France: Merger Control
The French merger control regime is governed by the provisions of Book IV of the French Commercial Code (articles L.430-1 et seq), 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), which published in 2013 revised guidelines on merger control. 1
Presentation of the French Competition Authority
The FCA is an independent administrative authority. It is composed of Investigative Services, under the leadership of the head of Investigative Services, and the 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 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 a wide range of investigative powers for the enforcement of both French and European competition rules.
The FCA also plays an advisory role by 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 FCA’s Investigative Services, under the authority of a deputy head of Investigative Services. The FCA also includes an economic team, led by the chief economist, in charge of, inter alia, conducting economic analyses to assess the impact 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 industrial development and employment in France, should outweigh the competition concerns raised by the concentration. This provision was used for the first time in 2018, when the Minister for the Economy ultimately decided to authorise the acquisition by Cofigéo of Agripole’s assets in the agrifood business (William Saurin, Panzani, Garbit) without any of the divestitures previously required by the FCA and subject only to a commitment to maintain jobs at their June 2018 level for two years – see below (similar provisions exist in other member states; ie, 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).
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 worldwide 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 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 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. If the operation does not raise any particular competition concerns, article L.430-5 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 in order 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 to inform the FCA of a relevant new or 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).
In 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 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 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 in order to ensure that the contribution of the merger to economic progress outweighs its anticompetitive effects.
Pursuant to article L.430-8 of the French 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:
- withdraw the authorisation decision, and therefore require a new notification and a new review of the merger;
- order the undertaking to comply with the commitments; or
- since 2015, substitute or add new injunctions to the initial remedies with which the parties failed to comply.
Notable decisions from 2018–2019
In 2018–2019, notable cases and developments included:
- the first use by the Minister for the Economy of his power to overrule a decision of the FCA on public interest grounds;
- confirmation by the French Constitutional Court and the French Administrative Supreme Court of the wider powers granted to the president of the FCA Board by the Macron Act in terms of merger control commitments;
- the €20 million sanction imposed on Fnac Darty for failure to comply with the commitments taken during the merger control review in 2016; and
- the ongoing reform of the French merger control procedure, including the development of the simplified procedure and possible modification of the merger control thresholds submitted by the FCA to the government.
First use of article L.430-7-1 of the French Commercial Code
On 21 June 2018, the Minister for the Economy made use for the first time, in the Cofigéo/Agripole case, of its power to reexamine a merger control decision issued by the FCA under article L.430-7-1 of the French Commercial Code.
The transaction had been notified to the FCA on 12 June 2017, following the opening of an insolvency procedure against Agripole, and consisted in the acquisition by Cofigéo of the ready-made meals business of Agripole, including the following brands: William Saurin (French meals), Panzani (Italian meals) and Garbit (North African meals). Cofigéo itself was already active in the sector for Italian and ‘exotic’ ready-made meals (including North African food) through its Zapetti and Raynal & Roquelaure brands. As a result, the FCA found that post-transaction, the new entity would hold more than 80 per cent of the market for Italian ready-made food, above 70 per cent of the exotic ready-made food segment, and would retain all significant brands in those two markets, without sufficient countervailing buyer power from retailers. On 14 June 2018, following a Phase II investigation, the FCA therefore authorised the transaction subject to an order to divest Cofigéo’s Zapetti brand and the corresponding production facilities.
On 21 June 2018, the Minister for the Economy decided to reexamine the case pursuant to Article L.430-7-1 of the French Commercial Code, which provides that
within 25 business days of the FCA decision . . . the Minister in charge of the Economy can decide to reexamine the case and issue a decision on the transaction based on public interest grounds other than the preservation of competition, which can, as the case may be, compensate for a competitive restraint.
Public interest grounds that may be taken into account by the government include industrial policy considerations, the preservation of the parties’ international competitiveness and employment protection.
Although article L.430-7-1 does not allow the government to reassess the competitive impact of the transaction, which remains the exclusive prerogative of the FCA, the decision of 21 June 2018 opening the reexamination process explicitly referred to paragraph 464 of the FCA decision, entitled ‘Summary of the competitive restraints that have been identified’, implying that the Ministry disagreed with the FCA’s assessment. The final decision issued on 19 June 2018 indeed expresses subdued disagreement with the analysis conducted by the FCA, noting in particular that although the new entity would have high market shares, demand for Italian and exotic ready-made meals has strongly decreased in recent years, leading to low prices.
But the Ministry’s decision mainly focuses on the fact that the financial difficulties of Agripole’s parent company – following egregious fraud – have put one of the main market player at risk, with a potential negative impact on the whole French agri-food sector. In that context, Cofigéo’s strategy would, according to the decision, allow to free up resources (thanks to synergies) to invest and innovate. On the other hand, the divestitures ordered by the FCA would jeopardise this strategy by degrading the profitability of the Cofigéo group, which in the long term could have a negative impact on the financial situation of the group, including its relationships with financial partners, and may result in a significant detrimental impact on employment within the company. The decision even considers that all 1,500 employees within Cofigéo could eventually be affected.
In order to secure the governmental approval, Cofigéo:
- confirmed the commitment made before the commercial court during the insolvency procedure to invest to invest €32 million by 2021; and
- undertook to keep the minimum number of jobs within the group at the level of 30 June 2018 during two years.
On this basis, the Cofigéo/Agripole transaction was approved by the Ministry for the Economy on 19 July 2018 without any divestiture.
The government has since confirmed that the use of article L.430-7-1 of the French Commercial Code should remain exceptional and that this first decision should not be taken as a sign that the Ministry for the Economy intends to increasingly intervene in the FCA’s decisional process. Nevertheless, for companies active in politically sensitive industries, the decision acts as a friendly reminder that the 25-business day delay before closing provided by article L.430-7-1 should not be entirely disregarded – and that the possibility of ‘appeal’ to the political level may not always be ignored.
Powers of the FCA president with regards to commitments imposed in merger control cases
In the context of the Fnac/Darty merger, authorised by the FCA on 27 July 2016 (Decision 16-DCC-111), Fnac had undertaken to divest five Darty stores located in the Paris area to suitable purchasers, active in the distribution of ‘brown’ and ‘grey’ electronic products, before 31 July 2017. Fnac requested that the FCA approved Groupe Dray as a suitable purchaser for two of the stores. This request was denied on 28 July 2017, three days before the expiration of the deadline for the implementation of the commitments, by order of the president of the FCA Board, as was Fnac’s request to have the deadline extended.
Following the appeal filed by Fnac and Groupe Dray, the French Administrative Supreme Court referred to the French Constitutional Court the legal provision that allows, since 2015, the president of the FCA Board to alone approve or reject a potential buyer for assets to be divested. In 2013, the French Administrative Supreme Court had found that the French Commercial Code required that FCA decisions be taken collegially, including those approving (or not) a suitable buyer following merger control commitments. The law was therefore modified in 2015 to allow these specific decisions to be made by the president alone.
In a decision dated 20 April 2018, the Constitutional Court confirmed that such modification does not breach either the freedom to undertake nor the principle of equality before the law (in that latter case, the claimants challenged the possibility for the president to either make the decision or refer the case to the whole Board, therefore leading to a differentiated treatment of cases). In reply to both arguments, the court found that the necessity for the FCA to ensure the swift and efficient implementation of its own decisions was a compelling enough reason to legitimate a limited restriction to the two principles put forward by the claimants.
Based on this confirmation, the Administrative Supreme then rejected the claims on the merits by decisions dated 26 July 2018. The court found that the president of the FCA Board was at liberty to issue a decision rejecting Groupe Dray as a suitable purchaser and refusing to extend the divestiture time frame at any point in time before the 31 July 2017 deadline. The court also confirmed that the parties to the concentration did not have a right to submit observations before the FCA made its decision.
As regards the reasons why Groupe Dray should not be considered a suitable purchaser for the two stores, the Administrative Supreme found that the FCA erred in law when it used a different method to calculate the impact on competition of the divestiture to Groupe Dray than the one used in the merger control decision itself. However, the court considered that the decision not to approve Groupe Dray still retained a sufficient legal basis, as the potential purchaser was not active in the distribution of brown and grey electronic products but specialised in the retail of ‘white’ product, in contradiction with the commitments accepted by Fnac in 2016. The decision of the president of the FCA Board to reject Group Dray as a suitable purchaser was therefore upheld, showing the importance of wording choices in commitments submitted to the FCA in merger control cases.
As regards the extension of the divestiture deadline, the Administrative Supreme Court noted that the claimants did not demonstrate why an extension was necessary. The judgment finds in particular that the litigation targeting the Beaugrenelle store had started in early 2017, so that the extension may have been required earlier, and that the FCA’s merger unit itself had encouraged the merged entity, as early as December 2016, to propose the divestiture of other stores in case the litigation did not allow for the implementation of the commitments. In this case, the FCA was legitimate to reject the extension request.
This decision had a significant impact, as it allowed the FCA to heavily fine Fnac Darty for failing to comply with their commitments in due time (see below). While the commitments themselves were limited in the Fnac/Darty case, as noted by commenters at the time, it shows that a more lenient approach taken by the FCA at the time of the merger control procedure may lead to a stricter enforcement at the time of the implementation of the commitments.
Fines for failure to comply with merger control commitments
On 27 July 2018 – the day following the judgment of the Administrative Supreme Court (see above) – the FCA issued a decision fining Fnac Darty €20 million for failure to comply with their divestiture commitments within the agreed time frame. The FCA found that Fnac Darty had failed to divest three of the six stores located in the Paris area: the two stores for which Groupe Dray was not approved as a suitable purchaser, and another one for which Fnac Darty was not able to find a purchaser due to an ongoing litigation.
It should be emphasised that the failure of Fnac Darty to comply with its commitments is partly due to the FCA’s own decision to reject Groupe Dray as a suitable purchaser, despite a favourable report from the divestiture trustee, only three days before the expiration of the deadline. But the decision insists on the risks that were taken by the Fnac Darty group when it submitted a request for approval of the purchaser late in the process, so that any negative decision by the FCA would de facto prevent the group from finding another purchaser in time. The decision also notes that Fnac had obviously included in its commitments stores that were not attractive enough to potential buyers. Finally, the FCA underlines that such conduct is especially unacceptable coming from a large corporation with substantial legal and economic expertise, assisted by specialised outside antitrust counsel.
The fact that Fnac spontaneously offered to divest two alternative stores in order to comply with its commitments and invested significant resources to find a suitable purchaser for these two stores, which were eventually divested on 17 May 2018, did not make the FCA any more lenient. Although effective competition may be considered to have been restored within a still reasonable time frame (22 months instead of 12 months), the amount of the fine indicates that the FCA intends to take the implementation of commitments very seriously, in particular in cases where those commitments may be considered limited with regards to the scope of the transaction.
Update on merger control reforms
Following the public consultation held in 2017, the FCA announced on 7 June 2018 several measures to modernise and simplify the French merger control process. Some of these measures have already been implemented, while other, more controversial reforms, have been submitted to the government to be potentially translated into the law.
The modifications that have already been implemented mainly relate to the administrative notification process and in particular to the simplified procedure. By executive order dated 18 April 2019, which entered into force on 21 April 2019, the notifying parties can now submit only one paper version of their filing (against four previously) and the amount of financial information required has been significantly reduced. In addition, by the end of the second quarter of 2019, transactions where there is no overlap (either horizontal, vertical or conglomerate) or transactions involving retail stores without a change in the brand name of the stores will benefit from an online-only notification process, which is currently being tested by the FCA.
The reform also widens the scope of the simplified procedure. Transactions that fall under the following criteria will be eligible for the new simplified procedures:
- combined market shares below 25 per cent or combined market share below 50 per cent with an increment below 2 per cent in case of horizontal overlaps;
- market shares below 30 per cent in case of vertical relationships;
- transition from joint to sole control;
- creation of joint ventures active outside the national territory only; and
- acquisition of joint control over a real-estate asset under construction.
The reform brings the French process closer to the European procedure and will allow smaller transactions to benefit from the simplified procedure – although it should be kept in mind that the notification process itself may not always be lighter for notifying parties under the simplified procedure.
In addition to these administrative changes, the FCA addressed in its 7 June 2018 announcement the possible modification of the notification thresholds.
In its October 2017 consultation, the FCA had envisaged several possible evolutions for the thresholds, in order to capture ‘killer acquisitions’ (ie, acquisitions by a dominant player of start-ups with little or no turnover before they can become actual competitors in the market). The proposals made by the FCA included:
- the introduction of new thresholds related to the value of the transaction, similar to those that have been implemented in Germany or Austria to capture transactions involving companies with little or no turnover but significant market presence or potential;
- the reintroduction of market share thresholds; or
- the creation of an hybrid system with a possibility for the FCA to intervene ex post in case of below-threshold transactions that nevertheless create competitive issues.
After having analysed the results of the consultation, the FCA suggested in June 2018 to retain only the third option (ie, a model similar to the Swedish system), whereby concentrations falling below the thresholds could nevertheless be examined ex post by the FCA, provided that they may result in a significant lessening of competition. The proposal has been widely criticised as creating significant legal uncertainty for companies, although the FCA has underlined that it would only target ‘a very limited number of transactions’.
In January 2019, the president of the FCA Board confirmed that a legislative proposal has been submitted to the French government to implement the change. The proposed reform will be examined by the government as part of a wider consultation on the digital economy, which is unlikely to be concluded before the second semester of 2019.