France: Changes and Firsts for the FCA
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This article summarises the rules and procedure on merger control in France and provides an overview of recent developments and decisions, including: the release of new merger control guidelines by the French Competition Authority (FCA); the first FCA decision prohibiting a merger; the first referral request by the FCA under article 22 of the European Merger Regulation; the recognition by the Supreme Administrative Court that employee representative committees have standing to act against the FCA’s clearance decisions; precision on the notion of concentration; and new criteria for assessing the market shares of agricultural cooperatives.
- New merger control guidelines by the FCA
- Merger prohibition
- Merger referral pursuant to article 22 of the European Merger Regulation
- Standing of employee representative committees to act against FCA clearance decisions
- Assessment of market shares of agricultural cooperatives
- Shop-in-shop model and the notion of concentration
Referenced in this article
- Articles L430-1 et seq of the Commercial Code
- French Competition Authority
- FCA merger control guidelines of 23 July 2020
- FCA Decision No. 20-DCC-82 of 30 June 2020
- FCA press release of 1 July 2020 on Fnac Darty and Carrefour’s shop-in-shop project
- FCA Decision No. 20-DCC-116 of 28 August 2020,
- Council of State, Ruling No. 433214 of 9 March 2021
- Council of State, Ruling No. 450878 of 1 April 2021
The French merger control regime is governed by the provisions of Book IV of the Commercial Code (FCC), namely articles L430-1 to L430-10 and R430-2 to R 430-10, as last amended by Statute No. 2015-990 (the Macron Act). Since 2008, the French merger control process has been entrusted to the French Competition Authority (FCA), whose guidelines on merger control were updated in 2020.
Presentation of the French Competition Authority
The FCA is an independent administrative authority. It comprises Investigative Services under the leadership of the Head of Investigative Services and a Board in charge of making the final decisions on the cases investigated by the Investigative Services.
Since 2008, the FCA has been in charge of the enforcement of both French and European antitrust provisions (articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) and articles L420-1 and L420-2 of the FCC) and the implementation of the French merger control regime under article L430-1 et seq of the FCC. 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 Investigative Services under the authority of a Deputy Head of Investigative Services. The FCA also includes an economics 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
Scope of the merger control
Merger control is within the exclusive competence of the FCA; however, pursuant to article L430- 7-1 of the FCC, the Minister of 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, outweigh the competition concerns raised by the concentration.
This provision has been very rarely used, the Minister of 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 its June 2018 level for two years).
Pursuant to article L430-1 of the FCC, 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 (the Commission).
Pursuant to article L430-2 of the FCC, concentrations within the meaning of article L430-1 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.
Following the issuance of the Commission’s Guidance on the application of the referral mechanism set out in article 22 of the European Merger Regulation (EUMR) to certain categories of cases, dated 26 March 2021, concentrations that do not meet the above-mentioned criteria but nevertheless threaten to significantly affect competition within the French territory can be referred by the FCA to the Commission for review.
This new interpretation of article 22 of the EUMR aims at capturing potential ‘killer acquisitions’, namely acquisition of a start-up, particularly an innovative target, or one holding competitively sensitive assets, such as data, IP rights, raw materials or infrastructure, by incumbents to kill or delay innovation, especially in the digital and pharmaceutical sectors. The FCA has consistently indicated its willingness to use this new tool and has already referred its first case to the Commission (see the Illumina/Grail case discussed below).
Merger notification procedure
Notification is mandatory for all concentrations that meet the thresholds. For concentrations that do not meet the thresholds but could be subject to a referral under article 22 of the EUMR, the merging parties may voluntarily come forward with information about their intended transaction to get guidance from the FCA or the Commission regarding the likelihood of a referral.
For reportable mergers, the notification file, which is the responsibility of the acquiring party, must include descriptions of the concentration and the undertakings concerned, a definition of the relevant product and geographic markets and the market shares of the parties and their main competitors.
The notification file was streamlined by a decree dated 18 April 2019, notably in respect of the financial data to be provided to the FCA. Whereas companies previously had to submit complete information on their accounts, balance sheet and investments, they are now only required to provide their French, European and worldwide turnovers for the past three last years.
The notification process has a suspensive effect on the transaction, which cannot be closed prior to receiving the FCA’s authorisation. However, article L430-4 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.
The exemption to the suspensive effect of the notification of the concentration is void if, within three months of closing, the FCA has not received the complete notification. For mergers that are not reportable to the FCA but may be referred to the Commission pursuant to article 22 of the EUMR, the suspension obligation applies to the extent the concentration has not been implemented on the date on which the Commission informs the undertakings concerned that a referral request has been made.
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.
Review of transactions by the FCA
If the operation does not raise any particular competition concerns, article L430-5 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 together 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 a suspension of the procedure for 15 days in other cases of necessity.
The Macron Act grants the FCA the possibility of stopping the clock at any time during the Phase I review period, if the parties have failed to inform the FCA of a relevant new fact or have failed 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 aimed at speeding up the review of concentrations that are unlikely to raise competition concerns (such as operations in which the buyer and the target do not operate on the same or on linked markets, or certain operations in which at least two of the parties operate retail stores). In that procedure, the Phase I period can be reduced to 15 business days.
Since October 2019, simplified transactions, which account for approximately half of the transactions examined by the FCA each year, have been eligible to an entirely dematerialised notification procedure (see below).
In the event 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 L430-7 of the FCC, Phase II must be completed within 65 business days, unless 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 reception 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, in theory, 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 it or impose conditions to ensure that the contribution of the merger to economic progress outweighs its anticompetitive effects.
Pursuant to article L430-8 of the FCC, if the FCA considers that the parties are failing to comply with their commitments or the injunctions imposed by it, it can:
- withdraw the authorisation decision and, therefore, require a new notification and review of the merger;
- order the undertaking to comply with the commitments; or
- since 2015, substitute or add new injunctions to the initial commitments with which the parties failed to comply.
Notable developments and decisions from 2020 to 2021
Notable developments and cases from 2020 to 2021 include:
- the adoption of new merger guidelines by the FCA;
- the first decision of the FCA prohibiting a merger, following the notification of a proposed acquisition of joint control of a local hypermarket;
- the first article 22 of the EUMR referral request made by the FCA following the Commission’s change of perspective on the use of the article;
- recognition by the Council of State that employee representative committees have standing to lodge an appeal against an FCA clearance decision;
- the FCA’s decision concluding that the shop-in-shop model does not qualify as a concentration; and
- the evolution of the criteria for assessing the market shares of agricultural cooperatives.
New merger control guidelines
On 23 July 2020, after a series of public consultations, the FCA issued new merger guidelines, replacing the previous version that dates back to 2013.
The new guidelines take into account the most recent case law of the FCA and the Supreme Administrative Court (Council of State) since 2013, in particular with regard to gun jumping, as well as the monitoring and revision of commitments. They also introduce changes both in terms of procedure and competitive analysis.
With regard to procedural aspects, the new guidelines notably provide for:
- the extension of the eligibility to the simplified procedure to all transactions that meet one of the following criteria:
- in the case of horizontal overlaps:
- the combined market share of the parties remains below 25 per cent; or
- the combined market share of the companies remains below 50 per cent, and the increment is less than two points;
- in the case of vertically linked or related markets, the combined market share of the parties on these markets remains below 30 per cent;
- in the case of exclusive control acquisition, the acquirer exercised joint control of the target prior to the transaction;
- in the case of the creation of a full-function joint venture that will exclusively be active outside of the French territory; and
- if the transaction concerns the joint acquisition of real estate property in an as yet incomplete state;
- in the case of horizontal overlaps:
- the possibility to have a case handler appointed within five working days to start pre-notification discussions;
- the FCA’s commitment to provide the notifying parties with better visibility on the timeline of the notification, although the timelines proposed are not binding for it, notably by:
- confirming ‘generally’ within 10 working days of the notification whether the notification file is complete and the transaction is eligible for the simplified procedure; and
- communicating an indicative provisional timetable if the transaction requires a Phase II examination, outlining the main stages of the procedure (eg, additional questionnaires, state-of-play meetings, provisional due date for the report and hearing date); and
- the implementation of an online dematerialised notification procedure, which is available for:
- transactions that do not entail any overlap between the parties’ activities (ie, where they are not simultaneously active in the same markets or in horizontally or vertically related markets (such as most transactions conducted by investment funds); and
- transactions carried out by the network heads of large retail groups that remain below specific thresholds set out by article L430-2 of the FCC and do not result in a change of brand name of retail stores (such as certain transactions in the food distribution or automobile dealership sectors).
With regard to substantive analysis, the new guidelines include:
- a new structure for the section on competitive analysis, providing further guidance on the assessment of:
- the relevant product and geographical markets; and
- the market power of the new entity and the effects of a transaction, including:
- the parties’ market shares and the degree of market concentration;
- the characteristics of the undertakings concerned (eg, size, scope of their activities in the relevant and related markets, structure of cost, margin levels, production capacities, expansion capacities and risk of decline);
- the characteristics of the products or services concerned (eg, position in the production chain, potential trade restricting nature and degree of differentiation);
- the characteristics of the clients and suppliers of the parties (eg, degree of concentration, ability to discipline the new entity and price sensitivity),
- the characteristics of the relevant market (eg, stability, degree of transparency and current or past coordination); and
- the sources of potential competition (eg, barriers to entry owing to regulation or access to data, network effects and long-term supply or distribution agreements);
- clarification of the assessment criteria and fines applicable to procedural infringements (eg, failure to notify and gun jumping), including lessons learned from recent precedents at both the FCA and the courts’ levels; in particular, assessment by the FCA on whether the buyer’s behaviour has led to decisive influence on the target in any way prior to the clearance and the provision of examples of behaviour that may be regarded as gun jumping, such as:
- any commercial agreements adopted between the parties in the pre-merger period that deviate from normal market practice; and
- protocols governing the relationship between the acquirer and the target between the signing and the closing that go beyond the protection of the legitimate financial interests of the acquirer; and
- details on the main structural or behavioural remedies available in the context of merger control, as well as the framework applicable to the procedure for monitoring and reviewing commitments, including the FCA’s decisional practice with regard to, for example, the intervention of a monitoring trustee and the penalties for non-compliance.
Finally, updated appendices provide:
- guidance on the assessment of the effects of a concentration at the local level in the retail trade sector (including pressure exerted by online sales);
- a template for structural commitments;
- a template for trustee agreements; and
- a detailed list of the internal documents that may be requested by the FCA during its assessment (eg, internal and external presentations, working documents, spreadsheets, studies carried out internally or by a third party and emails).
The new version of the merger control guidelines came into force upon publication on 23 July 2020.
First prohibition decision issued by the FCA
On 28 August 2020, the FCA adopted its first ever prohibition decision with regard to the acquisition of joint control by Soditroy and the Association des Centres Distributeurs E Leclerc (Leclerc) over a hypermarket previously operated by Géant Casino in the city of Troyes.
Despite the limited scope of the deal, after a formal nine-month Phase II review – including several stop-the-clock periods – the FCA eventually found that the competitive issues raised by the proposed transaction could not be assuaged by either structural or behavioural remedies.
In Phase II, the FCA is not limited to the commitments offered by the parties but may, pursuant to article L 430-7 of the FCC, impose any measure that it considers fit to counterbalance the competitive problems identified. Until this decision, the agency had always managed to clear notified transactions; however, in this case, it found there to be no solution available to appropriately restore competition.
The FCA limited the relevant markets to hypermarkets only (ie, shops with a sales area of 2,500 square metres or more) on the grounds that other stores could not be considered substitutable in terms of size and depth of range, thereby dismissing the objections of the notifying parties in respect of the competitive pressure exerted by specialised superstores, supermarkets and discounters.
The FCA found that there were only four competing hypermarkets within the relevant catchment area, including the target, one Leclerc hypermarket and two Carrefour hypermarkets, meaning that the combined market shares of the parties would reach 40 to 50 per cent in terms of sales and 50 to 60 per cent in terms of surface area.
Creation of a duopoly
In addition to those relatively high market shares, the FCA found that the concentration would have led to the creation of a duopoly between Leclerc and Carrefour in the Troyes area, which would have led to a reduction in the diversity of the offer for consumers.
The FCA also noted the existence of high barriers to entry into the market because of the strict administrative limitations imposed on the expansion and creation of new commercial spaces in the area, thus reinforcing the position of the new entity by preventing the entry of potential competitors.
Anticompetitive effects of the proposed transaction
Following reasoning that was widely criticised by commentators, the FCA considered that the transaction was likely to lead to both unilateral and coordinated adverse effects on competition.
The FCA analysed the unilateral effects of the proposed transaction in light of a counterfactual scenario based on the assumption that since the pricing policy of the target, which charged high prices compared to competing supermarkets, was not sustainable, those prices would necessarily have dropped in the absence of the notified transaction. It then considered that the proposed acquisition of the target by Soditroy and Leclerc could, on the contrary, lead to an increase in prices or at least to a smaller price decrease compared to the counterfactual scenario.
Following somewhat questionable reasoning, the FCA then added that the proposed transaction entailed a risk of price increase in the existing Leclerc hypermarket. According to the decision, upon completion of the proposed transaction, the change of brand of the target to Leclerc would likely make it more attractive to consumers currently shopping at the existing Leclerc hypermarket, who already like this brand. Customers living closer to the new Leclerc hypermarket would, therefore, have a strong incentive to switch from the existing Leclerc store to the new one. This would, according to the FCA, allow the existing Leclerc hypermarket to raise its prices without fear of losing customers, since dissatisfied consumers would be redirected to the newly acquired store.
In terms of coordinated effects, the FCA found that the transaction would make tacit coordination between Leclerc and Carrefour easier, given the transparency of the market and the balance between the two groups, which would have enabled each of them to retaliate in case of deviation from a common course of action.
Commitments offered by the parties
The FCA rejected the commitments proposed by the parties, which included reducing the sales area of the new entity by approximately 25 per cent. The FCA considered that the reduction could only further strengthen the equilibrium between Leclerc and Carrefour, making them even more likely to coordinate. Ironically, the FCA noted that the only conceivable structural remedy (ie, the sale of the target) would not be appropriate as it would deprive the transaction of all financial interest.
First article 22 EUMR referral by the FCA
On 9 March 2021, the FCA issued its first decision to refer to the Commission for review of a transaction that does not meet either the EU or French merger control thresholds, after the Commission announced in 2020 that it would start again to accept such referrals based on article 22 of the EUMR.
The referral targeted the proposed acquisition of Grail, a start-up developing innovative early cancer detection tests, by listed biotech giant Illumina. The deal, which was announced in September 2020, drew significant interest in the United States, where it was investigated and ultimately challenged by the Federal Trade Commission in March 2021.
In that context, the Commission decided to call the deal to the attention of all 27 national competition authorities (NCAs) in early 2021, for a potential referral. The referral request from the FCA, which was backed by the Belgian, Greek and Dutch NCAs, as well as by those of Norway and Iceland, occurred more than five months after the deal announcement. The decision was apparently made based on the sole information provided by the Commission. It was adopted by the president of the FCA, without consulting the Board, in application of article L461-3 of the FCC, which gives the president and the vice presidents of the FCA the power to adopt merger control decisions alone.
Both parties to the transaction challenged the referral before the Council of State, requesting it to suspend the FCA decision based on a manifest violation of their fundamental rights. The parties argued that since the transaction had been announced in September 2020 and the FCA decision was based exclusively on information made public at that time, the 15-working-day deadline to refer the deal to the Commission had expired. The parties also challenged the fact that the decision was made by the president alone, without giving the parties a chance to be heard, in breach of their rights of defence. Finally, both Illumina and Grail claimed that the FCA had erred in law in finding that the transaction would create a competitive risk, considering, in particular, that referrals under article 22 of the EUMR should be reserved for cases where there is an obvious and particularly egregious risk of impediment to competition.
However, the Council of State did not rule on any of those points. It rejected the application on the grounds that the FCA’s decision should be analysed as a preparatory measure, challengeable only before the General Court of the European Union (the General Court), along with the final decision issued by the Commission at the end of its review process. This solution means that several of the procedural points raised by the appellants will not be subject to judicial review, as the General Court will have jurisdiction to review the decision of the Commission accepting the referral, but not the national decision-making process that led to the referral.
In particular, the ruling of the Council of State deprives practitioners from any indication on the possibility for the FCA to refer to the Commission deals that have been made public several months – or years – ago, nor does it confirm whether the president of the FCA can make that type of decision without holding a meeting of the Board and hearing the parties to the transaction. Those circumstances may be considered to raise serious issues in terms of legal certainty and protection of the parties’ legitimate expectations.
In addition, the fact that the referral may only be challenged with the final decision of the Commission, which announced on 20 April 2021 that it would review the referred deal, implies that the parties will have to suspend the implementation of their transaction for several months (potentially more in case of a Phase II review), with no effective legal recourse during that time.
Until the FCA clarifies its position on how it intends to use article 22, companies will need to be particularly careful when acquiring innovative targets and take the possibility of a referral into consideration in their contractual documentation.
Standing of employee representative committees to lodge an appeal against an FCA clearance decision
On 24 July 2019, the FCA cleared the acquisition of exclusive control over Mondadori France by Reworld Media, both of which are active in the sectors of magazine publishing, website operation and sale of advertising space, subject to structural remedies.
The social and economic committee (CES) representing Mondadori’s employees lodged an appeal against the decision before the Council of State on the grounds that the FCA (1) disregarded the principle of the rights of defence by not granting competitors of Mondadori and Reworld Media the opportunity to comment on the merger; and (2) erred in law in authorising the merger without checking that Mondadori had complied with its obligation to inform and consult the CES. In response, the FCA argued that the CES had no standing to challenge the clearance decision as it was not a competitor, a customer or a supplier of the parties to the transaction.
On 9 March 2021, the Council of State ruled that having regard, on the one hand, to the missions entrusted to the CES by the provisions of the Labour Code (FLC) – which include ensuring that the interests of employees are appropriately taken into account when making decisions on the management and economic and financial development of the company – and, on the other hand, to the effects of the FCA’s decision authorising the acquisition, the CES did have standing to request the annulment of the decision.
Nonetheless, on the merits, it dismissed the appeal lodged by the CES, on the basis that (1) the competitors of the parties were actually given the opportunity to comment on the merger so that their rights of defence were not breached; and (2) no provision of either the FLC or the FCC required the FCA, prior to issuing its decision, to ensure compliance by the target of its obligations with regard to the CES (such obligation resting on Mondadori only).
The president of the FCA welcomed the ruling, considering that it avoids complicating the notification process by adding requirements related to the target's compliance with its own obligations under labour law. It also prevents the risk of subsequent litigation that would escape the control of the acquiring party, as the obligations at stake rely on the target only.
Non-controllability of a shop-in-shop project.
On 1 July 2020, the FCA concluded that the partnership considered by Fnac Darty and Carrefour, which involved the deployment of Fnac Darty’s selling spaces operated under its own brand within 30 of Carrefour’s hypermarkets, did not constitute a merger as defined by article L430-1 of the FCC.
The decision is a welcome reminder of the scope of the notion of concentration, which only covers transactions leading to a lasting change in the control of the undertakings concerned and, thus, in the structure of the market. In cases where none of the undertakings involved undergoes a change in respect of their identity or the persons controlling the undertakings or the quality of that control (sole or joint control), as was the case here, the transaction is not subject to any notification obligation under French law. This is, however, without prejudice to the application of article 101 of the TFEU (and the corresponding French provision, article L420-1 of the FCC) to those types of agreements.
New criteria for assessing the market shares of agricultural cooperatives
On 30 June 2020, the FCA cleared the merger between agricultural cooperatives Coopérative Dauphinoise and Terre d’Alliances, subject, notably, to structural remedies aimed at addressing competition concerns identified in the markets for cereal, protein and oilseed crop collection.
Although the decision concerns an operation of limited scope, it is of particular interest in that it allowed the FCA to refine its method of analysis for assessing the market shares of agricultural cooperatives.
In previous decisional practice, the FCA carried out its analysis first at the departmental level and then within each department in local areas of 45 kilometres around the cereal collection sites. In the absence of precise data on the actual volumes collected by the cooperatives in the catchment areas, the FCA assessed their market share on the basis of their respective number of collection infrastructures (platforms and silos).
In this case, however, the parties provided much more comprehensive information during the investigation, which enabled the FCA to determine their market shares combining three criteria: the actual volumes of cereals collected; the collection capacity in each local area concerned by the transaction; and the number of collection sites.
This allowed the FCA to weigh the position of the cooperative with its actual current position, its possibilities for future growth and the density of its territorial network upon completion of the transaction. The FCA was, thus, better able to assess the concerns raised by the merger in each local area and the divestments proposed by the parties as remedies. It may be expected that the FCA will now request more precise data from all agricultural cooperatives to assess future deals.
 Merger Control Guidelines of the French Competition Authority (FCA) 2020. The Guidelines refer to Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings.
 Similar provisions exist in other EU member states, such as Germany, where mergers prohibited by the Federal Cartel Office may exceptionally be approved by the Federal Minister for Economic Affairs and Energy if public interests outweigh the adverse effects on competition.
 This was the case, for example, in 2019 regarding the takeover of Ascoval by British Steel in the context of insolvency proceedings before the Court of First Instance of Strasbourg. The FCA granted British Steel a derogation from the standstill obligation in April 2019, allowing it to file a firm and valid offer before the court before it cleared the transaction in May 2019.