In 2021, the M&A market quickly recovered from the first corona crisis year. Around €5,000 billion worth of deals were closed worldwide, breaking the record set in 2007 (€3,900 billion). It brought about considerable dynamics and developments in the review of mergers and acquisitions by competition authorities, which will continue in 2022.
Merger control by European Commission: more scrutiny, less legal certainty?
The European Commission (the “Commission”) had its work cut out for it in the field of merger control. Remarkably, in 2021 and 2022 several transactions failed prematurely or were approved only subject to conditions.
- The Commission conditionally (i.e. with remedies) approved the acquisition of Grandvision by EssilorLuxottica. A number of Grandvision’s retail chains (including Eyewish in the Netherlands) had to be divested before the Commission gave the go-ahead.
- A merger between crane manufactures Cargotec and Konecranes was also conditionally approved. The companies had to divest divisions in order to redress competition problems in the loading and unloading markets. The remedies did not allay the concerns of the UK Competition Authority (CMA), despite approval by ten other competition authorities. The parties therefore pulled the plug on the merger.
- Nvidia’s acquisition of chipmaker Arm was also called off due to “regulatory challenges” while the Commission was conducting an in-depth investigation into the acquisition.
- In 2022, the Commission prohibited a transaction for the first time since 2019. It ruled that it would give Daewoo and Hyundai Heavy Industries too strong a position on the market for the production of large tankers used to transport LNG gas. Hyundai Heavy Industries appealed the Commission’s prohibition decision.
A 2013 Commission decision prohibiting UPS’s acquisition of TNT Express was found to be wrongful by both the General Court (in 2017) and the Court of Justice (in 2019). UPS then tried to recover the loss from the Commission, but the General Court (in 2022) put a stop to that attempt. It held that there was no causal connection between the loss alleged by UPS and the errors made by the Commission in its merger review.
In 2021, the European Commission also focused on reviewing killer acquisitions (see this blog and this blog). They are acquisitions of small but highly innovative companies that often do not generate much turnover (yet) and therefore remain below the national notification thresholds. The Commission called on competition authorities of EU Member States to refer these transactions to the Commission under Article 22 of the Merger Regulation, in an attempt to prevent killer acquisitions from escaping merger review.
Acquisitions will continue to take place in the technology sector (medical and other) in 2022. The trend is that the competition authorities will continue to refer killer acquisitions to the Commission. This appeal of the Commission was successful in the past as well. In 2021, ACM supported a French referral request to the Commission in the Illumia/Grail case. The Commission subsequently launched an investigation into the acquisition, which is still ongoing. ACM also supported a successful Austrian referral request regarding the acquisition of Kustomer by Meta. Unlike the Commission, ACM did not publish any guidance as to which cases it intends to refer to the Commission under Article 22 of the Merger Regulation in the future.
One-stop-shop principle under pressure
In merger review, the one-stop-shop principle provided legal certainty for decades. Companies knew that if their transaction met the EU notification thresholds, it had to be notified only to the Commission, not also to the national EU competition authorities.
The one-stop shop principle is under pressure due to the referral of killer acquisitions. The fact, for instance, that the Commission reviewed the acquisition of Kustomer by Meta did not prevent the German Bundeskartellamt (“Bka”) from simultaneously reviewing that acquisition as well. Although both the Commission and the BKa approved the acquisition of Kustomer by Meta, this parallel review does raise questions. What happens if the Commission approves a transaction after a referral while another competition authority within the EU wishes to prohibit that transaction or approves it only conditionally?
Companies in the technology sector (medical and other) should beware when conducting transactions. Not only because transactions that remain below the national turnover thresholds may nevertheless be reviewed by the Commission: as demonstrated by the Meta/Kustomer case, those same transactions may also be reviewed simultaneously by the competition authorities of one or more EU Member States. There is no legal mechanism to prevent parallel review within the EU in the case of referrals under Article 22 of the Merger Regulation.
ACM merger control: earlier Phase II and intensive healthcare merger review continues
ACM reviewed almost twice as many transactions (89 versus 169) in 2021 compared to 2020. Compared to 2020, it also subjected significantly more cases to a review in the “application phase” or “Phase II” in 2021. The number of Phase II investigations increased from four in 2020 to eight in 2021.
Remarkably, ACM approved several transactions (three) unconditionally (i.e. without remedies) after Phase II in 2021. It was decided in Phase II, for instance, that the acquisition of ornamental plant transporters by Royal FloraHolland did not restrict competition. With regard to the acquisition of Primagaz by Benegas, ACM first ruled in Phase II that these parties barely competed with each other in the field of gas cylinders for consumers. In Phase I, that was precisely ACM’s main concern. A Phase II review in the veal sector also ended with ACM issuing unconditional licences.
The above is in keeping with the image created by ACM chairman Martijn Snoep of ACM as an organisation that works faster and more decisively than in the past. The effect appears to be that ACM assesses transactions more quickly in Phase I and refers to Phase II sooner in the event of doubt. The provisional outcome is that ACM more often approves mergers (except for those in the healthcare sector) without remedies in Phase II. Although it is commendable that ACM wishes to work faster in merger control, these cases give rise to the question whether Phase I approval of these transactions could not have been achieved by means of a somewhat longer Phase I review, if only to avoid the need for the parties to submit a licence application and pay a filing fee of €34,900 for a decision in the application phase, on top of the €17,450 filing fee for the decision in Phase I.
ACM is also already overseeing several Phase II cases in 2022. It is conducting an in-depth investigation, for instance, into the acquisition of Landal by Roompot. ACM is also investigating the high-profile merger between RTL Group and Talpa Networks. ACM recently imposed a licence requirement for the acquisition of Afval Energie Bedrijf Amsterdam (AEB) by AVR Afvalverwerking (AVR).
In both 2021 and 2022, ACM clearly remains remarkably critical of healthcare mergers. In late 2021, ACM prohibited two healthcare mergers for the first time since 2015: the Bergman Clinics/Mauritskliniek and the Mediq/Eurocept mergers. ACM also objected to the merger between the IJsselland Hospital and Erasmus MC. The hospitals ultimately withdrew their licence applications. In the healthcare sector, in which ACM has been intensifying its reviews in recent years and is constantly developing new harm theories, the question is whether ACM is not going overboard. Whereas ACM has previously been accused of submitting healthcare mergers to insufficiently strict reviews and approving them too easily, the opposite now appears to apply. ACM’s findings on healthcare mergers for the elderly are typical of the manner in which it deals with the review of healthcare mergers and the criticism of the strictness of those reviews. Despite these remarkable findings, ACM has announced that it will continue its intensive review of mergers in the field of care for the elderly. More information on the review of healthcare mergers by ACM can be found in this blog. In this blog, we addressed the changes in 2022 to the healthcare merger review by the NZa (Dutch Healthcare Authority) and the proposed transfer of care-specific merger reviews to ACM.
In 2021, the Commission introduced a new remedy against gun jumping (the premature implementation of a transaction; see also this blog). Interim measures were imposed on Illumina and GRAIL after a referral under Article 22 of the Merger Regulation on the grounds that they had implemented their transaction during the Commission’s review. Illumina and GRAIL had to promise that they would continue to operate as separate companies until the Commission approved the transaction. The Commission is still investigating whether the premature implementation of the GRAIL acquisition warrants a fine. Parties in which a promising tech company is involved are forewarned in 2022 also with regard to gun jumping: gun jumping entails the foregoing fining and other risk if the parties involved assume that an acquisition is not a notifiable killer acquisition but the competition authorities disagree.
Rights of defence
In October 2021, ACM published its new Working Method in Merger Cases, which replaces the previous rules in merger cases, dating from 2009. According to ACM, the new procedure modernises its approach to merger control. ACM notifications may (finally) be submitted digitally, for instance. A procedure has also been established that allows ACM to share its data analyses with notifying parties.
But ACM’s new working method is still not in line with the Commission’s when it comes to the procedural guarantees for parties in the field of merger review. After earlier criticism, the Commission’s working method includes a guarantee that notifying parties will be provided with the market file (or important parts of it) in good time, i.e. well before the end of the Phase II. This ensures that the notifying parties can provide timely input on the market file before the Commission takes its decision. It was in ACM’s interest to pay attention to this in revising its rules, since ACM does not give notifying parties access to the market file until it issues its points for consideration. According to ACM, its market survey has already been formally completed when it issues its points for consideration. The question is then whether and to what extent there is any point to providing input on the market file after completion of the market survey. Practice has shown that by that time ACM (or its case team) has already completed its assessment of the transaction and no further market study takes place. In our opinion, the approach of not giving access to the market file until the points for consideration have been issued is therefore at odds with effective exercising of the rights of defence (such as the principle of hearing both sides of the argument). ACM should have paid, and should still pay, attention to this subject, all the more so since ACM, through Martijn Snoep, refers to merger control as a cornerstone and important task of ACM (prevention is better than cure). Moreover, ACM sooner subjects transactions to a Phase II review and, in assessing healthcare mergers, is increasingly strict and applies entirely new harm theories (such as the impact of a merger on the “quality of life”) and refuses to grant parties a hearing. In sum, this is a missed opportunity to use the working method in merger cases to achieve a more balanced review of healthcare and other mergers.
Market definition in merger control
We previously described the consultation with the Commission regarding its notice on the definition of relevant markets (the “Notice”). This document, which is highly relevant to merger control practice, dates from 1997. The Commission found that guidance on the definition of markets is still relevant in 2022. But market changes since 1997 do require an update of the Notice. That update will have to address, for instance, the impact of digitisation on markets. Concepts such as multi-sided markets and zero-price services can no longer be ignored. The Commission will decide in 2022 what action it will take in response to the outcome of its consultation on the Notice.