities:

• Notified: 135 (ended 131)
• Notified through simplified form: 80
• Notified through ordinary form: 51
• Approved without remedies: 116
• Approved with remedies: 12
• Prohibited: 3
• Extended to phase 2: 10 (3 still under development)

	2017 (2nd half)	2018	2019	2020 (1st half)
Approved without remedies	20	52	27	17
Approved with remedies	7	4	0	1
Prohibited:	2	0	1	0

 

 

 

 

 

 

 

In terms of duration, the proceedings have, on average, lasted:

• Phase 1, without remedies: 23 days
• Phase 1, with remedies: 76 days
• Phase 2 (including phase 1): 139 days

Dutch court rejects public interest claim in merger case

Claiming compelling reasons of public interest, the state secretary of Economic Affairs and Climate granted a license for the acquisition of Sandd by PostNL, despite the earlier refusal of the Dutch competition authority (ACM) to grant such a license. However, on 11 June 2020 the District Court of Rotterdam found that the Ministry had made procedural errors in the realization of the license decision. According to the court, there were also substantive defects in the decision. 

21 July 2020

By Nina Korstenbroek and Sarah Beeston, Van Doorne N.V.

ACM refuses to grant a license

After a phase II merger investigation, the ACM  refused to grant PostNL (the largest national mail delivery service provider) a license for its intended acquisition of Sandd. According to the ACM the concentration would lead to a significant restriction of competition. When Sandd (the main competitor of PostNL) would disappear, this would create a monopolist in the mail delivery sector. The ACM established that the acquisition would lead to a price increase of 30 to 40% for business mail. Consumers would also need to pay more for sending mail. 

State Secretary grants license after all

The Dutch Competition Act (Mededingingswet) offers the Minister of Economic Affairs and Climate the possibility to grant a license after the refusal of the ACM if ''compelling grounds of public interest outweigh the competition law consequences''. At the request of PostNL, the state secretary for Economic Affairs and Climate approved the acquisition. In her view the concentration would:

• contribute to the long-term continuity of postal services;
• reduce costs for universal postal service products;
• ensure better protection of employees in the market; and
• serve the financial interests of the State.

The state secretary found that these interests should outweigh the competition law consequences of the concentration and considered there were sufficient grounds for approving the merger under Article 47 of the Dutch Competition Act for the first time in history, despite the ACM’s negative assessment. There were however a number of conditions attached to the approval: (i) an obligation to provide other postal delivery companies access to the PostNL network, (ii) a limit to the maximum return to be achieved on letter post and (iii) a requirement to comply with the commitments to Sandd’s work councils in the field of employee protection. 

Court of Rotterdam annuls decision

An advertisement printing company and two postal delivery companies disagreed with the decision to allow the acquisition. In their appeal to the Rotterdam District Court, they stated that the state secretary's decision had been negligently prepared and that it was substantively incorrect. They argued that the state secretary was biased and that relevant market players were not sufficiently involved in the preparation of the decision. 

As a preliminary remark, the court states that it is important to understand that, with the application of Article 47 of the Competition Act, the state secretary makes an exception to the main rule of the Competition Act that the importance of protecting competition is paramount in decisions on concentrations. 

Although the court did not agree with all arguments of the plaintiffs, the court also came to the conclusion that the licensing decision was not properly prepared. Other market player were not given enough time to respond to PostNL's proposal to grant other postal delivery companies access to its network. According to the court, this was enough reason to annul the decision. However, the court also assessed the substantive part of the decision.

Substantive shortcomings in state secretary decision

In its decision the ACM had also identified several negative effects that the merger could have on the parcel market and the market for unaddressed printed matters (markets adjacent to the postal market). The court stated that the fact that the ACM did not draw any final conclusions regarding these risks – because significant anticompetitive problems had already been established in the markets for business and consumer mail – did not mean those risks should not have been addressed by the state secretary. The state secretary had therefore insufficiently identified the expected restrictions of competition, according to the court. 

Furthermore, the state secretary had several reports drawn up and submitted a part of them to the court to demonstrate that there were compelling reasons of public interest to allow the acquisition. She did not however specify which pages or parts of the reports supported her assumptions and statements. The court emphasized that it is not the court's task to look for substantiation in submitted reports. In addition, it concerned reports that the ACM did not find sufficiently convincing. The state secretary should therefore have explained why these reports were nonetheless relied upon. 

After an extensive investigation, the ACM had concluded that a refusal of a license would not prevent PostNL from performing the universal postal service, because PostNL could continue to perform this task under economically acceptable conditions in the coming years. The state secretary stated that the merger was necessary to ensure for a considerably longer period and without state aid the continuity of the universal postal service and the availability of sending business mail at reasonable conditions and rates. According to the court, this conclusion lacked a proper motivation. 

Plaintiffs further argued that the licensing decision did not sufficiently take into account the expected price increase that the acquisition would cause for business mail. The state secretary stated that the maximum return condition set by the license decision was a sufficient remedy for the price increase the ACM expected. The court found this position insufficiently motivated as well. The same applied for the state secretary's view that the merger would reduce the risk of a sudden drop in employment in the postal sector. 

The court explicitly stated that it is aware of the far-reaching consequences of the annulment of the contested decision and that it is questionable whether the concentration can actually still be undone. The court found however that allowing PostNL's request to have the legal consequences of the license decision maintained - because of these far-reaching consequences - would inadvertently affect the legal protection of the possibility to appeal decisions made under Article 47 of the Dutch Competition Act. The court annulled the contested decision and it did not provide for any arrangements itself nor applied an administrative loop (to allow the state secretary to correct its decision).

And now? 

PostNL stated that the acquisition cannot be reversed as the integration has been completed, Sandd's network no longer exists and the infrastructure has been dismantled.

In a letter dated 30 June 2020, the state secretary informed the Dutch House of Representatives about (the consequences of) the court's decision. The state secretary states that the judgment does not mean that the concentration between PostNL and Sandd will be made undone, but according to her the judgment does mean that there is no license – which is required - for this concentration.  The statement that the "concentration will not be made undone" is a remarkable reaction in light of the judgment, and in particular the court's final considerations.  The Ministry is currently considering its possibilities regarding taking a new decision or appealing the judgment.

A Dutch version of this article is available at https://www.vandoorne.com/Kennisbank/Staatssecretaris-EZ-door-rechtbank-op-vingers-getikt