The European Antitrust Review 2014 Section 1: EU substantive areas

Mergers

Electrabel: A Shock to the System?

On 12 December 2012, the General Court dismissed Electrabel’s appeal against the €20 million fine the European Commission (Commission) had imposed on it for failing to notify a transaction under the EU Merger Regulation (EUMR)1 and completing the deal without prior clearance. The judgment serves as an important reminder of the need for all companies to consider very carefully the application of the EUMR to all transactions.

The Electrabel case makes it clear that failure to notify a transaction or at least consult the Commission about jurisdiction is likely to result in severe penalties in cases of breach of the standstill obligation. However, while the Commission could be said to be uncompromising regarding its response to such breaches, there remain a number of areas in which the EUMR is either unclear or has an overly broad application. This creates genuine uncertainty as to the applicability of the EUMR to transactions, which can easily lead companies to innocent failures to notify transactions. In addition, where companies have concerns regarding jurisdictional issues and decide to consult with the Commission, this can have very significant implications on a transaction timetable as the consultation process can be lengthy. It is submitted that this is unsatisfactory: given the high stakes of getting an EUMR assessment wrong, further guidance and/or swifter procedures are needed. In this respect, the Commission’s recent consultations regarding possible changes to the EUMR, are to be welcomed.2

This article first examines the Electrabel case, which has heightened the risks relating to a failure to notify. It then highlights a number of situations where the jurisdictional rules are not clear and which therefore require clarification or reform.

The standstill obligation

The parties to a transaction that falls within the scope of the EUMR rules are required to notify the transaction to the Commission and cannot implement the transaction before approval is granted (the ‘standstill obligation’).3 The standstill obligation is fundamental to EU merger control as it ensures that the Commission is able to conduct an ex ante review of mergers meeting the EUMR jurisdictional thresholds.4 5

A transaction falls within the scope of the EUMR rules if it constitutes a ‘concentration’ and if the turnover of the parties to the transaction meets specified jurisdictional thresholds. The concept of a ‘concentration’ is wide, and includes both mergers of previously independent undertakings and the acquisition by one or more undertaking(s) of direct or indirect control over another undertaking or undertakings. ‘Control’ is defined as the ability to exercise ‘decisive influence’ over an undertaking.6 Importantly, this includes not only outright acquisitions of control, but also, in some circumstances, acquisitions of minority shareholdings; for example, where the acquirer obtains veto rights over the strategic decision-making of the target, or can in practice obtain a majority at shareholders’ meetings. Where it is not clear whether a jurisdictional test is met, companies can consult informally with the Commission as to whether an EUMR filing is triggered.

The Commission has the power to impose fines of up to 10 per cent of annual group worldwide turnover for failure to notify a transaction and for the implementation of a transaction in breach of the standstill obligation, whether intentionally or negligently.7 The validity of a transaction meeting the EUMR thresholds is dependent on a notification and the Commission declaring the transaction compatible with the internal market.8 Consequently, implementing a notifiable transaction without prior authorisation from the Commission may also render the transaction invalid.

Given the potentially severe consequences for breaches of the standstill obligation and the importance of the EU as a major economy with an active competition regulator, it is not surprising that undertakings are generally very careful to analyse their transactions and comply with the EUMR. A large number of transactions are notified to the Commission every year for clearance and the majority of those transactions do not raise any substantive competition concerns. It is, however, possible that many transactions that may have been caught by the EUMR have not been notified to the Commission because companies have either failed to identify that the jurisdictional tests are met (eg, for lack of nexus with the EU) or because they erroneously concluded that the tests were not met. Previously, fines imposed under the EUMR for failure to file and for breach of the standstill obligation had been rare and at a relatively low level.9 However, post-Electrabel, it is clear that the Commission will not hesitate to impose high fines for failure to notify.

Electrabel

The case concerned Electrabel’s acquisition of a minority shareholding in Compagnie Nationale de Rhône (CNR). A French law dating from 2001 stated that the majority of CNR’s capital and voting shares must be held by local or regional authorities, or other legal persons governed by public law or by undertakings belonging to the private sector (the Murcef Law), and prior to 2003, CNR’s two largest shareholders were SNCF and EDF. However, in June 2003, Electrabel, acquired a 17.86 per cent shareholding in CNR and by December 2003, had increased its shareholding in CNR to 49.95 per cent through a series of transactions, which ultimately conferred on Electrabel 47.92 per cent of the voting rights in CNR (the Acquisition):

  • on 24 June 2003, Electrabel acquired shares in CNR representing 17.86 per cent of CNR’s share capital and 16.88 per cent of its voting rights;
  • on 27 June 2003, Electrabel concluded an agreement with EDF, for the purchase of EDF’s entire shareholding in CNR;
  • on 24 July 2003, Electrabel entered into a shareholders’ agreement with CDC (which had purchased SNCF’s shares), under which the parties agreed to grant Electrabel an option to purchase CDC’s shares if the Murcef Law was repealed, and vote in concert at the general meeting and supervisory board to appoint shareholders’ representatives and board members; and
  • on 23 December 2003, Electrabel came into possession of the shareholding held by EDF, conferring a total of 47.92 per cent of the voting rights in CNR.

The Acquisition was not notified to the Commission in 2003. It was only four years later, in August 2007, that Electrabel contacted the Commission about its interest in CNR. Following discussions with the Commission, in March 2008, Electrabel filed a merger notification in which it stated that it had acquired ‘de facto’ sole control of CNR during the course of 2007. The Commission reviewed the concentration and in its decision of 29 April 2008, found that the concentration did not raise any substantive competition law concerns, consequently clearing the transaction.10 However, it left open the question of exactly when Electrabel had acquired control over CNR.

Commission infringement decision

Following clearance of the concentration, the Commission conducted an investigation into Electrabel’s acquisition of its shareholding in CNR and sent a statement of objections (SO) to Electrabel on 17 December 2008 in which it advanced its case that Electrabel had acquired ‘de facto’ sole control of CNR on 23 December 2003. In February 2009, Electrabel responded to the SO and a hearing was held shortly afterwards. On 10 June 2009, the Commission issued a decision in which it concluded that Electrabel had, through the acquisition, acquired ‘de facto’ sole control over CNR on 23 December 2003.11 The factors supporting this decision were that:

  • although Electrabel did not obtain a majority of the voting rights in CNR and therefore did not obtain a ‘de jure’ right to exercise control over CNR, looking at participation and shareholder voting patterns at previous shareholder meetings, Electrabel would in practice exercise an absolute majority at such meetings, enabling it to exercise ‘de facto’ control over CNR;
  • since 2003, Electrabel had held an absolute majority on CNR’s management board and the means of maintaining this majority (together with CDC, it had veto rights over appointments to the board);
  • the Murcef law did not prevent Electrabel from acquiring control over CNC;
  • since 2003, Electrabel was the sole industrial shareholder in CNR (having acquired EDF’s shareholding) and played a central role in the operational management of CNR;
  • since 2004, CNR had been regarded as forming part of the Suez group (Electrabel’s parent company) by both the managers of CNR and the managers of Suez; and
  • Electrabel had a preferential right to subscribe to CNR’s other shares.

The Commission therefore found that Electrabel had breached the standstill obligation by completing the Acquisition in December 2003 without obtaining prior clearance and imposed a fine of €20 million on Electrabel. It noted that Electrabel was a large sophisticated company with substantial legal resources at its disposal. Even if it was not entirely clear that the Acquisition had triggered an EUMR notification requirement (which the Commission did not accept), the logical and usual course for Electrabel would have been to consult with the Commission as to whether the Acquisition fell within the scope of the EUMR.12

Electrabel appealed both the infringement finding and, in the alternative, the level of fine to the General Court. It also argued that the Commission’s action was time-barred.

General Court judgment

The General Court dismissed Electrabel’s appeal in its entirety.13

Notifiability of the transaction

The General Court upheld the Commission’s conclusion that the acquisition resulted in Electrabel acquiring de facto sole control over CNR in December 2003, and therefore amounted to a concentration within the meaning of the EUMR.14 In order to reach this conclusion, the Commission had reviewed attendance rates and voting patterns at general meetings from 2000 to 2003. The Commission concluded that a stake of 47.92 per cent of the voting rights would have achieved a majority at the general meetings throughout this period. On this basis, it considered that Electrabel should have expected to have a majority from December 2003 onwards. In fact, the Commission conducted the same analysis for the period 2004 to 2007 (by which time Electrabel was in fact exercising its voting shares) and reached the same conclusion. The General Court agreed15 that the Commission’s approach was consistent with the Notice on the concept of concentration which recommended an analysis of previous shareholder attendance in order to determine whether a minority shareholding conferred de facto sole control.16 This would be the case where the shareholder was ‘highly likely’ to achieve a majority at the shareholders’ meeting, where the remaining shares were widely dispersed.17

Electrabel had argued that in December 2003, it was not highly likely that it would obtain control at future meetings. It considered that the Commission had failed to correctly analyse EDF’s role during the period of its analysis (2000–2003)18 and claimed that the smaller shareholders had placed a significant amount of trust in EDF, which explained the low shareholder attendance. Electrabel therefore argued that it had been necessary to observe events for three years, post-acquisition, before a majority became highly likely19 and the Commission could not infer any consequences for the future on the basis of attendance rates between 2000 and 2003.20 Electrabel also argued that shareholder attendance fluctuated, so it was not possible to determine whether or not it would have a majority.21 The General Court disagreed and held that Electrabel had not demonstrated that it was not highly likely that it would obtain a majority at shareholders’ meetings.22In particular, the General Court concluded that there was no error of analysis regarding EDF’s role. It also agreed with the Commission’s analysis that Electrabel could have expected a majority at future general meetings as, on the basis of previous attendance rates, it was highly improbable that shareholder attendance would reach 95.84 per cent (the attendance rate needed to defeat an Electrabel proposal).23

The General Court also rejected Electrabel’s challenges to the other factors relied on by the Commission when finding that Electrabel exercised de facto sole control.

Limitation periods

Electrabel argued that the relevant infringement should be characterised as a procedural infringement, such that a three-year limitation period applied (and the Commission’s action was therefore time-barred).24 The General Court rejected this argument and agreed with the Commission’s assessment that the three-year limitation period applied to infringements relating to, inter alia, requests for information or the carrying out of investigations. The General Court held that breach of the standstill obligation could not be categorised as merely procedural since it was capable of giving rise to substantial changes in the conditions of competition. The applicable limitation period was therefore five years.25

The General Court also considered when the five-year limitation period began to run. Did the breach of the standstill obligation constitute a single one-off infringement (as at the date of completion of the Acquisition), as argued by Electrabel, or was it an ongoing infringement? The General Court dismissed Electrabel’s submissions that, if found to be an ongoing infringement, a breach would in effect be eternal, depriving a limitation period of any meaning.26 It instead endorsed the Commission’s position that a breach of the EUMR standstill obligation constitutes an ongoing infringement, for as long as the control acquired in breach of the standstill obligation remains and the concentration has not been cleared by the Commission (or the acquirer loses control over the target).27

Fines

Electrabel argued that the fine was disproportionate and that there were manifest errors in the Commission’s assessment of the fine. This argument was also rejected by the General Court, which upheld the level of fine imposed. It confirmed that the Commission was correct to categorise the infringement as serious, even if the breach was negligent rather than intentional, and the acquisition had no negative substantive effects on the market.28 The General Court also agreed that, if the acquisition had had an adverse effect on competition, then the infringement would have been considered to be even more serious.29 As regards the level of the fine, the General Court noted that, although the fine was high, it was at the ‘lower end’ of the range of fine, that could have been imposed.30 The Commission was entitled to take into account the need to ensure that fines had deterrent effect (the fine amounted to 0.04 per cent of the turnover of Electrabel’s parent company, the Suez group).31 Electrabel has appealed the General Court’s judgment to the Court of Justice.32

Implications of the Electrabel judgment

Electrabel shows that the Commission is prepared to impose severe penalties on parties who fail to notify. The General Court judgment confirmed that the Commission has discretion in deciding on the amount of the fine and that uncertainty is not an excuse for a failure to notify. Furthermore, companies can remain liable for significant periods of time, as the limitation period does not start to run while the concentration is still in place. The stakes for a failure to notify have therefore been raised significantly. In light of these heightened risks, it is unfortunate that the jurisdictional tests under the EUMR often remain unclear and that the mandatory and suspensory regime applies in cases that do not raise any competition issues and have no nexus with the EU. Some practical examples are set out below.

EUMR jurisdictional test: potential uncertainties in scope

The application of EUMR jurisdictional thresholds can be wide in scope and there are a number of scenarios, other than the circumstances of ‘de facto’ control of relevance in the Electrabel case, where parties to a particular transaction may not be aware that a filing has been triggered. Identifying all such situations is beyond the scope of the present article, which focuses instead on a number of examples for discussion purposes.

First, in circumstances where a joint venture is created, the threshold may be met by the turnover of the parents to the joint venture alone, regardless of whether the joint venture itself is or will be active in the EU. Lack of nexus with the EU in such situations may easily lead companies to ignore even potential applicability of the EUMR.

Second, the jurisdictional threshold concerning state-owned enterprises (SOEs) (ie, determining the particular ‘group’ to be taken into account for the turnover calculation for SOEs and in particular Chinese SOEs) creates significant uncertainties for companies and their advisers.

Third, it is notable that, rather than limiting uncertainties, future developments may increase them. The Commission may extend its jurisdiction under the EUMR to review the acquisition of non-controlling minority shareholdings.33 It is possible that legislation in this area could further complicate the already complex exercise of assessing minority shareholdings. These issues are dealt with in further detail below.

Joint ventures with activities outside the EU – lack of nexus with the EU makes application of the EUMR counter-intuitive

In order for a concentration to fall within the jurisdiction of the EUMR, it must meet the relevant turnover thresholds.34 When determining whether or not the turnover threshold is met, it is necessary to consider the turnover of the ‘undertakings concerned’ (ie, the undertakings participating in the concentration). If the undertaking forms part of a ‘group’, then this turnover must also be taken into account.35

As regards the acquisition of joint control, the ‘undertakings concerned’ are each of the companies acquiring control of a newly set-up joint venture. If the companies acquire joint control over a pre-existing undertaking or business, then the pre-existing undertaking (or business) is also an ‘undertaking concerned’.36 It is therefore clear that each of the parent companies are ‘undertakings concerned’ and their turnover must be included in the turnover calculation.

If the acquisition of joint control concerns a joint venture that is to operate in the EU, then it is relatively intuitive to consider whether the concentration meets the EUMR thresholds (or any of the individual member state merger thresholds). On the other hand, if the joint venture is to operate exclusively outside the EU (in Asia, for example),37 it is possible that an EUMR filing may be overlooked entirely innocently. This would be an easy, but costly, mistake to make: if the parent companies’ turnover (including their ‘group’ turnover) meet the EUMR jurisdictional threshold, then a filing would be required. As the Electrabel case shows, if a concentration is implemented in breach of the standstill obligation, then the Commission may impose a fine, regardless of whether there is an impact on competition in the EU.

This overly extensive application of the EUMR, coupled with the severe consequences for failure to notify, has led to many unnecessary filings and commentators have called for these transactions to be exempted from the EUMR. Interestingly, the Commission itself has raised these concerns in its very recent consultation regarding possible improvements to the EUMR, asking whether the creation of full-function joint ventures located and operating outside the EEA and that would not have any impact on EEA markets should be excluded from the EUMR’s jurisdiction.38

SOEs – difficulties in turnover calculation creates uncertainties as to EUMR jurisdiction

Another example of the potentially very broad application of the EUMR, and also an element of uncertainty regarding the jurisdictional test, concerns SOEs. This issue has become increasingly topical in recent years due to a number of mergers notified under the EUMR, involving Chinese SOEs.39

As noted above, a key part of the jurisdictional test is determining the ‘group’ turnover of the ‘undertakings concerned’.40 However, determining the concept of a ‘group’ in the case of an SOE is different from the general rules applicable to private sector undertakings.41 If no special rules had been created for SOEs, the relevant group would have comprised the state and each and every company in which it exercised control – this would have led to an overly wide concept of ‘group’ in the public sector as compared to the private sector.

For the purpose of calculating the turnover of SOEs, the applicable rule is that only the undertakings belonging to the same economic unit and having an ‘independent power of decision’ are to be considered a part of the same ‘group’.42 The mechanism generally used by the Commission comprises a two-step approach. First, it analyses whether the SOE has an independent decision-making power. In the event that it does not, it identifies the ultimate state entity with an independent decision-making power; the turnover of that entity and all other undertakings controlled by that entity should be taken into account.

In 2011, the Commission published a number of merger decisions applying these concepts to Chinese SOEs (previously, all of its SOE cases had involved an EEA member state).43 In each of these cases, the Commission left many questions open as its conclusions on both the procedural and substantive aspects were unaffected by the existence of other SOEs controlled by the Chinese state. The Commission could conclude that it had jurisdiction on the basis of the group of the undertaking concerned alone (ie, without assessing whether the turnover of other entities owned by the Chinese state and reporting to the same state agency (often the Chinese SASAC)44 should have been taken into account).45 Likewise, its substantive assessment remained unchanged whether other Chinese SOEs were taken into account or not. The Commission therefore did not need to assess whether the other SOEs should in fact be part of the relevant group or not.46 Since these first few decisions published in 2011, the Commission has reviewed an increasing number of cases involving Chinese SOEs, although all of these cases have been reviewed under the simplified merger procedure. Consequently, there is very limited public information regarding the Commission’s review. It appears, however, that the Commission is taking an approach that at least in principle considers that entities belonging to the Chinese state and in particular those under SASAC are likely to be considered as part of one group for EUMR jurisdictional purposes. The position remains, however, unclear in the absence of published guidance or a long-form decision.

This creates significant uncertainties in transactions involving Chinese SOEs. It is difficult for both Chinese and non-Chinese companies involved in a deal to know whether the transaction triggers an EUMR filing obligation. If the Chinese SOE involved in the deal is below the EUMR turnover thresholds, the only way in which the transaction would be caught would be if the Commission took into account turnover of other related SOEs; for example, those active in the same sector. As the Commission’s position remains unclear, however, it is impossible for companies and their advisers to reach a conclusion with any certainty (absent consultation with the Commission which in turn creates delays and can derail transaction timetables).

It is therefore prudent for Chinese SOEs and European targets/joint venture partners involved in such situations to have considered the rules carefully and to have analysed the situation under a narrow and wide concept of the group in order to be ready to address the analysis from all perspectives, particularly given the risks highlighted by the Electrabel judgment, should an EUMR filing be missed.

Non-controlling minority shareholdings – broadening the scope of the EUMR may create further uncertainties

While the Electrabel case involved a relatively complex analysis of control, the shareholding at issue was relatively large and should arguably have alerted Electrabel to the possibility that the acquisition gave rise to a notifiable concentration under the EUMR. Reviewing much smaller minority shareholdings is even more complex and can be highly contentious.47

There has been much debate regarding the possible ‘gap’ in EU merger control: non-controlling minority shareholdings are not caught by the EUMR.48 However, the competition authorities of certain member states have a broader jurisdiction to review minority shareholdings; the UK and Germany being notable examples. Under UK merger control rules, there are three levels of control that give rise to a relevant merger situation, the lowest of which is the ability to ‘materially influence policy’. This is a lower level of control than the EUMR’s ‘decisive influence’ test. The different approaches adopted by the UK and EU merger regimes, and the limits of the Commission’s power to review non-controlling minority shareholdings, are particularly well illustrated by the Ryanair/Aer Lingus case.

In 2006, prior to launching a public bid for Aer Lingus, Ryanair acquired a minority shareholding of 16.03 per cent in Aer Lingus (Ryanair later increased its shareholding to 29.3 per cent). Ryanair’s public bid for Aer Lingus was launched shortly afterwards and notified to the Commission. During the procedure, Aer Lingus argued that, should the Commission prohibit the acquisition, it should order Ryanair to divest itself of its minority shareholding in Aer Lingus (on the basis that this constituted a partial implementation of the prohibited acquisition). Following a Phase II investigation, the Commission blocked the merger and separately informed Aer Lingus that it did not have the power to order Ryanair to divest its minority shareholding. Aer Lingus appealed this decision to the General Court, which rejected the appeal.49 The General Court agreed with the Commission that Ryanair’s acquisition of a minority shareholding in Aer Lingus did not constitute a partial implementation of the transaction, as this did not confer control over Aer Lingus:

the Commission cannot be accused of infringing Article 8(4) of the merger regulation by considering that no concentration had been implemented in the present case and that it did not have the power to require Ryanair to dispose of its shareholding in Aer Lingus. Only if such a shareholding had enabled Ryanair to control Aer Lingus by exercising de jure or de facto decisive influence on it, which is not the case here, would the Commission have had such a power under the merger regulation.50

On the basis that Ryanair’s acquisition of the minority shareholding did not fall within the EUMR, the OFT asserted its jurisdiction to review the acquisition, as it considered that Ryanair had the ability to materially influence the policy of Aer Lingus.51 On completion of its review, the OFT referred the transaction to the Competition Commission (CC). The CC has been reviewing the acquisition since June 2012 and recently published its provisional findings, in which it concluded that Ryanair’s acquisition of a 29.82 per cent shareholding in Aer Lingus had led, or may be expected to lead, to a substantial lessening of competition in the markets for air passenger services between Great Britain and the Republic of Ireland.52 Possible remedies being considered by the CC include ordering Ryanair to divest its entire shareholding in Aer Lingus, partial divesture or behavioural remedies to accompany a partial divestiture remedy.53 The CC’s final report is expected in July 2013.

The Commission has acknowledged this ‘gap’ in the EUMR and recently launched a consultation in which it considers extending its jurisdiction to review non-controlling minority shareholdings.54 It has proposed a series of different measures to deal with this issue. These include either extending the existing ex ante review to non-controlling minority shareholdings; or allowing the Commission discretion to select particular cases for investigation through the introduction of a self-assessment system (as the UK) or obliging parties to file a short information notice about the transaction.55

Although a detailed commentary is not within the scope of this article, it is submitted that a review of non-controlling minority shareholdings should take into account the burden that a mandatory and suspensory system of merger control imposes on companies, particularly in light of the severe consequences for failures to notify as exemplified in Electrabel. The vast majority of non-controlling minority shareholdings are unlikely to raise competition concerns and an overly inclusive test would both substantially increase costs for companies and also place a heavy burden on the Commission.

Conclusion

It is clear from the Commission’s decision in Electrabel (upheld in its entirety by the General Court), that the Commission is willing to impose high fines for breach of the standstill obligation, even where the jurisdictional assessment is relatively complex and where the failure to file was negligent (and may have been entirely innocent), as opposed to a deliberate attempt to avoid an EUMR filing. The Commission has also shown that it will investigate such jurisdictional infringements even where the transaction does not itself raise any substantive concerns. In addition, the General Court’s ruling on limitation periods exposes companies to the risk of a Commission investigation for breach of the standstill obligation at any time while control is retained over the target company, without EUMR clearance having been received.

Given the severe consequences of a failure to comply with the EUMR notification and standstill requirements (not only fines but also the potential invalidity of the transaction in question), all acquisitions, including those referred to in this article (ie, minority shareholdings, joint ventures operating outside of the EU and transactions involving SOEs), must be scrutinised carefully to ensure compliance with the EUMR. Where there are genuine uncertainties as to the application of the jurisdictional thresholds, in light of the Electrabel case, companies and their advisers may increasingly decide to consult with the Commission. However, consulting with the Commission takes time and companies will need to factor this consultation time into their transaction timetable: in complex cases consultation may take weeks, if not months. The Commission is not constrained by any deadlines or legal framework.56 Because of the timing implications of the consultation process, despite the ECJ’s comments in Electrabel, it is submitted that consultation should only be necessary in the most complex of cases: a far better solution is to ensure that the EUMR and jurisdictional notice (and any future amendments to these documents) provide clear guidance to notifying parties. Furthermore, it would be desirable for the Commission to attempt to ease the burden on companies and their advisers, for those cases that do not raise any substantive competition concerns but do still raise significant jurisdictional complexities and information-heavy filings. The Commission’s recent consultations in the merger sphere are a step in the right direction.57

In situations where a consultation is necessary, a clearer and faster consultation process should be available. The Commission has not included any statements formalising and reforming the consultation process in its recent reviews. In these authors’ view, such improvements would be enormously useful to ease the burden on companies. A more structured consultation process would allow companies to consult with the Commission without the danger that, if they decided to do so, the transaction might be entirely derailed due to a potentially lengthy consultation adversely affecting the transaction timetable. The addition of a consultation period of uncertain duration, to an already uncertain pre-notification period, is disproportionate, particularly where it is clear that the transaction does not raise any substantive competition concerns.

The Commission is clearly aware of the issues and is attempting to reform procedures where possible. The EU merger control regime has much to commend it, and is overall a transparent and effective system, which is emulated in other jurisdictions around the world. The pending consultations are a good opportunity for the Commission to improve the system by simplifying procedures as far as possible while ensuring an effective merger control regime.

On 12 December 2012, the General Court dismissed Electrabel’s appeal against the €20 million fine the European Commission (Commission) had imposed on it for failing to notify a transaction under the EU Merger Regulation (EUMR)58 and completing the deal without prior clearance. The judgment serves as an important reminder of the need for all companies to consider very carefully the application of the EUMR to all transactions.

The Electrabel case makes it clear that failure to notify a transaction or at least consult the Commission about jurisdiction is likely to result in severe penalties in cases of breach of the standstill obligation. However, while the Commission could be said to be uncompromising regarding its response to such breaches, there remain a number of areas in which the EUMR is either unclear or has an overly broad application. This creates genuine uncertainty as to the applicability of the EUMR to transactions, which can easily lead companies to innocent failures to notify transactions. In addition, where companies have concerns regarding jurisdictional issues and decide to consult with the Commission, this can have very significant implications on a transaction timetable as the consultation process can be lengthy. It is submitted that this is unsatisfactory: given the high stakes of getting an EUMR assessment wrong, further guidance and/or swifter procedures are needed. In this respect, the Commission’s recent consultations regarding possible changes to the EUMR, are to be welcomed.59

This article first examines the Electrabel case, which has heightened the risks relating to a failure to notify. It then highlights a number of situations where the jurisdictional rules are not clear and which therefore require clarification or reform.

The standstill obligation

The parties to a transaction that falls within the scope of the EUMR rules are required to notify the transaction to the Commission and cannot implement the transaction before approval is granted (the ‘standstill obligation’).60 The standstill obligation is fundamental to EU merger control as it ensures that the Commission is able to conduct an ex ante review of mergers meeting the EUMR jurisdictional thresholds.61 62

A transaction falls within the scope of the EUMR rules if it constitutes a ‘concentration’ and if the turnover of the parties to the transaction meets specified jurisdictional thresholds. The concept of a ‘concentration’ is wide, and includes both mergers of previously independent undertakings and the acquisition by one or more undertaking(s) of direct or indirect control over another undertaking or undertakings. ‘Control’ is defined as the ability to exercise ‘decisive influence’ over an undertaking.63 Importantly, this includes not only outright acquisitions of control, but also, in some circumstances, acquisitions of minority shareholdings; for example, where the acquirer obtains veto rights over the strategic decision-making of the target, or can in practice obtain a majority at shareholders’ meetings. Where it is not clear whether a jurisdictional test is met, companies can consult informally with the Commission as to whether an EUMR filing is triggered.

The Commission has the power to impose fines of up to 10 per cent of annual group worldwide turnover for failure to notify a transaction and for the implementation of a transaction in breach of the standstill obligation, whether intentionally or negligently.64 The validity of a transaction meeting the EUMR thresholds is dependent on a notification and the Commission declaring the transaction compatible with the internal market.65 Consequently, implementing a notifiable transaction without prior authorisation from the Commission may also render the transaction invalid.

Given the potentially severe consequences for breaches of the standstill obligation and the importance of the EU as a major economy with an active competition regulator, it is not surprising that undertakings are generally very careful to analyse their transactions and comply with the EUMR. A large number of transactions are notified to the Commission every year for clearance and the majority of those transactions do not raise any substantive competition concerns. It is, however, possible that many transactions that may have been caught by the EUMR have not been notified to the Commission because companies have either failed to identify that the jurisdictional tests are met (eg, for lack of nexus with the EU) or because they erroneously concluded that the tests were not met. Previously, fines imposed under the EUMR for failure to file and for breach of the standstill obligation had been rare and at a relatively low level.66 However, post-Electrabel, it is clear that the Commission will not hesitate to impose high fines for failure to notify.

Electrabel

The case concerned Electrabel’s acquisition of a minority shareholding in Compagnie Nationale de Rhône (CNR). A French law dating from 2001 stated that the majority of CNR’s capital and voting shares must be held by local or regional authorities, or other legal persons governed by public law or by undertakings belonging to the private sector (the Murcef Law), and prior to 2003, CNR’s two largest shareholders were SNCF and EDF. However, in June 2003, Electrabel, acquired a 17.86 per cent shareholding in CNR and by December 2003, had increased its shareholding in CNR to 49.95 per cent through a series of transactions, which ultimately conferred on Electrabel 47.92 per cent of the voting rights in CNR (the Acquisition):

  • on 24 June 2003, Electrabel acquired shares in CNR representing 17.86 per cent of CNR’s share capital and 16.88 per cent of its voting rights;
  • on 27 June 2003, Electrabel concluded an agreement with EDF, for the purchase of EDF’s entire shareholding in CNR;
  • on 24 July 2003, Electrabel entered into a shareholders’ agreement with CDC (which had purchased SNCF’s shares), under which the parties agreed to grant Electrabel an option to purchase CDC’s shares if the Murcef Law was repealed, and vote in concert at the general meeting and supervisory board to appoint shareholders’ representatives and board members; and
  • on 23 December 2003, Electrabel came into possession of the shareholding held by EDF, conferring a total of 47.92 per cent of the voting rights in CNR.

The Acquisition was not notified to the Commission in 2003. It was only four years later, in August 2007, that Electrabel contacted the Commission about its interest in CNR. Following discussions with the Commission, in March 2008, Electrabel filed a merger notification in which it stated that it had acquired ‘de facto’ sole control of CNR during the course of 2007. The Commission reviewed the concentration and in its decision of 29 April 2008, found that the concentration did not raise any substantive competition law concerns, consequently clearing the transaction.67 However, it left open the question of exactly when Electrabel had acquired control over CNR.

Commission infringement decision

Following clearance of the concentration, the Commission conducted an investigation into Electrabel’s acquisition of its shareholding in CNR and sent a statement of objections (SO) to Electrabel on 17 December 2008 in which it advanced its case that Electrabel had acquired ‘de facto’ sole control of CNR on 23 December 2003. In February 2009, Electrabel responded to the SO and a hearing was held shortly afterwards. On 10 June 2009, the Commission issued a decision in which it concluded that Electrabel had, through the acquisition, acquired ‘de facto’ sole control over CNR on 23 December 2003.68 The factors supporting this decision were that:

  • although Electrabel did not obtain a majority of the voting rights in CNR and therefore did not obtain a ‘de jure’ right to exercise control over CNR, looking at participation and shareholder voting patterns at previous shareholder meetings, Electrabel would in practice exercise an absolute majority at such meetings, enabling it to exercise ‘de facto’ control over CNR;
  • since 2003, Electrabel had held an absolute majority on CNR’s management board and the means of maintaining this majority (together with CDC, it had veto rights over appointments to the board);
  • the Murcef law did not prevent Electrabel from acquiring control over CNC;
  • since 2003, Electrabel was the sole industrial shareholder in CNR (having acquired EDF’s shareholding) and played a central role in the operational management of CNR;
  • since 2004, CNR had been regarded as forming part of the Suez group (Electrabel’s parent company) by both the managers of CNR and the managers of Suez; and
  • Electrabel had a preferential right to subscribe to CNR’s other shares.

The Commission therefore found that Electrabel had breached the standstill obligation by completing the Acquisition in December 2003 without obtaining prior clearance and imposed a fine of €20 million on Electrabel. It noted that Electrabel was a large sophisticated company with substantial legal resources at its disposal. Even if it was not entirely clear that the Acquisition had triggered an EUMR notification requirement (which the Commission did not accept), the logical and usual course for Electrabel would have been to consult with the Commission as to whether the Acquisition fell within the scope of the EUMR.69

Electrabel appealed both the infringement finding and, in the alternative, the level of fine to the General Court. It also argued that the Commission’s action was time-barred.

General Court judgment

The General Court dismissed Electrabel’s appeal in its entirety.70

Notifiability of the transaction

The General Court upheld the Commission’s conclusion that the acquisition resulted in Electrabel acquiring de facto sole control over CNR in December 2003, and therefore amounted to a concentration within the meaning of the EUMR.71 In order to reach this conclusion, the Commission had reviewed attendance rates and voting patterns at general meetings from 2000 to 2003. The Commission concluded that a stake of 47.92 per cent of the voting rights would have achieved a majority at the general meetings throughout this period. On this basis, it considered that Electrabel should have expected to have a majority from December 2003 onwards. In fact, the Commission conducted the same analysis for the period 2004 to 2007 (by which time Electrabel was in fact exercising its voting shares) and reached the same conclusion. The General Court agreed72 that the Commission’s approach was consistent with the Notice on the concept of concentration which recommended an analysis of previous shareholder attendance in order to determine whether a minority shareholding conferred de facto sole control.73 This would be the case where the shareholder was ‘highly likely’ to achieve a majority at the shareholders’ meeting, where the remaining shares were widely dispersed.74

Electrabel had argued that in December 2003, it was not highly likely that it would obtain control at future meetings. It considered that the Commission had failed to correctly analyse EDF’s role during the period of its analysis (2000–2003)75 and claimed that the smaller shareholders had placed a significant amount of trust in EDF, which explained the low shareholder attendance. Electrabel therefore argued that it had been necessary to observe events for three years, post-acquisition, before a majority became highly likely76 and the Commission could not infer any consequences for the future on the basis of attendance rates between 2000 and 2003.77 Electrabel also argued that shareholder attendance fluctuated, so it was not possible to determine whether or not it would have a majority.78 The General Court disagreed and held that Electrabel had not demonstrated that it was not highly likely that it would obtain a majority at shareholders’ meetings.79In particular, the General Court concluded that there was no error of analysis regarding EDF’s role. It also agreed with the Commission’s analysis that Electrabel could have expected a majority at future general meetings as, on the basis of previous attendance rates, it was highly improbable that shareholder attendance would reach 95.84 per cent (the attendance rate needed to defeat an Electrabel proposal).80

The General Court also rejected Electrabel’s challenges to the other factors relied on by the Commission when finding that Electrabel exercised de facto sole control.

Limitation periods

Electrabel argued that the relevant infringement should be characterised as a procedural infringement, such that a three-year limitation period applied (and the Commission’s action was therefore time-barred).81 The General Court rejected this argument and agreed with the Commission’s assessment that the three-year limitation period applied to infringements relating to, inter alia, requests for information or the carrying out of investigations. The General Court held that breach of the standstill obligation could not be categorised as merely procedural since it was capable of giving rise to substantial changes in the conditions of competition. The applicable limitation period was therefore five years.82

The General Court also considered when the five-year limitation period began to run. Did the breach of the standstill obligation constitute a single one-off infringement (as at the date of completion of the Acquisition), as argued by Electrabel, or was it an ongoing infringement? The General Court dismissed Electrabel’s submissions that, if found to be an ongoing infringement, a breach would in effect be eternal, depriving a limitation period of any meaning.83 It instead endorsed the Commission’s position that a breach of the EUMR standstill obligation constitutes an ongoing infringement, for as long as the control acquired in breach of the standstill obligation remains and the concentration has not been cleared by the Commission (or the acquirer loses control over the target).84

Fines

Electrabel argued that the fine was disproportionate and that there were manifest errors in the Commission’s assessment of the fine. This argument was also rejected by the General Court, which upheld the level of fine imposed. It confirmed that the Commission was correct to categorise the infringement as serious, even if the breach was negligent rather than intentional, and the acquisition had no negative substantive effects on the market.85 The General Court also agreed that, if the acquisition had had an adverse effect on competition, then the infringement would have been considered to be even more serious.86 As regards the level of the fine, the General Court noted that, although the fine was high, it was at the ‘lower end’ of the range of fine, that could have been imposed.87 The Commission was entitled to take into account the need to ensure that fines had deterrent effect (the fine amounted to 0.04 per cent of the turnover of Electrabel’s parent company, the Suez group).88 Electrabel has appealed the General Court’s judgment to the Court of Justice.89

Implications of the Electrabel judgment

Electrabel shows that the Commission is prepared to impose severe penalties on parties who fail to notify. The General Court judgment confirmed that the Commission has discretion in deciding on the amount of the fine and that uncertainty is not an excuse for a failure to notify. Furthermore, companies can remain liable for significant periods of time, as the limitation period does not start to run while the concentration is still in place. The stakes for a failure to notify have therefore been raised significantly. In light of these heightened risks, it is unfortunate that the jurisdictional tests under the EUMR often remain unclear and that the mandatory and suspensory regime applies in cases that do not raise any competition issues and have no nexus with the EU. Some practical examples are set out below.

EUMR jurisdictional test: potential uncertainties in scope

The application of EUMR jurisdictional thresholds can be wide in scope and there are a number of scenarios, other than the circumstances of ‘de facto’ control of relevance in the Electrabel case, where parties to a particular transaction may not be aware that a filing has been triggered. Identifying all such situations is beyond the scope of the present article, which focuses instead on a number of examples for discussion purposes.

First, in circumstances where a joint venture is created, the threshold may be met by the turnover of the parents to the joint venture alone, regardless of whether the joint venture itself is or will be active in the EU. Lack of nexus with the EU in such situations may easily lead companies to ignore even potential applicability of the EUMR.

Second, the jurisdictional threshold concerning state-owned enterprises (SOEs) (ie, determining the particular ‘group’ to be taken into account for the turnover calculation for SOEs and in particular Chinese SOEs) creates significant uncertainties for companies and their advisers.

Third, it is notable that, rather than limiting uncertainties, future developments may increase them. The Commission may extend its jurisdiction under the EUMR to review the acquisition of non-controlling minority shareholdings.90 It is possible that legislation in this area could further complicate the already complex exercise of assessing minority shareholdings. These issues are dealt with in further detail below.

Joint ventures with activities outside the EU – lack of nexus with the EU makes application of the EUMR counter-intuitive

In order for a concentration to fall within the jurisdiction of the EUMR, it must meet the relevant turnover thresholds.91 When determining whether or not the turnover threshold is met, it is necessary to consider the turnover of the ‘undertakings concerned’ (ie, the undertakings participating in the concentration). If the undertaking forms part of a ‘group’, then this turnover must also be taken into account.92

As regards the acquisition of joint control, the ‘undertakings concerned’ are each of the companies acquiring control of a newly set-up joint venture. If the companies acquire joint control over a pre-existing undertaking or business, then the pre-existing undertaking (or business) is also an ‘undertaking concerned’.93 It is therefore clear that each of the parent companies are ‘undertakings concerned’ and their turnover must be included in the turnover calculation.

If the acquisition of joint control concerns a joint venture that is to operate in the EU, then it is relatively intuitive to consider whether the concentration meets the EUMR thresholds (or any of the individual member state merger thresholds). On the other hand, if the joint venture is to operate exclusively outside the EU (in Asia, for example),94 it is possible that an EUMR filing may be overlooked entirely innocently. This would be an easy, but costly, mistake to make: if the parent companies’ turnover (including their ‘group’ turnover) meet the EUMR jurisdictional threshold, then a filing would be required. As the Electrabel case shows, if a concentration is implemented in breach of the standstill obligation, then the Commission may impose a fine, regardless of whether there is an impact on competition in the EU.

This overly extensive application of the EUMR, coupled with the severe consequences for failure to notify, has led to many unnecessary filings and commentators have called for these transactions to be exempted from the EUMR. Interestingly, the Commission itself has raised these concerns in its very recent consultation regarding possible improvements to the EUMR, asking whether the creation of full-function joint ventures located and operating outside the EEA and that would not have any impact on EEA markets should be excluded from the EUMR’s jurisdiction.95

SOEs – difficulties in turnover calculation creates uncertainties as to EUMR jurisdiction

Another example of the potentially very broad application of the EUMR, and also an element of uncertainty regarding the jurisdictional test, concerns SOEs. This issue has become increasingly topical in recent years due to a number of mergers notified under the EUMR, involving Chinese SOEs.96

As noted above, a key part of the jurisdictional test is determining the ‘group’ turnover of the ‘undertakings concerned’.97 However, determining the concept of a ‘group’ in the case of an SOE is different from the general rules applicable to private sector undertakings.98 If no special rules had been created for SOEs, the relevant group would have comprised the state and each and every company in which it exercised control – this would have led to an overly wide concept of ‘group’ in the public sector as compared to the private sector.

For the purpose of calculating the turnover of SOEs, the applicable rule is that only the undertakings belonging to the same economic unit and having an ‘independent power of decision’ are to be considered a part of the same ‘group’.99 The mechanism generally used by the Commission comprises a two-step approach. First, it analyses whether the SOE has an independent decision-making power. In the event that it does not, it identifies the ultimate state entity with an independent decision-making power; the turnover of that entity and all other undertakings controlled by that entity should be taken into account.

In 2011, the Commission published a number of merger decisions applying these concepts to Chinese SOEs (previously, all of its SOE cases had involved an EEA member state).100 In each of these cases, the Commission left many questions open as its conclusions on both the procedural and substantive aspects were unaffected by the existence of other SOEs controlled by the Chinese state. The Commission could conclude that it had jurisdiction on the basis of the group of the undertaking concerned alone (ie, without assessing whether the turnover of other entities owned by the Chinese state and reporting to the same state agency (often the Chinese SASAC)101 should have been taken into account).102 Likewise, its substantive assessment remained unchanged whether other Chinese SOEs were taken into account or not. The Commission therefore did not need to assess whether the other SOEs should in fact be part of the relevant group or not.103 Since these first few decisions published in 2011, the Commission has reviewed an increasing number of cases involving Chinese SOEs, although all of these cases have been reviewed under the simplified merger procedure. Consequently, there is very limited public information regarding the Commission’s review. It appears, however, that the Commission is taking an approach that at least in principle considers that entities belonging to the Chinese state and in particular those under SASAC are likely to be considered as part of one group for EUMR jurisdictional purposes. The position remains, however, unclear in the absence of published guidance or a long-form decision.

This creates significant uncertainties in transactions involving Chinese SOEs. It is difficult for both Chinese and non-Chinese companies involved in a deal to know whether the transaction triggers an EUMR filing obligation. If the Chinese SOE involved in the deal is below the EUMR turnover thresholds, the only way in which the transaction would be caught would be if the Commission took into account turnover of other related SOEs; for example, those active in the same sector. As the Commission’s position remains unclear, however, it is impossible for companies and their advisers to reach a conclusion with any certainty (absent consultation with the Commission which in turn creates delays and can derail transaction timetables).

It is therefore prudent for Chinese SOEs and European targets/joint venture partners involved in such situations to have considered the rules carefully and to have analysed the situation under a narrow and wide concept of the group in order to be ready to address the analysis from all perspectives, particularly given the risks highlighted by the Electrabel judgment, should an EUMR filing be missed.

Non-controlling minority shareholdings – broadening the scope of the EUMR may create further uncertainties

While the Electrabel case involved a relatively complex analysis of control, the shareholding at issue was relatively large and should arguably have alerted Electrabel to the possibility that the acquisition gave rise to a notifiable concentration under the EUMR. Reviewing much smaller minority shareholdings is even more complex and can be highly contentious.104

There has been much debate regarding the possible ‘gap’ in EU merger control: non-controlling minority shareholdings are not caught by the EUMR.105 However, the competition authorities of certain member states have a broader jurisdiction to review minority shareholdings; the UK and Germany being notable examples. Under UK merger control rules, there are three levels of control that give rise to a relevant merger situation, the lowest of which is the ability to ‘materially influence policy’. This is a lower level of control than the EUMR’s ‘decisive influence’ test. The different approaches adopted by the UK and EU merger regimes, and the limits of the Commission’s power to review non-controlling minority shareholdings, are particularly well illustrated by the Ryanair/Aer Lingus case.

In 2006, prior to launching a public bid for Aer Lingus, Ryanair acquired a minority shareholding of 16.03 per cent in Aer Lingus (Ryanair later increased its shareholding to 29.3 per cent). Ryanair’s public bid for Aer Lingus was launched shortly afterwards and notified to the Commission. During the procedure, Aer Lingus argued that, should the Commission prohibit the acquisition, it should order Ryanair to divest itself of its minority shareholding in Aer Lingus (on the basis that this constituted a partial implementation of the prohibited acquisition). Following a Phase II investigation, the Commission blocked the merger and separately informed Aer Lingus that it did not have the power to order Ryanair to divest its minority shareholding. Aer Lingus appealed this decision to the General Court, which rejected the appeal.106 The General Court agreed with the Commission that Ryanair’s acquisition of a minority shareholding in Aer Lingus did not constitute a partial implementation of the transaction, as this did not confer control over Aer Lingus:

the Commission cannot be accused of infringing Article 8(4) of the merger regulation by considering that no concentration had been implemented in the present case and that it did not have the power to require Ryanair to dispose of its shareholding in Aer Lingus. Only if such a shareholding had enabled Ryanair to control Aer Lingus by exercising de jure or de facto decisive influence on it, which is not the case here, would the Commission have had such a power under the merger regulation.107

On the basis that Ryanair’s acquisition of the minority shareholding did not fall within the EUMR, the OFT asserted its jurisdiction to review the acquisition, as it considered that Ryanair had the ability to materially influence the policy of Aer Lingus.108 On completion of its review, the OFT referred the transaction to the Competition Commission (CC). The CC has been reviewing the acquisition since June 2012 and recently published its provisional findings, in which it concluded that Ryanair’s acquisition of a 29.82 per cent shareholding in Aer Lingus had led, or may be expected to lead, to a substantial lessening of competition in the markets for air passenger services between Great Britain and the Republic of Ireland.109 Possible remedies being considered by the CC include ordering Ryanair to divest its entire shareholding in Aer Lingus, partial divesture or behavioural remedies to accompany a partial divestiture remedy.110 The CC’s final report is expected in July 2013.

The Commission has acknowledged this ‘gap’ in the EUMR and recently launched a consultation in which it considers extending its jurisdiction to review non-controlling minority shareholdings.111 It has proposed a series of different measures to deal with this issue. These include either extending the existing ex ante review to non-controlling minority shareholdings; or allowing the Commission discretion to select particular cases for investigation through the introduction of a self-assessment system (as the UK) or obliging parties to file a short information notice about the transaction.112

Although a detailed commentary is not within the scope of this article, it is submitted that a review of non-controlling minority shareholdings should take into account the burden that a mandatory and suspensory system of merger control imposes on companies, particularly in light of the severe consequences for failures to notify as exemplified in Electrabel. The vast majority of non-controlling minority shareholdings are unlikely to raise competition concerns and an overly inclusive test would both substantially increase costs for companies and also place a heavy burden on the Commission.

Conclusion

It is clear from the Commission’s decision in Electrabel (upheld in its entirety by the General Court), that the Commission is willing to impose high fines for breach of the standstill obligation, even where the jurisdictional assessment is relatively complex and where the failure to file was negligent (and may have been entirely innocent), as opposed to a deliberate attempt to avoid an EUMR filing. The Commission has also shown that it will investigate such jurisdictional infringements even where the transaction does not itself raise any substantive concerns. In addition, the General Court’s ruling on limitation periods exposes companies to the risk of a Commission investigation for breach of the standstill obligation at any time while control is retained over the target company, without EUMR clearance having been received.

Given the severe consequences of a failure to comply with the EUMR notification and standstill requirements (not only fines but also the potential invalidity of the transaction in question), all acquisitions, including those referred to in this article (ie, minority shareholdings, joint ventures operating outside of the EU and transactions involving SOEs), must be scrutinised carefully to ensure compliance with the EUMR. Where there are genuine uncertainties as to the application of the jurisdictional thresholds, in light of the Electrabel case, companies and their advisers may increasingly decide to consult with the Commission. However, consulting with the Commission takes time and companies will need to factor this consultation time into their transaction timetable: in complex cases consultation may take weeks, if not months. The Commission is not constrained by any deadlines or legal framework.113 Because of the timing implications of the consultation process, despite the ECJ’s comments in Electrabel, it is submitted that consultation should only be necessary in the most complex of cases: a far better solution is to ensure that the EUMR and jurisdictional notice (and any future amendments to these documents) provide clear guidance to notifying parties. Furthermore, it would be desirable for the Commission to attempt to ease the burden on companies and their advisers, for those cases that do not raise any substantive competition concerns but do still raise significant jurisdictional complexities and information-heavy filings. The Commission’s recent consultations in the merger sphere are a step in the right direction.114

In situations where a consultation is necessary, a clearer and faster consultation process should be available. The Commission has not included any statements formalising and reforming the consultation process in its recent reviews. In these authors’ view, such improvements would be enormously useful to ease the burden on companies. A more structured consultation process would allow companies to consult with the Commission without the danger that, if they decided to do so, the transaction might be entirely derailed due to a potentially lengthy consultation adversely affecting the transaction timetable. The addition of a consultation period of uncertain duration, to an already uncertain pre-notification period, is disproportionate, particularly where it is clear that the transaction does not raise any substantive competition concerns.

The Commission is clearly aware of the issues and is attempting to reform procedures where possible. The EU merger control regime has much to commend it, and is overall a transparent and effective system, which is emulated in other jurisdictions around the world. The pending consultations are a good opportunity for the Commission to improve the system by simplifying procedures as far as possible while ensuring an effective merger control regime.

Notes

  1. Regulation 139/2004 on the control of concentrations between undertakings.
  2. Commission press releases: Commission consults on possible improvements to EU merger control in certain areas, 20 June 2013, IP/13/584 and Commission consults on proposal for simplifying procedures under the EU Merger Regulation, 27 March 2013, IP/13/288.
  3. Article 7(1) EUMR.
  4. See for example, Case T-411/07 Aer Lingus Group plc v European Commission, paragraph 80 and Competition Policy Newsletter Number 3, 2009, ‘Electrabel/CNR: the importance of the standstill obligation in merger proceedings’, Alomar, Moonen, Navea and Redondo, p.59.
  5. The standstill obligation does not however prevent the implementation of public bids which are notified to the Commission provided certain conditions are met. It is also possible to apply for a derogation from the standstill obligation although in practice, derogations are only granted in exceptional circumstances (article 7(3), EUMR).
  6. Article 3(2), EUMR.
  7. Article 14(2), EUMR.
  8. Article 7(4), EUMR.
  9. See COMP/M. 920 Samsung/AST in 1998 (ECU 33,000) and COMP/M.969 A P Møller in 1999 (€219,000).
  10. Case No. COMP/M.4994 Electrabel/Compagnie Nationale du Rhone, 29 April 2008.
  11. Case No. COMP/M.4994 Electrabel/Compagnie Nationale du Rhone, 10 June 2009.
  12. Case No. COMP/M.4994 Electrabel/Compagnie Nationale du Rhone, 10 June 2009, paragraph 199.
  13. Case T-332/09, Electrabel v European Commission (‘Case T-332/09’)
  14. Case T-332/09, paragraph 176.
  15. Case T-332/09, paragraphs 46–48.
  16. Commission Notice on the concept of concentration under Council Regulation (EEC) No. 4064/89 on the control of concentrations between undertakings (‘Notice on concept of concentration’) (superceded) paragraph 14. See also Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No. 139/2004 on the control of concentrations between undertakings (‘Jurisdictional Notice’), paragraph 59.
  17. ‘Notice on concept of concentration’ (superceded) paragraph 14.
  18. Case T-332/09, paragraphs 49–53.
  19. Case T-332/09, paragraph 49.
  20. Case T-332/09, paragraph 53.
  21. Case T-332/09, paragraph 58.
  22. Case T-332/09, paragraph 81.
  23. Case T-332/09, paragraph 66. The General Court noted that the highest attendance rate at a general meeting during the period 2000–2003, had been 76.6 per cent. A shareholder holding 47.92 per cent of voting rights would still have been assured a majority at that meeting (paragraph 61).
  24. The relevant limitation periods are set out in Regulation 2988/74 concerning limitation periods in proceedings and the enforcement of sanctions under the rules of the European Economic Community relating to transport and competition (see article 1). Article 1 states that a three year limitation period applies to procedural infringements (of provisions concerning applications or notifications, requests for information or the carrying out of investigations) and a five year limitation period applies to all other infringements.
  25. Case T-332/09, paragraphs 205–209.
  26. Case T-332/09, paragraphs 210–211.
  27. Case T-332/09, paragraph 212.
  28. Case T-332/09, paragraph 246. The General Court noted that ‘the Commission is correct to maintain that the ex post analysis of the lack of effect of a concentration on the market cannot reasonably be a decisive factor for the characterisation of the gravity of the breach of a system of ex ante control’.
  29. Case T-332/09, paragraph 247.
  30. See article 14(2) Regulation No. 4064/89 and article 14(2) EUMR.
  31. Case T-332/09, paragraph 282.
  32. Case C-84/13P Electrabel SA v European Commission. Judgment was pending as at the date of authorship of this paper.
  33. Commission press release, Commission consults on possible improvements to EU merger control in certain areas, 20 June 2013, IP/13/584.
  34. Article 1(2) and article 1(3) EUMR.
  35. Article 5(4), EUMR.
  36. Paragraphs 139–140 Jurisdictional Notice.
  37. See, for example, Case No/M.6859 Mitshubishi Corporation/Isuzu Motors/Isuzu Motors India Private Limited, which involved a joint venture active in the manufacture and supply of motor vehicles and spare parts in only India and possibly other neighbouring emerging markets.
  38. Commission Staff Working Document, ‘Towards more effective EU merger control’, 20 June 2013, Section IV.
  39. See also ‘Transactions Involving States or State-owned Enterprises’, Craig Pouncey and Kyriakos Fountoukakos, GCR European Antitrust Review 2013 and ‘The EU Merger Regulation and transaction involving States or State-owned enterprises: applying rules designed for the EU to the People’s Republic of China’, Kyriakos Fountoukakos and Camille Puech-Baron, Concurrences No. 1-2012.
  40. Article 5(4) EUMR . These include owning more than half of the capital or business assets; the power to exercise more than half of the voting rights and to appoint more than half of the members of the supervisory board/the administrative board/other bodies legally representing the undertaking; or the right to manage the undertaking’s affairs.
  41. See recital 22 EUMR and paragraph 192 Jurisdictional Notice.
  42. Paragraph 193 Jurisdictional Notice. See also paragraph 194 Jurisdictional Notice.
  43. In 2011, there were five merger decisions involving Chinese SOEs, all cleared unconditionally at Phase I: COMP/M.6082, China National Bluestar/Elkem, 31 March 2011; COMP/M.6151, Petrochina/Ineos/JV, 13 May 2011; COMP/M.6113, DSM/Sinochem/JV, 19 May 2011; COMP/M.6141, China National Agrochemical Corporation/Koor Industries/Makhteshim Agan Industries, 3 October 2011; and COMP/M. 6111, Huaneng/OTPPB/Intergen, 11 February 2011 (the latter under the simplified procedure rules).
  44. The Chinese Central State-Owned Assets Supervision and Administration Commission. This is an agency of the Chinese central government and its main role is to manage the Chinese SOEs (eg, appoint top executives, push reform and restructuring). There are also regional SASACs and there may also be other bodies supervising enterprises within the Chinese state system.
  45. See, for example, China National Bluestar/Elkem, involving the acquisition by China National Bluestar Group Co, Ltd (a subsidiary of ChemChina) of sole control over Elkem, whereby the EU jurisdictional thresholds were met based on ChemChina’s and Elkem’s turnovers alone (paragraphs 5–6).
  46. See, for example, China National Bluestar/Elkem at paragraph 34; DSM/Sinochem/JV at paragraphs 26 and 35; China National Agrochemical Corporation/Koor Industries/Makhteshim Agan Industries at paragraphs 7 and 48; and Petrochina/Ineos/JV at paragraph 31.
  47. As regards the UK experience, see, for example, the Ryanair litigation before the Competition Appeal Tribunal (CAT) and Court of Appeal (challenging the OFT/CC review of its acquisition of a minority shareholding in Aer Lingus) and the BSkyB litigation before the CAT and Court of Appeal relating to the CC’s review of its acquisition of a 17.9 per cent shareholding in ITV (and the CC’s subsequent order that BSkyB should divest 10.4 per cent of its stake).
  48. See, for example, ‘Minority Shareholdings: the Gap Between European and National Merger Control’, Craig Pouncey and Kyriakos Fountoukakos, GCR European Antitrust Review 2010, ‘Merger Control and minority shareholdings: time for a change?’, Concurrences No. 3-2011 p.14–41, various.
  49. Case T-411/07 Aer Lingus v Commission.
  50. Case T-411/07 Aer Lingus v Commission, paragraph 78.
  51. Completed acquisition by Ryanair Holdings plc of a minority interest in Aer Lingus Group plc, 15 June 2012.
  52. Ryanair/Aer Lingus merger inquiry, Provisional Findings Report, 30 May 2013. Note that Ryanair’s shareholding had marginally increased since the EUMR review.
  53. Completed acquisition by Ryanair Holdings plc of a minority shareholding in Aer Lingus Group plc. Notice of possible remedies issued under Rule 11 of the Competition Commission Rules of Procedure.
  54. Commission press release, Commission consults on possible improvements to EU merger control in certain areas, 20 June 2013, IP/13/584.
  55. Commission Staff Working Document, ‘Towards more effective EU merger control’, 20 June 2013, Section II.
  56. There is only brief mention of consultation in the Commission’s ‘Best Practices on the conduct of EC Merger Control Proceedings’, 2004 (see paragraphs 24 and 25).
  57. Commission press releases: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, 27 March 2013, IP/13/288 and Commission consults on possible improvements to EU merger control in certain areas, 20 June 2013, IP/13/584.

Herbert Smith Freehills LLP

Central Plaza
Rue de Loxum 25
1000 Brussels
Belgium
Tel: +32 2 511 7450
Fax: +32 2 511 7772

Craig Pouncey
craig.pouncey@hsf.com

Kyriakos Fountoukakos
kyriakos.fountoukakos@hsf.com

Julia Tew
julia.tew@hsf.com

www.herbertsmithfreehills.com

Herbert Smith Freehills is a leading global law firm with over 2,800 lawyers, including 460 partners, in 27 offices worldwide.

Our competition, regulation and trade practice is widely recognised by peers and legal directories as one of the leading teams in the field: we recently won the ‘Competition Team of the Year’ award at the Legal Business Awards 2013. We advise many of the world’s blue-chip organisations, in a wide range of industries, across the full spectrum of competition work, including investigations, litigation, merger clearance and advice on regulated sectors. Our clients’ increasing global presence is matched by our international footprint; we frequently advise on complex, multi-jurisdictional matters across offices in London, Brussels, Paris, Madrid, Japan, China, South East Asia, Russia and Australia.

Next Chapter: Monopolisation

Back to top

Law Business Research Ltd

87 Lancaster Road, London
W11 1QQ, UK
Queen's Award logo American Bar Association strategic partner logo

Copyright © 2014 Law Business Research Ltd. All rights reserved. | http://www.lbresearch.com

87 Lancaster Road, London, W11 1QQ, UK | Tel: +44 207 908 1188 / Fax: +44 207 229 6910

http://www.globcompetitionreview.com | editorial@globalcompetitionreview.com