France: Merger Control
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This article summarises the rules and procedure applicable to merger control in France and provides an overview of the most recent developments and decisions of note, including the reform of the French merger control procedure; a rare occurrence of a ‘fix-it-first’ remedy required by the French Competition Authority (FCA); the further evolution of market definitions in the retail sector to include both brick-and-mortar sales and online sales; the grant by the FCA of an exceptional derogation to the standstill obligation for the acquisition of a company under French bankruptcy rules; and the clearance by the FCA of a full-function joint venture created by the three main players in the French audiovisual sector.
- Reform of the French merger control procedure
- Review of the 2013 merger control guidelines of the FCA
- Simplification of the merger control notification procedure
- Evolution of the product market definition in the retail sector
- Derogation to the stand-still obligation for situations of special needs
- Fix-it-first remedies
Referenced in this article
- FCA Decision 19-DCC-15: acquisition of Alsa France by Dr Oetker
- FCA Decision 19-DCC-65: acquisition of joint control of Luderix by Jellej Jouets and Gifram
- FCA Decision 19-DCC-96: acquisition of Ascoval by British Steel group
- FCA Decision 19-DCC-132: acquisition of Nature & Découvertes by Fnac Darty
- FCA Decision 19-DCC-157: creation of a full-function joint venture by France Télévisions, TF1 and M6
- Article L.430-1 et seq. of the French Commercial Code
- Decree No. 2019-339 of 18 April 2019
The French merger control regime is governed by the provisions of Book IV of the French Commercial Code (article L.430-1 et seq.), as last amended by Statute No. 2015-990 (the Macron Act). Since 2008, the French merger control process is entrusted to the French Competition Authority (FCA), whose guidelines on merger control were published in 2013.1 The FCA initiated a process to revise these guidelines in 2018, a finalised version of which is expected in the course of 2020 (see ‘Notable decisions of 2019–2020’, below).
Presentation of the French Competition Authority
The FCA is an independent administrative authority. It is composed of (1) Investigative Services under the leadership of the Head of Investigative Services and (2) a Board that is in charge of making the final decisions on the cases investigated by the investigative services.
Since 2008, the FCA is in charge of both the enforcement of French and European antitrust provisions (articles 101 and 102 of the Treaty on the Functioning of the European Union, and articles L.420-1 and L.420-2 of the French Commercial Code) and the implementation of the French merger control regime under articles L.430-1 et seq. of the French Commercial Code. The FCA enjoys wide investigative powers for the enforcement of both French and European competition rules.
The FCA also has an advisory role in issuing opinions on its own initiative or at the request of bodies in charge of representing public interests: the government, Parliament, local authorities, and professional or consumer organisations.
Within the FCA, the merger control unit is part of the Investigative Services under the authority of a deputy head of investigative services. The FCA also includes an economic team, led by the Chief Economist, who is in charge, among other things, of conducting economic analyses to assess the effects of concentrations in the relevant markets.
Merger control procedure
Merger control is within the exclusive competence of the FCA. However, pursuant to article L.430-7-1 of the French Commercial Code, the Minister for the Economy may, upon receiving a merger control decision from the FCA, ultimately decide whether purely public interest considerations, including, for example, industrial development and employment in France, should outweigh the competition concerns raised by the concentration. This provision has been very rarely used, the Minister for the Economy having since 2009 only overturned one decision of the FCA based on that provision (in 2018, the Minister ultimately decided to authorise the acquisition by Cofigéo of Agripole’s assets in the agrifood business without any of the divestitures previously required by the FCA but subject only to a commitment to maintain jobs at their June 2018 level for two years).2 Pursuant to article L.430-1 of the French Commercial Code, the French merger control regime covers mergers, acquisitions of control and full-function joint ventures. The full-functionality criteria applied by the FCA are similar to those of the European Commission.
Pursuant to article L.430-2 of the French Commercial Code, concentrations within the meaning of article L.430-1 are considered reportable in France provided they meet three cumulative thresholds:
- the global aggregate turnover of the merging parties (or the groups to which they belong) is above €150 million;
- the total turnover in France of at least two of the merging parties is above €50 million; and
- the transaction does not meet the European merger control thresholds.
Special thresholds apply for cases in which at least two of the parties to the merger operate retail stores or when at least one of the merging parties operates in an overseas French territory.
The notification process has a suspensive effect on the transaction, which cannot be closed prior to receiving the FCA authorisation. However, article L.430-4 of the French Commercial Code provides that the notifying parties may ask the FCA for an exemption, allowing them to effectively complete all or part of the merger without waiting for its decision and without prejudice to the latter in case of necessity (see ‘Notable decisions of 2019–2020’, below, for a recent example). The exemption to the suspensive effect of the notification of the concentration will be void if, within three months of closing, the FCA has not received the complete notification.
Although theoretically not mandatory, the FCA effectively requires a pre-notification phase, which can last from two to three weeks, in simple cases, to several months, in more complex ones. Pre-notification exchanges are generally confidential, and usually aim at reaching a first agreement on market definition issues and identifying competition concerns that the transaction might raise according to the FCA.
If the operation does not raise any particular competition concerns, article L.430-5 of the French Commercial Code provides that a decision is made within 25 business days of the filing of a complete notification form (Phase I). The parties can offer commitments either with the notification or within the 25-day period, in which case the Phase I period is extended by 15 business days. The parties can also request a suspension of the Phase I procedure to finalise the commitments or, in other cases of necessity, to suspend the procedure for 15 days. Finally, the Macron Act grants the FCA the possibility to stop the clock at any time during the Phase I review period, if the parties have failed (1) to inform the FCA of relevant new information or (2) to provide in due time all or a part of the information requested by the FCA, or if third parties have failed to provide requested information because of actions of the notifying parties. There is no time limit for the suspension, which lasts until the FCA considers the notification complete again (ie, after submission of all necessary information).
Since January 2011, the FCA has implemented a simplified procedure for concentrations that are unlikely to raise competition concerns, such as operations in which the buyer does not operate on the same markets as the target, nor on any upstream, downstream or related markets, or certain operations in which at least two of the parties operate retail stores. In this type of procedure, the Phase 1 period can be reduced to 15 business days.
In the case of serious competitive concerns, the FCA will decide to open a Phase II investigation, during which a thorough examination of the contemplated merger is conducted. Pursuant to article L.430-7 of the Commercial Code, Phase II must be completed within 65 business days, except if commitments are offered by the parties within the last 20 days of the Phase II period, in which case the review period will be extended by 20 business days (starting from the date of receipt of the commitments). Another 20-day period can be added if the parties or the FCA request to suspend the procedure. Taking into account the stop-the-clock period, the maximum duration of the examination under Phase II is 105 days.
At the end of a Phase II investigation, the FCA can authorise the merger (possibly in view of the commitments proposed by the parties), prohibit the merger, or impose conditions to ensure that the contribution of the merger to economic progress outweighs its anticompetitive effects.
Pursuant to article L.430-8 of the Commercial Code, should the FCA consider that the parties are failing to comply with their commitments or the injunctions imposed by the FCA, it can either (1) withdraw the authorisation decision, and therefore require a new notification and a new review of the merger, (2) order the undertaking to comply with the commitments, or (3) since 2015, substitute or add new injunctions to the initial remedies with which the parties failed to comply.
Notable decisions of 2019–2020
During 2019–2020, notable cases and developments included:
- the continuing reform of the French merger control procedure, mainly the development of the simplified procedure and the drafting of new merger guidelines by the FCA;
- the third use of a ‘fix-it-first’ remedy by the FCA, to clear the acquisition of Alsa by Dr Oetker;
- the further evolution of market definitions in the retail sector to include both brick-and-mortar sales and online sales;
- the grant by the FCA of an exceptional derogation to the standstill principle for the acquisition of Ascoval by the British Steel group; and
- the clearance by the FCA, upon referral by the European Commission, of a full-function joint venture created by the three main players in the French audiovisual sector.
Update on merger control reform
Following the public consultation held in 2017 and the announcements made by the FCA on 7 June 2018, several modifications were implemented as part of the modernisation of the French merger control regime.
First, the notification procedure before the FCA was simplified by a decree dated 18 April 2019, which entered into force on 21 April 2019. The decree provides for several measures to alleviate and rationalise the formalities to be completed by companies carrying out merger operations, such as a reduction of the amount of financial data to be provided to the FCA as an annexe to the notification file. Whereas companies previously had to submit complete information on their accounts, balance sheet and investments, they are now required to provide only their French, European and global turnovers for the past three last years.
The decree also reduces the number of hard copies of the notification to be submitted to the FCA, from four to one.
Furthermore, importantly, the reform raises the market share threshold for vertically affected markets from 25 per cent to 30 per cent, thereby aligning the French definition of ‘affected markets’ with that of the European Commission.
Second, on 16 September 2019, the FCA launched a public consultation to revise its merger guidelines. The purpose of the revision is to reflect (1) the new, widened scope of the simplified procedure, (2) the merger control precedents adopted by the FCA since the publication of the 2013 merger guidelines, and (3) the feedback received from the European Competition Network, as well as relevant exchanges with the European Commission and other national competition authorities.
The guidelines have been amended and reorganised to include the main changes in the merger control practice of the FCA since 2013:
- the chapter devoted to procedural infringements (failure to notify, gun-jumping) has been completed to integrate recent precedents both at the FCA and court levels. The draft guidelines notably address the issue of gun-jumping, with particular reference to the fines imposed on Altice in 2016 (see decision 16-D-24). A next step could be to set out clearly the limits not to be crossed to avoid committing such an infringement;
- the chapter devoted to the analysis on the merits of concentrations has been recast and completed with a number of examples, to enable companies to better anticipate the elements that the FCA is likely to take into account when analysing the effects of a concentration;
- the FCA approach regarding behavioural and structural commitments has been clarified. While the 2013 guidelines presented behavioural commitments only as last-resort alternative measures, for instances when structural commitments were not possible, the draft guidelines create a dedicated section for behavioural commitments. Furthermore, they now provide for the possibility to offer initial behavioural commitments and to substitute them with alternative commitments in the course of their implementation, if need be;
- the specific grid applied by the FCA to analyse the effects of local concentrations in the retail sector has been further explained and updated with recent decision-making practice, regarding the delimitation of the local geographical market concerned, the identification of the competing players and the analysis of the competition in this area. The annexes to the guidelines have been enriched to set out the FCA’s analysis methodology for recurrent questions in the retail sector, for instance regarding the criteria to assess the competitive pressure exerted by online sales;
- the draft guidelines also include provisions regarding the implementation of the dematerialised notification procedure for certain kind of transactions (see below); and
- the FCA specifies its framework applicable to the procedure for reviewing commitments, in particular by recalling that the intervention of a specially appointed monitoring trustee can be needed to assess compliance with the commitments undertaken, and that the latter acts on behalf of the FCA. However, one could regret that the draft guidelines do not state clearly the criteria according to which the appointment of this trustee is mandatory.
Comments on the draft revised merger control guidelines could be submitted from 16 September until 16 November 2019. The new version of the guidelines was initially scheduled to be published by the end of 2019, but has not yet been released.
Third, the FCA launched an online platform on 18 October 2019 dedicated to transactions eligible to the existing simplified procedure, that is to say transactions that are not, at first glance, likely to raise competition concerns. Transactions falling under this category include those (1) in which the buyer does not operate on the same markets as the target, nor on any upstream, downstream or related markets (this notably includes a number of transactions carried out by investment funds), (2) in the food distribution sector that do not entail a change of brand of the retail store concerned, and (3) in the automobile distribution sector. These transactions, which account for approximately half of the transactions examined by the FCA each year, are now eligible for an entirely dematerialised procedure. The dematerialised forms for each type of transaction listed above can be completed directly online on the government website (demarches-simplifiees.fr).
Unexpectedly yet interestingly, this platform has proved particularly useful in the context of the covid-19 pandemic, which rendered the submission of hard copy files impossible. The FCA thus required that all companies, which could not postpone the notification of a transaction until the end of the confinement, file under the dematerialised procedure.
On 21 January 2019, the FCA cleared the acquisition of Alsa France by Dr Oetker, subject to a fix-it-first remedy. It is only the third time that the FCA has requested the notifying parties to offer such a solution to obtain clearance.
Both parties to the concentration were active in the manufacture and supply of ready-made desserts, and their combined market shares reached up to 70 to 80 per cent on some market segments. The FCA found that the parties were close competitors and that neither their retail clients nor their competitors would be able to discipline the merged entity, either through sufficient countervailing buying power or growing presence on the market.
To remedy the FCA’s competition concerns, Dr Oetker thus offered to grant an exclusive licence over one of Alsa’s trademarks to a competitor, for a period of five years, renewable once. The FCA agreed that this remedy would ensure the existence of a credible alternative to the merged entity for retailers and, ultimately, consumers, thus guaranteeing the maintenance of sufficient competition on the market.
The licence was offered as a fix-it-first remedy. The licensee was presented to the FCA and approved before the clearance decision was issued, and the approval of the deal by the FCA took into account not only the licensing but also the identity of the licensee.
Fix-it-first remedies had only been imposed by the FCA twice before, in 2009 (Decision No. 09-DCC-67, Arrivé/LDC Volailles) and 2015 (Decision No. 15-DCC-53, Totalgaz/UDI). It is likely to develop in the coming years, however, as fix-it-first enables the FCA to conduct a more in-depth analysis of the remedies’ corrective effects before authorising the transaction. Fix-it-first remedies also reduce uncertainty as to a potential breach of commitments, and allow the FCA to avoid the burdensome process of monitoring the commitments. As for the parties, although fix-it-first requirements may be challenging and generally have a negative effect on the timing of the transaction, it nevertheless allows the notifying parties to escape the constrained framework and calendar of the commitment procedure. As pointed out by the FCA in its 2013 merger control guidelines, typical divestiture commitments tend to encourage wait-and-see or opportunistic behaviour on the part of potential buyers, with a potential negative incidence for the notifying parties. Fix-it-first can help to limit this type of behaviour.
Inclusion of online sales in retail market definition
On 17 April 2019, the FCA unconditionally cleared the acquisition of joint control of Luderix by Jellej Jouets and Gifram. Luderix and Jellej Jouets are active in the toys sector, both in the upstream market for the manufacture and wholesale distribution of toys, and in the downstream market for retail distribution. The concentration did not raise any specific competition concern, and was authorised in Phase I without commitments.
It is nevertheless interesting, insofar as it shows the continuing modernisation of the FCA’s product market definitions in the retail sector, which started with the Fnac/Darty clearance in July 2016. In the present case (as in Fnac/Darty), the FCA defined a single market for both online and in-store sales in the market for the retail distribution of toys, de facto becoming the first European competition authority to include online and physical sales in a single relevant market in that sector.
From the supply point of view, the FCA considered that the parties and their competitors had adapted their internal pricing and commercial strategy to take into account online sales, to the point that they had switched from a multi-channel to an omni-channel strategy. The FCA observed a standardisation of prices and alignment of commercial conditions for both online and brick-and-mortar sales (eg, fast delivery mechanisms, which allowed consumers to receive products almost as fast as if they were purchased in-store). From the demand point of view, the FCA noted that online shopping has been significantly integrated into consumers’ purchasing behaviour, both with regard to the comparison of offers and the act of purchase itself. The penetration rate of online sales was indeed estimated at around 30 per cent. The FCA thus concluded that the substitutability of online and offline distribution channels in the toy sector appeared sufficient to consider that online sales exerted significant competitive pressure on in-store sales, so that these two channels should be considered part of the same product market.
The FCA confirmed this evolution in a decision of 16 July 2019, in which it unconditionally cleared the acquisition of Nature & Découvertes by Fnac Darty. In this case, the FCA considered that online and physical sales of books formed part of a single product market. This differs from previous decisions of the FCA, in which it found that the online sale of books was likely to constitute a separate market, despite the evolution of the European Commission’s precedents (see, for example, Decision No. 17-DCC-186 of 10 November 2017, Gibert Joseph/Gibert Jeune).
This multiplication of decisions concluding to the substitutability of online and in-stores sales shows that the FCA is adapting to the growth of online sales and the development of ‘pure players’ in the retail sector. On the contrary, this evolution seems to exclude for now the food retail sector, which the FCA still segments between physical sales in various types of stores and online sales.
Derogation to the standstill obligation
On 17 May 2019, the FCA unconditionally approved the acquisition of the French steel mill Ascoval by the British Steel group. The transaction did not give rise to any specific horizontal or vertical competition concern, given the very limited overlap between the activities of the parties. The decision is of procedural interest, however, insofar as the clearance was issued after the completion of the transaction, as an exception to the standstill principle.
Although a reportable transaction can theoretically not be implemented before its clearance by the FCA, article L.430-4, 2° of the French Commercial Code provides that the standstill obligation may be waived by the FCA upon reasoned request of the parties, in situations of ‘special need’. These derogations usually cover instances in which there is a threat to the continuation of the target’s business (eg, risk of liquidation, dissolution or opening of insolvency proceedings).
In the present case, Ascoval had been going through an insolvency procedure since January 2018, and was initially to be acquired by a French-Belgian steel company. This initial plan was approved by the court of first instance in Strasbourg in December 2018, but ultimately could not be implemented. British Steel then expressed its interest in the takeover of Ascoval in the context of the insolvency proceedings, and formally notified its acquisition plan to the FCA on 16 April 2019. This led the FCA to grant a waiver decision on 19 April 2019, allowing the effective completion of the transaction and thus enabling British Steel to file a firm and valid takeover offer before the court. This offer was accepted on 2 May 2019.
After an expedited examination of the transaction, the FCA issued a clearance decision on 17 May 2019, considering that the concentration was not likely to produce any horizontal or vertical effect on competition, owing to the limited overlaps in activity between Ascoval and British Steel. The FCA indeed noted that British Steel’s activity was only marginal in the markets for the production and supply of semi-finished steel products, in which Ascoval was present, and that the combined market share of the parties remained below the 25 per cent threshold defined by the 2013 guidelines. As for the downstream markets for the production and manufacture of finished products in steel, the FCA noted that the parties’ combined market share remained under the 30 per cent threshold, below which the foreclosing of a downstream market is considered unlikely.
Article L.430-4, 2° of the French Commercial Code could prove to be particularly useful in the aftermath of the covid-19 crisis, given the many difficulties that may arise from the slowdown in economic activity. It should be remembered, however, that the issuance of a derogation to the standstill obligation does not prejudge the outcome of the FCA’s analysis on the merits. In particular, the FCA may still impose commitments on the parties, or even prohibit a transaction if it were to harm competition. In a context where competition authorities are still reluctant to accept the failing firm defence unless very strict conditions are met, buyers therefore need to remain careful.
Creation of a joint venture in the audiovisual sector
On 12 August 2019, after a thorough eight-week Phase I examination supplemented by an opinion of the French audiovisual council, the FCA authorised, subject to commitments, the creation of a full-function joint venture by France Télévisions, TF1 and M6. This platform, called Salto, is intended to compete with international streaming services such as Netflix by distributing television and media services, and producing a subscription video-on-demand offer. Salto’s services will be streamed directly on the internet (over the top), and thus be directly accessible to consumers.
This transaction raised several competition concerns in various markets, which led the notifying parties to undertake the following commitments.
First, the FCA noted that Salto and its parent companies would simultaneously be active in the markets for the acquisition of broadcasting rights for audiovisual contents. Taking into account the recent evolution of this market, notably driven by the development of platforms similar to Salto, the FCA chose for the first time to consider that linear and non-linear broadcasting rights formed part of a single product market. In this market, the FCA identified a risk that Salto’s companies may implement a strategy of coupling their purchases of linear and non-linear broadcasting rights for French-language programmes, which could be harmful both to Salto’s competitors and to copyright holders. The FCA also found that the contracts for the purchase of linear broadcasting rights concluded by France Télévisions, TF1 and M6 included contractual clauses likely to make the purchase of non-linear broadcasting rights by Salto’s competitors more complex (eg, priority or pre-emption rights).
To address these concerns, France Télévisions, TF1 and M6 undertook to limit their joint purchase of linear and non-linear rights each time these rights are to be resold to Salto. They also agreed to regulate the conditions under which Salto will be able to buy exclusive content that they produced, notably by imposing that no more of 40 per cent of Salto’s programming is bought from its parent companies.
Second, the FCA observed that Salto would be active in the markets for editing and marketing television channels, as part of its distribution activity. It ruled out any competition concerns regarding pay television channels, given the low market shares of Salto’s parent companies in this segment, but found that France Télévisions, TF1 and M6 could have the ability to prevent other distributors from accessing their free-to-air channels. France Télévisions, TF1 and M6 thus committed to offer their free-to-air channels and associated services and features directly to third-party distributors, without the intermediary of Salto, based on objective and non-discriminatory conditions. They also undertook that Salto would not be able to enter exclusive distribution agreements for free-to-air channels with any of them.
Finally, the commitments provide for a mechanism for the determination of the price to be paid by Salto to its parent companies by independent experts, to prevent any price discrimination.
Third, in the markets for the distribution of pay television services, the FCA considered that Salto would be a new actor facing significant competition. The only competition concern identified by the FCA was thus the risk of cross-promotion between Salto and its parent companies’ free-to-air channel, which the latter undertook to prevent.
Fourth, the FCA noted that Salto would be active as a buyer in the television advertising markets, including from its parent companies. France Télévisions, TF1 and M6 therefore undertook to sell advertising space to Salto on objective and non-discriminatory conditions.
Last, the FCA analysed the risks of coordination and exchange of information between Salto and its parent companies, which it deemed plausible and likely to raise competition concerns. To address this issue, the notifying parties agreed to put in place a set of measures intended to limit the exchange of information between them and between Salto and them, such as incompatibilities of functions exercised within Salto and within one of its parent companies, or the creation of independent information technology and support services structures for Salto.
1 See http://www.autoritedelaconcurrence.fr/doc/ld_concentrations_juill13.pdf. These guidelines refer to Council Regulation (EC) No. 139/2004 on the control of concentrations between undertakings (EU Merger Regulation).
2 Similar provisions exist in other member states, eg, in Germany, where the Federal Minister for Economic Affairs and Energy used the equivalent regulation available under German law to overrule the Federal Cartel Office’s prohibition of the merger between EDEKA and Kaiser’s Tengelmann in the retail sector in March 2016.