Owing to numerous factors, an increasing number of European politicians are openly interfering in merger control. Angela Merkel, for instance, has pleaded in favour of consolidation of European competitors in response to the creation of Big Tech companies from the USA and Asia. In other sectors too, there is (political) demand to create “European Champions” by means of mergers and acquisitions in order to cope with the competition worldwide. The proposed merger of train builders Siemens and Alstom received (political) support from both Germany and France, but the European Commission (“Commission”) prohibited that merger after an in-depth investigation. The Commission wishes to resist (political) pressure to create European Champions. This caused quite a stir.
European Commissioner Margrethe Vestager reported that she was sceptical about the creation of European Champions, such as the Siemens and Alstom combination. She drew attention to the risk of European Champions undermining effective competition in Europe. Vestager stated that, also in 2019, merger control will focus on the prosperity of European citizens, not on the clout of European companies elsewhere in the world. She received support from the Netherlands Authority for Consumers and Markets (“ACM”), among others. Its chairman of the board, Martijn Snoep, for instance, disputed the need to create a European train giant. ACM actively worked together with the competition authorities of Belgium, Spain and the United Kingdom on the Commission’s prohibition of the Siemens and Alstom merger. Those competition authorities publicly expressed their concern about that merger in a joint letter to the Commission. The objective of the letter is apparently to demonstrate that they too wish to resist political pressure to approve mergers that create European Champions. There is a growing body of opinion in Germany and France to soften the merger control rules in Europe. The Commission has already stated that its prohibition of the merger between Siemens and Alstom should not be seized as a pretext to overhaul the European merger control rules.
Merger control: European Commission
The Commission assessed several challenging concentration cases in 2018. A few interesting ones are the following:
- The unconditional approval of the acquisition of Shazam by Apple. Although the Commission is increasingly paying attention to data and technological developments, it found that the integration of Shazam’s data would not confer a unique advantage on the market on which Apple operates.
- The Commission’s approval subject to conditions of the acquisition of Monsanto by Bayer. To obtain approval in the Phase II investigation, Bayer offered to hive of more than €6 billion in activities (including research facilities).
- The Commission’s unconditional approval of the acquisition of Tele2 NL by T-Mobile NL. It is remarkable that the Commission unconditionally approved this transaction. In light of its earlier analyses of mergers of four-to-three competitors on European mobile markets, the outcome could have been different.
The Commission will be faced with plenty of challenges also in 2019. The Commission’s pending Phase II investigations include the following:
- The proposed creation of a joint venture by steel producers Tata Steel and ThyssenKrupp.
- The proposed acquisition by Vodafone of Liberty Global’s commercial activities in the Czech Republic, Germany, Hungary and Romania.
Merger control: the Netherlands
Politicians are interfering with the supervision of mergers and acquisitions not only in Brussels, but also in the Netherlands. PostNL, for instance, can count on broad political support for the acquisition of Sandd. The possibility of that transaction being prohibited by ACM has already given rise to questions to State Secretary Keizer. She was asked whether she would be willing in light of the public interest on the grounds of Section 47 of the Competition Act to approve the acquisition of Sandd by PostNL if ACM prohibited that transaction. The State Secretary replied that she did not wish to pre-empt a decision of ACM. But Martijn Snoep of ACM was willing to look ahead. He stated that he could accept a political decision, but at the same time called for a careful weighing of all the aspects of a concentration between PostNL and Sandd. In the meanwhile, the acquisition of Sandd by PostNL has been announced and notified to ACM.
In addition to this possible transaction in the postal sector, ACM will have its hands full with challenging merger cases in the healthcare sector in 2019. It would appear that ACM intends to further intensify its supervision of healthcare mergers; see, for instance, here, here, here and here. ACM is also likely to be given more tasks in healthcare merger assessment. The bill that is intended to transfer the healthcare merger test from the Dutch Healthcare Authority ("NZa") to ACM may be approved by the Senate in 2019. If so, it is likely that the successive assessment of healthcare mergers by NZa and ACM will be a thing of the past after 2020. All the developments in the (stricter) assessment of mergers, acquisitions and joint ventures in the healthcare sector can be found in this blog.
Increased datafication and critical assessment
The use of data in merger control by ACM – and by the Commission – is expected to increase further in 2019. It is also likely that supervisory authorities (the Commission, ACM and NZa) will increasingly apply for documents from the notifying parties in exercising merger control. That also applies to data and documents produced by the parties themselves in the run-up to a merger, acquisition or joint venture. Supervisory authorities hope that this approach will make it easier for them to sound out the notifying parties. Notifying parties and their advisors are therefore well advised to take this possibility into account if transactions are involved that lead to high joint market shares.
Procedural aspects of great importance
If greater use is made of (big) data and economic (simulation) models in merger control, the procedural rights of the notifying parties will become increasingly important. It has already been demonstrated that violation of those rights by competition authorities has serious consequences. The European Court of Justice ("ECJ"), for instance, recently confirmed that the Commission wrongly prohibited the acquisition of TNT Expressed by UPS in 2013. It therefore upheld the General Court’s decision to annul the Commission decision to prohibit the merger. The Commission had violated UPS’s rights of defence in the run-up to its prohibition. It had done so by failing to give UPS access at its request to the economic (simulation) models changed by the Commission that led to the prohibition of the merger between TNT Express and UPS. Competition authorities that wish to make increased use of (big) data and economic (simulation) models in merger control should therefore beware.
Gun jumping on the radar in the Netherlands and abroad
Another point that deserves attention in 2019 should be “gun jumping”. Gun jumping, meaning both the exchange of competitively sensitive information and the premature implementation of a transaction (i.e. before the competition authorities give the go-ahead) will be on the radar of competition authorities in 2019.
- In 2018, the Commission imposed a record penalty of €124.5 million on Altice for gun jumping on the acquisition of PT Portugal. The Commission found that Altice was already exerting decisive control over PT Portugal before the Commission had approved the transaction. In the Commission’s opinion, the purchase agreement prevented PT Portugal from making strategic decisions without Altice’s approval. Altice has appealed the record fine.
- In its Ernst & Young P/S judgment of 31 May 2018, the ECJ clarified the scope of the “standstill obligation” regarding the prohibition of gun jumping. The judgment was passed in response to questions about the Danish competition authority’s argument that the Danish divisions of EY and KPMG were jumping the gun with regard to their merger. Because KPMG Denmark had already terminated its joint venture with KPMG with a view to the proposed merger with EY before the Danish competition authority approved the merger, the standstill obligation had allegedly been infringed. The ECJ arrived at a different conclusion: the termination of the KPMG joint alliance did not constitute acquisition of control by EY and could therefore not be considered gun jumping.
Although the competition authorities will wish to strictly enforce the standstill obligation in merger control also in 2019, it is therefore possible to perform certain acts that do not lead to a change of control over the target company before the competition authorities’ approval is obtained.