Shearman & Sterling LLP s Response to the Commission s Consultation on Merger Simplification Project

Transcription

1 Shearman & Sterling LLP s Response to the Commission s Consultation on Merger Simplification Project 1. On 27 March 2013 the European Commission launched a consultation seeking stakeholders views on a proposal to simplify certain procedures for notifying mergers under the EU Merger Regulation ( EUMR ). 1 In particular, the Commission has proposed amendments to: (i) the Commission Notice on a simplified procedure for the treatment of certain concentrations under Council Regulation (EC) No 139/2004 (the Simplified Procedure Notice ); (ii) Annex I to the Commission regulation implementing the EUMR (the Form CO ); (iii) Annex II to the Commission regulation implementing the EUMR ( Short Form CO ); and (iv) Annex III to the Commission regulation implementing the EUMR ( Form RS ). 2. Shearman & Sterling LLP welcomes this initiative to simplify the merger notification procedure with the dual purpose of reducing the burden on businesses and increasing operational efficiency at DG COMP. We consider that many of the proposed changes will successfully meet these objectives. There are some areas, however, where the proposal could go further to meet these goals. In order to meet its strategic objectives we suggest that the Commission adopt a more wide-ranging review of the procedures in place and adopt more significant changes in order for these amendments to have an appreciable effect. In particular, we consider that, in the absence of a local nexus, joint ventures that will have no effects in the EEA should not be subject to mandatory notification; we consider that the Form CO should be overhauled to create a less formalistic form-based approach; and that the Commission should reconsider whether a full form requiring substantial information should be required when making an application for a referral under Articles 4(4) and 4(5) of the EUMR. 3. Details of these and other issues are set out below as follows: (i) Review of Simplified Procedure; (ii) Review of Form CO; and (iii) Review of Form RS. 1 Merger Regulation Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation). BRDOCS01/

2 4. Please note that this paper sets out the views of Shearman & Sterling LLP. It is not, and should not be interpreted as, the views of any of its clients. I. Review of Simplified Procedure a) Thresholds applicable for the Simplified procedure 5. The Commission s current proposal is that there should be a presumption that the simplified procedure is applicable for all transactions where there is: (i) a horizontal combined market share of less than 20%, raised from the previous level of 15%; and (ii) a vertical relationship and the individual or combined market share is less than 30%, raised from the previous level of 25%. 6. These changes are expected to increase the number of mergers that are applicable for consideration under the simplified procedure. However, we believe the increase will not be meaningful. We therefore urge the Commission to reconsider and increase the threshold for horizontal mergers still further to a level which will cover all mergers where it is reasonable to presume that there will be no significant impediment of effective competition. This will allow the proposed amendments to result in a material increase in the number of mergers applicable for review under the simplified procedure. 7. We suggest that this level should be raised to a combined horizontal market share of 25% (i.e. the level at which the Horizontal Merger Guidelines 2 and the EUMR 3 consider a merger not to impede effective competition). 8. By making this alignment, as is the case for vertical mergers, will allow the Commission to further reduce the number of cases in which it needs to conduct a full review. Given that this presumption is already used in practice, twinned with the Commission s ability to revert to a full assessment if it considers it appropriate, we consider that adjusting the thresholds to this level would meet the goals of the Commission. 2 3 Paragraph 18 - Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (2004/C 31/03) (the Horizontal Merger Guidelines ). Paragraph 32. BRDOCS01/

3 9. The proposal also introduces the prospect of simplified procedure review for horizontal mergers that lead to a combined market share of less than 50% and involve a limited merger-specific increment i.e. an HHI delta of less than 150. Shearman & Sterling LLP welcomes this addition in principle, as the effect on the market of a merger with such a limited merger-specific increment is, in general, negligible. In particular, a party with a limited market position is often not in a position to be able to provide the detailed levels of market information required by a full assessment. Accordingly, this proposed approach by the Commission is far more proportionate given the likely limited effects of a proposed transaction. However, as discussed below, this could go further in terms of reducing the information burden in the Short Form CO. 10. To further realise these potential benefits, we consider that these mergers should be treated in the same was as those described in the preceding paragraph of the notice, i.e. that a safe harbour presumption applies, as is the case under recital 5 of the Simplified Procedure Notice, rather than it merely being at the (wide) discretion of the Commission. We consider that there is no justification for a differentiation of these two circumstances. b) Joint Ventures 11. The Commission s proposal maintains the requirement that joint ventures that have no or negligible activities in the EEA are to be notified to the Commission under the Simplified procedure. We call upon the Commission to remove the requirement for joint ventures with no activities in the EEA to be subject to mandatory notification. Should a proposed JV have no nexus in the EEA i.e. no actual or foreseen turnover in the EEA and no assets in the EEA, the joint venture will have no effect on competition in the EEA and we see no reason for the notifying parties and the Commission to have to dedicate resources to the notification and review of the transaction. 12. For JVs currently notifiable under the simplified procedure, the proposal sets out examples of where the Commission may revert to a full review of a joint venture (namely where the JV provides products or services that constitute important inputs to products/services that are sold in the EEA or where the JV may achieve significant sales, including in the EEA, in the foreseeable future). We request that the Commission BRDOCS01/

4 provide further guidance on circumstances when a reversion to the full Form CO would be likely as the examples provided currently appear to be contradictory. For example, if a JV is likely to achieve significant sales, including in the EEA, in the foreseeable future (one of the two examples provided), we do not consider that it would fall under the criteria of having no actual or foreseen activities in the EEA and would, therefore, not have been eligible for the simplified procedure in the first instance. 13. Finally, we request a minor point of clarification in the current drafting. The simplified procedure is applicable to joint ventures if at the time of notification they have a turnover of less than EUR 100 million. We would welcome a clarification as to the time period that is envisaged by at the time of notification given that turnover has to be measured over a certain period rather than at one point in time. c) Information to be provided in Short Form CO 14. As noted above, we welcome the Commission s goal of increasing the number of mergers that will be reviewed under the simplified procedure as well as streamlining the process. We note, however, that the amendments to the Short Form CO actually increase the information burden on notifying parties. We have concerns that this increased information burden, in combination with an increase in simplified procedure cases, will cancel out a proportion of the otherwise positive benefits of this initiative. Moreover, we consider that a number of the data points that the Commission requests go beyond what is required to get the necessary level of comfort to investigate and exclude competition concerns in these simple cases. 15. Firstly, the proposal introduces the requirement to provide detailed information where the merging parties have a combined horizontal market share of more than 20% and have qualified for the simplified procedure under Section 6 of the Simplified Procedure Notice (i.e. there is an HHI delta of less than 150). This information includes: (i) value and volume market share information for three years; (ii) information on the characteristics of the market; and (iii) the relevance of each party in the market. 16. We consider that these requests should be considerably narrowed given the immateriality of the increment in the markets that these questions apply to and the likely effects on competition. As noted above, it is in exactly these markets where a BRDOCS01/

5 party has limited relevance and that there is an insurmountable barrier to being able to provide the Commission with the information requested. 17. We consider that these markets should be treated in the same way as those under Section 5 and that no further information should have to be provided. Should the Commission consider it essential that additional information be provided for these markets; rather than particular prescriptive questions, the parties should be requested to provide any information on the characteristics of the market that they consider pertinent to the Commission s investigation and market shares for the preceding year only. The burden to provide relevant and necessary information remains firmly with the notifying parties but they are provided the latitude to give the Commission the information that they have collected in the normal course of business which is, in any event, likely to be the most relevant for the Commission s investigation and understanding of how industry participants view the market. 18. Secondly, the proposal requires the provision of the so-called 5(4) documents to be provided in Short Form CO filings. Whilst we recognise that the Commission has limited this request to only the documents that assess the proposed transaction rather than the proposed extended Section 5(4) in the Form CO (which is discussed further below), we consider it disproportionate to be required to provide these documents under the simplified procedure. We understand that in some, less clear cut, Short Form CO notifications the Commission may wish to review such documents; however, it is unnecessary to provide them in the vast majority of simplified procedure cases. We, therefore, urge the Commission to remove this provision from the draft Short Form CO and rather note that, should the Commission consider it necessary, it may issue an information request requesting such documents. 19. Thirdly, in both the Form CO and the Short Form CO, the Commission has proposed an amendment requiring the provision of waivers to exchange confidential information with antitrust authorities outside the EU. We have a number of concerns with this approach which are discussed further below in paragraphs II. Review of Form CO BRDOCS01/

6 20. Shearman & Sterling LLP commends the Commission s initiative to streamline, reduce, standardize and update the information required in the context of a notification under the EUMR. We nonetheless believe that the simplification project could be more ambitious in respect of several aspects included in the current version of the draft Form CO. In the upcoming stages of the review process, the Commission should be guided by the principle that the information requested in the Form CO should not go beyond what is necessary to start an investigation and to serve as a basis for a sound phase I clearance decision. In this vein, the current version of the draft Form CO allows for a number of improvements which we discuss, in turn, below. a) General Structure 21. As a general note, we believe that this simplification project should lead to a more extensive overhaul of certain sections of the Form CO. Practitioners generally tend to find the structure of the questions set forth in the Form CO, in particular Sections 6, 7 and 8, overly rigid and not very user-friendly. In practice, notifying parties therefore often opt to provide their competitive analysis, including relevant data, under one heading and make references to this analysis where information included therein is requested in a subsequent section. We, therefore, encourage the Commission to revisit the amendments it has made in Sections 6, 7 and 8 of the draft Form CO, and introduce a structure that allows the parties more flexibility when presenting the relevant information. One way to do this would be to set out the information that may be relevant at the beginning of each section and then leave it to the parties to access what is relevant for a particular market and in which order they discuss the individual topics. Moreover, it would avoid the need for the notifying parties to provide information in the Form CO to the Commission that is not relevant in a particular industry or in a particular review. 22. Should the Commission not adopt such an approach, we provide below our comments on the Commission s proposed amendments. b) Section 1.3 Waivers on certain information requirements 23. Shearman & Sterling LLP welcomes the Commission s proposal to explicitly reference certain categories of information which may only be relevant in certain cases and for BRDOCS01/

7 which waivers may frequently be requested. We note, however, that the list of relevant categories of information is limited. We therefore encourage the Commission to expand the list of cross-references included in Section 1.4 of the draft Form CO. For example, information on imports as provided for in Section 8.13 of the draft Form CO may be superfluous where imports from outside the EEA clearly have no appreciable impact on the markets at issue. In addition, the proposals are vague as regards the description of the modalities for the waiver request since it encourages the notifying party to ask the Commission to dispense with the obligation to provide unnecessary information but it does not provide sufficient details as regards process and timing. In particular, there is no indication concerning the Commission s expected feedback following the notifying party s waiver request. c) Section 1.8 More economics-based approach 24. Shearman & Sterling welcomes the Commission s move to adopt a more economicsbased approach in its merger review process. However, we believe that Section 1.8 of the draft Form CO requires certain clarifications and limitations. 25. Our experience shows that the type of information requested under Section 1.8 of the draft Form CO will only be required in a limited number of instances. We therefore propose that the Commission include a clear statement in the draft to the effect that quantitative economic data as described in Section 1.8 will not be necessary in the majority of cases. In this context, it would be helpful to provide a more detailed list of the specific circumstances in which the Commission would expect to receive quantitative economic data from the parties. d) Section 1.9(2) Contacts with other antitrust authorities 26. From our experience, we are aware that confidentiality waivers that enable the Commission to share information with the US antitrust agencies have become increasingly common. We generally consider such waivers useful as they can lead to a fruitful exchange of views between the authorities and assist aligning timetables and avoiding contradictory conclusions in respect of questions that are relevant both in the EU and in the US. BRDOCS01/

8 27. However, we believe that the approach to confidentiality waivers as encouraged in the draft Form CO is far too broad. In Section 1.9 of the draft Form CO reference is made to other competition authorities outside the EEA without further qualification. In practice, such blanket waivers could lead to the disclosure of highly sensitive and confidential information to (numerous) competition authorities without a proven trackrecord of cooperation with the Commission. 28. Against that background, we suggest that the Commission limits the scope of the current proposal to authorities with whom it has an established practice of cooperation. Whilst waivers regarding authorities in other jurisdictions may be considered on a caseby-case basis, such waivers should not generally be encouraged as this would create undue pressure on the notifying parties to expose their sensitive business information to unforeseeable disclosure risks. e) Section 5.4 Documentary evidence 29. Whilst Shearman & Sterling LLP appreciates that in some circumstances contemporaneous documents dealing with the transaction at issue and/or the markets in question are capable of providing useful insights, we consider that the proposed amendments to be overly broad. 30. In particular, it does not appear warranted to require companies to produce presentations analysing options for acquisitions other than the notified concentration (as provided for in Section 5.4(ii) of the draft Form CO). While situations are conceivable where considerations in respect of alternative transaction scenarios may provide useful background information e.g. on the markets on which the companies operate, alternative transaction plans will normally be of little or no relevance to the transaction at issue. For example, a private equity investor will generally look at a number of potential targets, often in different industries, before making an acquisition. The same is true for large conglomerates which tend to expand into a number of industries and sectors and often have designated M&A teams who analyse potential acquisition opportunities on a regular basis. Considerations in respect of such potential acquisitions will often not be of a strategic nature and therefore do not justify a review by the Commission. BRDOCS01/

9 f) Section 6.3 Affected market threshold 31. We welcome the Commission s proposal to move the market share thresholds for affected markets up to 20% in the case of horizontal overlaps and 30% in the case of vertical relationships between the parties. Our experience shows that changes to these thresholds were long overdue. The current requirements have proved overly conservative as they have forced companies to provide extensive information on markets where from the outset little or no effects on competition could be expected. 32. This said, we believe that further increases are warranted in order to bring the pretransaction market share thresholds further in line with the EUMR, the Commission s substantive guidance documents and its decisional practice. As explained above with regard to the Short Form CO, both the EUMR and the Horizontal Merger Guidelines contain statements to the effect that horizontal overlaps resulting in combined pretransaction market shares not exceeding 25% can be presumed to be compatible with the common market. Moreover, our analysis of past case practice has revealed that competition concerns are highly unlikely to arise in cases where the parties have a pretransaction market share below 30-35%. 33. Similar observations can be made in respect of vertical relationships. Our review of the Commission s decisional practice shows that competition concerns are unlikely unless the share of one of the parties in the upstream or downstream market is well above 35-40%. What is more, the current draft does not take into account that foreclosure issues are highly unlikely where only one party holds a share exceeding the relevant threshold whereas the other party holds a minute market share in an upstream or downstream market. We therefore believe that a second vertical threshold should be introduced in order to address this concern. g) Section 6.4 Significant impact markets 34. We note that the Commission has also changed the thresholds in respect of other markets on which the notified transaction may have a significant impact. We welcome the Commission s proposal to raise the market share threshold from 25% to 30% for markets where one party holds intellectual property rights and another party has BRDOCS01/

10 activities. Nonetheless, we believe that a further increase is warranted in light of the arguments set forth above in relation to Section 6.3 of the draft Form CO. 35. As regards the Commission s apparent intention to lower the market share threshold from 25% to 20% for markets on which one of the parties is active and another is a potential competitor, we respectfully submit that this change does not appear to be in line with the spirit of the simplification project and is unwarranted. Lowering the threshold creates additional information requirements and therefore an additional burden in situations which do not appear liable to raise competition concerns. In this respect, similar considerations apply as set forth in respect of the thresholds for affected markets, at paragraphs 31-33, above. h) Section 7 Market definition 36. We welcome the amendments made to Section 7.1. of the draft Form CO. We assume that the wording in the current draft can be understood to mean that the requested information only needs to be provided according to the geographic market delineations that the parties consider plausible. We believe this flexible case-specific approach to be vastly superior to the previous static approach that required parties to provide information according to specific geographic categories which may have been wholly irrelevant. 37. That said, we are concerned that the requirement to provide information on any plausible market definition is overly broad and we, therefore, request that the Commission use restraint when interpreting these provisions. To provide considerable market data on multiple product market definitions, which may not be consistent with how the businesses view the markets, would be exceptionally burdensome on the parties. It is important to note that this principle is also applicable to the Short Form CO where the necessity to provide market information on any and all plausible market definitions would be even more disproportionate. i) Section 8.15 (in combination with Sections 1.3 and 1.4) Information requirements 38. We respectfully encourage the Commission to consider whether all of the information items listed in Section 8.15 of the draft Form CO should be required for the Form CO to be complete. Our experience shows that it is often extremely cumbersome for the BRDOCS01/

11 parties to obtain the requested contact information in respect of other companies, especially competitors, to the extent that this information is not available in the public domain. On occasions, certain information items cannot be obtained at all given the refusal of the companies concerned to disclose contact details. 39. As such, account should be taken in Section 8.15 of the draft Form CO of the fact that the parties often depend on the willingness of third parties to disclose the requested information. Providing information items listed in Section 8.15 should therefore only be mandatory if they are available in the public domain. Where this is not the case, it should be left to the parties best reasonable efforts to provide such information in their notification. III. Review of Form RS 40. Shearman & Sterling LLP welcomes the Commission s initiative to update, streamline and reduce the information requirements for making a pre-notification referral under Article 4(4) or 4(5) of the EUMR. 41. As of 30 April 2013, there have been 255 Article 4(5) requests and 84 Article 4(4) requests. 4 The extensive use that has been made of these referral mechanisms reveals the material role they play in enhancing the efficient jurisdictional flexibility of the EUMR. In that respect, we encourage the Commission to further take advantage of this project by ensuring that certain procedural and substantive aspects of those mechanisms are made less burdensome for stakeholders. 42. At the outset, we note that the Form RS is intended to be used to enable a decision to be taken solely on jurisdiction, not on the merits of the case. Given the jurisdictional nature of the Form RS and the time it adds to the transaction timeline it is critical that any proposed changes properly result in simplification and reduction of administrative burden. Therefore, we wish to take this opportunity to invite the Commission to consider whether the Form RS is needed at all. In particular, in the circumstance of an up-referral to the Commission, the key information that needs to be provided is whether the transaction is notifiable in three Member States. We consider the rest of the information that the prescriptive form requests is unnecessary and preparation of much 4 DG COMP statistics available at BRDOCS01/

12 detailed information slows down the process of allocating jurisdiction and therefore the speed at which the entire review can take place. 43. Following consideration of this proposal, should the Commission still wish to retain the detailed prescriptive Form RS, we set out our comments below on the proposed amendments to the Form RS specifically. Please note that a number of the points mentioned above regarding the Form CO, for example, regarding requests for waivers to not provide certain data points, are equally applicable to the Form RS. 44. As discussed above, we wish to highlight the Commission s approach as regards incompleteness of the information for the Form RS, notably the reference to instances of missing or incomplete contact details. 5 Notifying parties do not always have access to such information, particularly competitors contact details. Consequently, having expressly reiterated the importance of this kind of information without allowing for materiality, the threshold appears to be too burdensome, especially in the context of the stated objective of streamlining and reducing the information requirements. 45. Equally, we query why it is necessary, in the Form RS, for the notifying parties to submit a list of those jurisdictions outside the EEA where the concentration is subject to regulatory clearance under merger control rules before or after completion. This sort of information does not appear to be necessary for the assessment of the Form RS and, at the time, is actually moot as jurisdiction has not yet been allocated. 46. Finally, we note that the treaty reference to the legal basis for the treatment of confidential information submitted by the notifying party under the Form RS should read Article 339 of the Treaty on the Functioning of the European Union ( TFEU ) instead of Article 287 of the Treaty [ ]. 6 We also believe that further clarification about the rationale of paragraph 2.4 of the draft Form RS (which asks to describe any financial or other support from public authorities to any of the parties) is needed. 5 6 Annex III, Form RS, paragraph 1.3 Incorrect or misleading information in the reasoned submission, including instances of missing or incomplete contact details, will be considered to be incomplete information (Article 5(4) of the Implementing Regulation). Id., paragraph 1.5. BRDOCS01/