European Commission revises guidance on its merger control jurisdiction

30 October 2007

Louise Banér

The European Commission has consolidated and clarified its existing guidance on when it has jurisdiction to review transactions under the EC Merger Regulation. This new notice has been revised to take into account changes in law as well as reflecting the Commissions current practice in relation to particular jurisdictional issues for example acquisitions by investment funds and IT outsourcings.

The European Commission adopted on 10 July 2007 one consolidated jurisdictional notice which replaces four previous notices: the Notice on the concept of a concentration, the Notice on the concept of a full-function joint venture, the Notice on the concept of undertakings concerned and the Notice on calculation of turnover. The Commission wanted to make the guidance more user friendly as well as taking into account changes introduced by the EC Merger Regulation (139/2004), recent case- law (in particular judgments of the CFI) and the Commission’s established practice in relation to a number of jurisdictional issues.

Whilst the new guidance will not substantively change the Commission’s current practice, it does shed further light on the Commission’s approach to jurisdictional issues which affect particular transactions such as acquisitions by investment funds, acquisitions of assets such as IP rights, and IT outsourcings.

The Commission will apply the EC Merger Regulation when two conditions are met:

  • there must be a concentration of two or more undertakings (involving a change of control); and

  • the turnover the undertakings concerned must meet the thresholds set out in the EC Merger Regulation.

Acquisitions by investment funds:

The guidance takes each of these conditions into account when considering acquisitions by investment funds. Usually investment funds will acquire the shares and voting rights which confer control over portfolio companies acting as investment vehicle whilst the investment company which has set up the fund will exercise control by means of the organisational structure. This can be by controlling the general partner of fund partnerships and/or by contractual arrangements. Therefore the investment company will normally acquire indirect control of portfolio companies even though the fund itself has the power to directly exercise the controlling rights. The guidance also clarifies that investment funds typically do not qualify for the exception where control is acquired by a financial holding company. In assessing whether the turnover thresholds are met, it may be necessary to take into account the turnover of all the companies in the portofolios held by different funds if the investment company exercises a common control structure over the funds.

Although control can be acquired on a contractual basis as well as through the acquisition of shares or assets, a franchisor is usually not conferred control over a franchisee’s business and equally sale and lease back transactions with arrangements for a buyback of the assets at the end of the term do not constitute a change of control.

Transfers of intellectual property:

The EC Merger Regulation applies to a change of control of one or more undertakings as well as parts of undertakings. Therefore the acquisition of control over intangible assets such as brands, patents or copyrights can fall within the EC Merger Regulation where those assets constitute a business, with a market presence, to which market turnover can be clearly attributed. The transfer of licences for brands, patents or copyright without additional assets can only fulfil the criteria if the licences are exclusive and turnover-generating activity is transferred.


The guidance also clarifies the specific issues which arise in relation to the outsourcing of IT services, previously performed in-house, to specialised IT companies. Generally cases of simple outsourcing (which do not involve the transfer of assets or employees and are more similar to service contracts) will not constitute a concentration for the purposes of the EC Merger Regulation even if the outsourcing services supplier acquires a right to direct the relevant assets and employees of the customer. However, a concentration will arise where assets and employees are transferred which constitute a business with access to the market, and the outsourcing supplier is able to provide services to third parties as well as the outsourcing customer, immediately or within a short period after the transfer. If third parties are not already supplied by this business unit or subsidiary, the assets transferred will have to include elements which allow an acquirer to build up a market presence in a time-frame similar to the start-up period for a joint venture, such as know-how, marketing facilities, existing contracts or brands. If there is a concentration, turnover for the purpose of the threshold will be calculated on the basis of previously internal turnover or of publicly quoted prices where such prices exist.

Calculation of turnover:

For the purposes of the thresholds in the EC Merger Regulation turnover must be allocated geographically to the EC as well as individual Member States. The Commission acknowledges that audited accounts often do not provide a geographical breakdown and the Commission will rely on the best figures available provided by the undertakings. The guidance also provides further detail on how turnover can be allocated where a multinational organisation has a central purchasing organisation or in particular sectors such as telecoms where turnover relating to call termination services are to be allocated to the country where the service is provided i.e. where the call is being terminated.

The Commission also clarifies the guidance on the analysis of more complex structures such as interrelated, conditional and series of transactions as well as more procedural advice where transactions are abandoned.

Source: EC consolidated jurisdictional notice available at: