RESPONSE TO THE EUROPEAN COMMISSION S PUBLIC CONSULTATION: EU MERGER CONTROL DRAFT REVISION OF SIMPLIFIED PROCEDURE AND MERGER IMPLEMENTING REGULATION

Transcription

1 RESPONSE TO THE EUROPEAN COMMISSION S PUBLIC CONSULTATION: EU MERGER CONTROL DRAFT REVISION OF SIMPLIFIED PROCEDURE AND MERGER IMPLEMENTING REGULATION 19 JUNE 2013

2 EU MERGER CONTROL DRAFT REVISION OF SIMPLIFIED PROCEDURE AND MERGER IMPLEMENTING REGULATION 1. INTRODUCTION 1.1 Freshfields Bruckhaus Deringer LLP welcomes the opportunity to respond to the European Commission s (Commission) consultation on the draft revision of the simplified procedure and merger implementing regulation, published on 27 March Our comments are based on our significant expertise in merger control law and practice within the European Union and elsewhere. Further information regarding our antitrust, competition and trade practice can be found on our website The comments contained in this paper are those of Freshfields Bruckhaus Deringer. They do not necessarily represent the views of any of our individual clients, or of all Freshfields Bruckhaus Deringer lawyers. 2. GENERAL OBSERVATIONS 2.1 We welcome this initiative by the Commission to streamline merger analysis for unproblematic cases, reduce the administrative burden for merging parties and increase the number of concentrations reviewed under the simplified procedure. 2.2 We agree that a number of the proposed reforms are consistent with these objectives. These include increasing the market share thresholds for use of the simplified procedure and the identification of affected markets, clarifying that overlaps between joint venture parents do not prevent use of the simplified procedure, the move towards greater use of waivers as well as the removal of certain information requirements in the notification forms. 2.3 However, we see a risk that some of the proposals in themselves will have the opposite outcome to the stated objectives by increasing the administrative burden on merging parties. Further, some proposals lack sufficient clarity as regards their intended application which gives rise to similar concerns. In light of this, we see a particular risk that the burden of these new requirements and uncertainties will be felt in the pre-notification stage leading to delays for filings. 3. PROPOSED AMENDMENTS TO THE NOTICE ON SIMPLIFIED PROCEDURE 3.1 The proposals to increase the market share thresholds, create a new category of cases that can benefit from the simplified procedure (based on limited increment in market share) and exclude overlaps between joint venture parents are welcome moves to increase the availability of the simplified procedure for clearly unproblematic cases. However, we have the following specific concerns in relation to the proposed amendments to the Notice on Simplified Procedure. 1 Page 1

3 Increased need for substantive assessment by case teams at pre-notification stage risks significantly undermining the benefits of the amendments 3.2 The amendments introduce uncertainty concerning the availability of the simplified procedure (in particular as regards concentrations involving small horizontal increments (paragraph 6 and 16 of the draft Notice) and joint ventures (paragraph 5 and 11)). We are concerned that the resolution of these uncertainties in specific cases will lead to protracted pre-notification discussions including on the substance of the competition law assessment. This is a counter-intuitive outcome for cases which should in principle benefit from a simplified procedure. Given that the Commission in any event reserves the ability to revert to a normal first phase merger procedure for cases which exceptionally require a closer investigation or fuller decision (paragraph 9), we consider that these amendments could be removed or clarified in a way which would not undermine the ability of the Commission to, where necessary, subject cases to a full examination. In detail: (a) (b) The proposed reforms appear to bring forward (to the pre-notification stage) the substantive assessment of mergers with a limited increment. This follows from paragraph 16 of the Notice which expressly reserves a case-by-case assessment of the availability of the simplified procedure for concentrations involving a limited market share increment, and the revisions to the Short Form CO which provide that the Commission is less likely to accept a Short Form CO if any of the circumstances listed at paragraph 20 of the horizontal merger notice are present (page 2). 2 We are concerned that these proposals will mean that notifying parties (who in principle should benefit from the simplified procedure under paragraph 6 of the Notice) will need to furnish case teams with information to enable the case team to exclude the existence of any of the special circumstances at paragraph 20 of the horizontal merger notice at pre-notification stage. 3 This is an illogical outcome which is at odds with the stated objectives of the Commission s review. Apart from the significant administrative burden associated with this review (which would be felt by both the Commission and the parties) this pre-notification assessment could be prejudicial to the outcome of the case. We would therefore suggest that the proposals are amended to enable cases involving small increments to benefit from the simplified procedure as a matter of course. Although greenfield joint ventures, prima facie, benefit from the simplified procedure (in accordance with paragraph 5(a) of the draft Notice on the basis that they have no turnover or assets at the time of the notification) paragraph 11 of the Notice provides that joint ventures which are likely to achieve significant sales, including in the EEA, in the foreseeable future may be subject to a full assessment. The Notice does not contain guidance as to what 2 3 The guidance at paragraph 20 of the horizontal merger notice provides that the Commission is unlikely to identify horizontal competition concerns in a merger with [(inter alia)] a delta below 150, except where special circumstances are present. This would even include information on cross-shareholdings which would seem to be in contradiction to the amendments to the Form CO which invites parties using the full form CO to seek a waiver from such information. Page 2

4 significant or foreseeable means in this context. For example, it is not clear whether joint ventures with projected sales or asset values which are less than the thresholds in paragraph 5(a) can expect to benefit from the simplified procedure. The time frame is also not clear. Again we see a risk that prenotification discussions may become protracted and burdensome in a manner which undermines the effective availability ( in principle ) of the simplified procedure for these cases. (c) Paragraph 11 of the draft Notice also provides that, for all joint ventures (greenfield or non-greenfield), the Commission may carry out a full assessment if the joint venture is to supply important inputs for products or services that are sold in the EEA. There is no guidance as to what important means in this context. Similarly, the proposed wording ( and/or ) would mean that even if the prospective sales of a joint venture will take place entirely outside the EEA, the Commission may require a full assessment if the prospective customers of the joint venture are active in the EEA based on an assessment of the importance of the inputs acquired from the joint venture. Clarity required that concentrations with no horizontal or vertical links will (in principle) benefit from the simplified procedure 3.3 We note that the express prima facie availability of the simplified procedure for cases involving no horizontal or vertical overlap (as previously set out in paragraph 5(b) of the Notice) has been removed. Further, the proposed amendments to the remainder of paragraph 5 and 6 would no longer (necessarily) exempt such cases from full assessment. By way of example, cases involving one party with a market share exceeding 50% (on any plausible market) would appear to be always subject to full assessment even if the other parties to the concentration are not active in any horizontally or vertically linked markets. Such cases may typically arise when acquisitions are made by strategic investors such as private equity funds. The exclusion of such cases (which are amongst the most clearly unproblematic) is at odds with the stated objectives of the review and we encourage the Commission to clarify the text and reintroduce the express prima facie availability of the simplified procedure for such cases. Threshold for horizontal overlaps should be increased to 25% rather than 20% 3.4 The Commission proposes to increase the upper threshold of permissible horizontal overlaps for parties eligible for the simplified procedure from 15% to 20% (paragraph 5(b) of the draft Notice). We welcome this increase, but consider that there is further scope for this figure to be increased to 25%. This would be consistent with the presumption established in both the EUMR (at recital 32) and the Commission s Horizontal Merger Guidelines (at paragraph 18) that a concentration is likely to be compatible with the common market where the parties combined market share is below 25%. Clarity required regarding application of simplified rules to vertical mergers 3.5 We consider that two aspects of the revised Notice concerning vertical mergers may give rise to confusion. First, vertical mergers are not expressly excluded Page 3

5 from paragraph 6 (which we assume is designed to exempt only horizontal mergers with a limited increment). Paragraph 6 could be read to mean that a larger category of vertical mergers will benefit from the simplified procedure than is permitted in paragraph 5(b)(ii). We assume this is not the Commission s intention. Second, we note that footnote 14 could be read to imply that vertical relationships exist only if an input is an important input. This is misleading as the notion of an important input is relevant to the assessment of input foreclosure rather than the existence of a vertical link. We would propose that the text is clarified in both these respects. 4. AMENDMENTS TO THE NOTIFICATION FORMS New information requirements risk giving rise to a more burdensome process which is counter to the objectives of the Commission s review 4.1 We note and welcome the removal or reduction of certain requirements to provide information in the Form CO (for example the increase in market share thresholds for affected markets which will reduce information requirements and the removal of section 7 data on market shares at Member State, EEA and EU levels, HHI calculations and supplier contact details). However, we also note that the notification forms envisage some new information requirements and are concerned that in practice the net effect of the revisions will be an increased information burden. The proposals include enhanced requirements for section 5.4 documentation, potentially greater requirements for market data (on all plausible markets), stricter requirements in relation to contact details and information on product differentiation and closeness of competition. Although not a matter of completeness, it is also proposed that a description of quantitative data will be required in the Form CO. It is ambiguous whether information on cross-board memberships will be required for completeness (footnote 21). 4.2 In this regard, we consider that the express inclusion of significant additional requirements risks creating a new standard as to what information is considered necessary for the assessment of mergers and risks giving rise to prolonged debate in all cases (including straightforward cases) at pre-notification stage. 4.3 The new information requirements will inevitably give rise to uncertainty around issues such as the relevance of certain section 5.4 documents and the treatment of confidential information (unrelated to the concentration) contained therein; the potential need for quantitative economic data in light of the competition issues at stake; the extent to which an alternative market definition is plausible ; and the availability of waivers either where expressly indicated in the Form CO or elsewhere. There is a particular risk that case teams will feel a need to progress their substantive assessment of the case in order to determine whether certain information should be required (potentially as a matter of completeness). Discussions of this nature at prenotification stage (in particular as regards the need for extensive 5.4 documents and economic data) currently only take place in complex cases. We see a risk that the express inclusion of these additional requirements may lead to the provision of this information being treated as normative by case teams even in straightforward cases. 4.4 We are also concerned that it will be difficult and time consuming for notifying parties to identify and disclose all responsive documents and data. The Page 4

6 additional requirements would also appear to increase the burden on the Commission to manage its file and staff its cases. While we welcome the apparent shift in policy to allow greater use of waivers it is unclear that this will alleviate the burden in practice. 4.5 Also of particular concern is the new information requirement at section of the Short Form CO which requires parties to provide sales and market share data for the last three years. This appears to be a duplication of the requirement at section for parties to provide the same data for the last year and indicate any significant changes over the last three years. We would suggest that the requirements of section are adequate for a simplified review, and that section should be deleted. Extension of documents discoverable under section 5.4 raises specific issues of relevance and confidentiality and risks going beyond what can be required under Article 11 EUMR 4.6 The additional supporting documentation required under section 5.4 raises specific issues concerning relevance and confidentiality. As regards relevance, it is difficult to see how presentations which are unrelated to the notified transaction could be considered relevant to the Commission s review of a notified transaction. This applies in particular to the proposal to seek disclosure of all presentations concerning other potential acquisitions (apart from the notified concentration). Minutes of meetings at which the transaction was discussed may frequently be irrelevant to the assessment of a case on its merits (e.g. if only the purchase price was discussed). This request would appear to go beyond the Commission s powers under Article 11 EUMR which permits the Commission to require disclosure of information which is necessary for it to carry out its duties under the EUMR. 4.7 The expanded scope also raises specific concerns in relation to the protection of confidential information. The content of minutes and presentations which are unrelated to the notified transaction may not be known to employees of the parties working on the transaction (the deal team) who are not privy to all board discussions (thereby raising administrative hurdles). We would also expect that notifying parties may be less willing to agree waivers to allow the Commission to share information with other antitrust authorities globally in respect of highly confidential discussions at board level. Given that these 5.4 documents may be required as a matter of completeness, we again see a risk that pre-notification discussions are prolonged as a result of these issues. 4.8 Finally, in relation to the Short Form CO, the proposal to require the production of documentation analysing different options for acquisitions (section 5.3 of the Short Form CO) appears contrary to the Commission s objective of reducing the regulatory burden for unproblematic mergers and does not appear justified by any issues arising in simplified procedure cases. Clarification on meaning of plausible alternative markets required 4.9 We recognise that the proposal for notifying parties to provide data and information (in sections 6-8) on all plausible alternative product and geographic markets appears to be designed to relieve the burden on notifying parties to provide, Page 5

7 as a matter of completeness, data at each of Member State, EU and EEA level. We are aware that the concept is not entirely new, having been included in the definition of reportable markets in the Short Form CO. However, we consider that the addition of this concept into the Form CO has the potential to cause confusion and uncertainty including, in a worst case, divergent practices as between Commission case teams To avoid any misunderstanding about the scope of information to be provided, we propose that the meaning of plausible in this context should be expressly linked to the definition of the relevant market (product and geographic) in light of the criteria in section 6.1 and the Commission s notice on the definition of the relevant market. This should make clear that data on alternative markets is only necessary where there is an economically realistic alternative, rather than a merely hypothetical one We would welcome a clearer message in the notification forms to guard against an over-zealous interpretation of this provision which could lead to unnecessarily burdensome data-gathering and analysis both for notifying parties and the Commission. Clarification required in relation to treatment of joint ventures 4.12 As noted above we welcome the exclusion of overlaps between joint venture parents in the Short Form CO. However we note that this matter has not been clarified in the same way in the revised Form CO. We consider that it would be useful to include a similar clarification within section 6.3 of the Form CO in respect of the definition of affected markets In addition, we also consider that the requirement at section 9 of the Short Form CO to provide information in relation to the activities of joint venture parents in upstream, downstream and neighbouring markets should be limited to upstream, downstream or neighbouring markets in the EEA. Without such a limitation, there is again a risk that the resources of both parties and the Commission will be spent on matters that cannot result in competition concerns within the EEA. Waivers to enable international cooperation should be limited to complex cases 4.14 We consider that the proposal at section 1.9 of the revised Form CO to encourage all parties to submit confidentiality waivers at the time of notification to enable international cooperation is unnecessary. Our experience suggests that such waivers are only required in a small number of complex transactions. To encourage parties in all cases (even straightforward ones) to provide these waivers therefore seems unduly burdensome. We think that the Commission s existing practice, whereby waivers are requested on a case-by-case basis, is sufficient and would suggest that section 1.9 is amended to reflect this. The stricter approach on contact details may be seen as disproportionate 4.15 We welcome that supplier contact details are no longer required as a matter of completeness. We would encourage the Commission to re-consider its continued insistence on the provision of fax numbers which are often not relevant in modern Page 6

8 communications. We also consider that the ability for the Commission to declare the Form CO incomplete on the basis of any (rather than multiple) instances of incorrect contact may be seen as disproportionate for the following reasons. (a) (b) First, the required contact details are not (always or ordinarily) within the possession of notifying parties or publicly available. Further, companies are also increasingly reluctant to provide data on employees (in light of data protection concerns) and this hinders the ability of notifying parties to obtain the information from the companies directly. Second we also note that the revised wording in 1.4(c) of the preamble to the Form CO provides that any missing or incomplete contact detail will be considered incorrect or misleading information within the meaning of Article 5(4) of the Implementing Regulation. Article 14(1) of the EUMR provides that the Commission may impose fines for the provision of incorrect or misleading information. Consistency required in relation to the treatment of other markets 4.16 Finally, we note that in section 6(4) of the draft Form CO (concerning other markets ) it is proposed that detailed information will need to be provided in respect of other markets where one party has a share of 20% or more and the other party is a potential competitor. This threshold is currently set at 25%. The Commission has not offered any rationale for the decrease in the threshold which will potentially increase the burden of data gathering on notifying parties. By contrast, the thresholds in respect of neighbouring markets and markets in which one party holds important IP rights have been increased from 25% to 30%. We would propose that all other markets are treated consistently and that the threshold in relation to potential competition is raised to 30%. Freshfields Bruckhaus Deringer LLP Page 7