EC merger regulation

13 February 2004

Wilko van Weert

On 20 January 2004, the Competitiveness Council gave its unanimous political agreement to the Commission proposal for a new Community Control Merger Regulation (“ECMR”). The most eye-catching change from current practice concerns the substantive test to authorise or block a merger falling under the Commission’s jurisdiction. At the same time the revised ECMR introduces a number of procedural changes, such an increased flexibility in the timeframe for investigations and a reinforcement of the ‘one-stop shop’ principle.

The new test for the appraisal of concentrations will provide that a concentration will be declared incompatible with the common market if it would ‘significantly impede effective competition’, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position. The new part is the ‘significant impediment of effective competition’. This test is deemed to cover all types of anti-competitive scenarios, either market dominance by a single firm or effects arising out of a situation of oligopoly that might harm consumers’ interests. This test is qualified as hybrid because it is intermediate between the test used in the current ECMR, the ‘creation or strengthening of a dominant position’, and the test used in US and UK merger control, the ‘substantial lessening of competition’.

New features of the ECMR include the possibility to extend the four-month in-depth investigation period by three weeks where the parties to the merger submit remedies that would remove competition concerns. This investigation period may also be extended by four weeks at the request of the parties or at the initiative of the Commission with the parties’ consent, to look more closely into difficult aspects of particularly complex cases. The Commission has stressed that this should not affect legal certainty as to the duration of a merger appraisal.

Also different from the current ECMR is the possibility to request application of the "one-stop shop" facility; if the transaction has to be notified in three or more Member States, the notifying party may now ask to benefit from an appraisal by the Commission. Industry representatives have largely welcomed this improvement as a significant cost reduction measure.

Additionally, the changes include the abolition of the requirement of a binding merger agreement as a pre-condition of notification. It is thus sufficient to demonstrate a genuine intention to merge.

Lastly, the ECMR will strengthen the Commission's investigating powers, which will be brought into line with the powers contained in the new Regulation implementing Articles 81 and 82, due to enter into force on 1 May 2004.

The ECMR will enter into force on 1 May 2004, the date of the enlargement of the EU, and with the recent appointment of a Chief Economist, it will complete the reform of EC competition rules to facilitate the handling of cases sourced in no less than 25 Member States.

Further, the Commission has now adopted a set of guidelines on the appraisal of mergers between competing firms (Horizontal Merger Guidelines). The Guidelines are aimed at increasing the predictability of the outcome of the Commission’s assessment in horizontal merger cases. They describe in detail the analytical approach of the Commission when assessing the likely impact on competition of mergers between competing, or potentially competing, companies.

The guidelines explain the circumstances in which the Commission may or may not identify such impediments to effective competition under the new standard for mergers to be barred, or whether they would ‘significantly impede effective competition’.

The Commission is unlikely to identify any issues when the merger does not result in market concentration levels exceeding certain market shares or specified levels in the “HHI Index”, a measure of market concentration.

The Commission will also take into account possible merger-related efficiencies as a mitigating factor to the likely competitive harm. The absence of any serious barriers to entry in the market is a mitigating factor. Furthermore, significant “buyer power” on the part of customers of the merged entity could also result in a less harmful effect of the merger.

Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.