EXTENSION OF SCOPE OF EUMR TO INCLUDE MINORITY INTERESTS AND REFORM OF THE REFERRAL SYSTEM

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1 Consultation date: Response date: D021\087\LN A. Introduction RESPONSE TO THE EUROPEAN COMMISSION'S CONSULTATION ON EU MERGER CONTROL ("TOWARDS MORE EFFECTIVE EU MERGER CONTROL"): EXTENSION OF SCOPE OF EUMR TO INCLUDE MINORITY INTERESTS AND REFORM OF THE REFERRAL SYSTEM 1. Dickson Minto W.S. welcomes the opportunity to respond to the European Commission's ("Commission") consultation paper on (i) the extension of the scope of the EUMR to include noncontrolling minority shareholdings and (ii) reform of the referral system, issued on 20 June The views expressed in this response are solely ours and should not be attributed to any of our clients. 2. In this response, we refer to the following documents: Council Regulation (EC) No 139/2004 of 20 January 2004 (the "EUMR") and the Commission staff working document entitled "Towards more effective EU merger control" (the "Consultation Paper"). B. Minority shareholdings Introduction 3. In the Consultation Paper the Commission asks for views on whether or not it should extend the scope of the application of the EUMR to cover minority shareholdings. However, it appears to us that the Commission is already of the view that reform is necessary. For example, the Commission states in the Consultation Paper that it considers it necessary to "upgrade its toolkit" to allow the Commission to intervene in problematic cases of structural links. Further, Commissioner Almunia has in the past spoken about an "enforcement gap" in relation to structural links and has made it clear that he is in favour of introducing a selective notification system 1. Therefore the main focus of this consultation seems to be not whether the Commission should be given jurisdiction to investigate structural links but rather how such a system should be designed. 4. In our view, it would have been helpful if the Consultation Paper had given more consideration to the key question of whether in fact it is appropriate to extend the Commission's powers to investigate the creation of structural links under the EUMR (instead of focusing nearly exclusively on how any such system should be designed). We consider that a structural link may give rise to significant anticompetitive effects only in very limited circumstances and therefore it is debatable whether the Commission's proposed reforms are genuinely necessary. Further, this consultation appears to go against the Commission's stated aim of making EU merger control more business friendly by reducing administrative burdens 2. To extend the Commission's 1 Speech by Joaquin Almunia: "Merger review: Past evolution and future prospects". Conference on Competition Policy, Law and Economics, Cernobbio, Italy, 2 November See for example the following quote from the Commission's press release dated 27 March 2013 in relation to its consultation on the revision of the simplified procedure: "This initiative is part of the Commission's overall effort to make administrative procedures less burdensome for businesses, thereby stimulating growth and making Europe more competitive". 1

2 powers in relation to the investigation of structural links would, in our opinion, risk deterring investment in European companies, limiting growth and reducing competitiveness. 5. We note that the Consultation Paper does not discuss the system design in great detail and would therefore suggest that the Commission runs a further consultation on the detail if a policy decision regarding a system change is made. Interlocking directorates 6. In the Consultation Paper, the Commission defines "structural links" as "non-controlling minority shareholdings". However, we note that the Consultation Paper does not state how the Commission will treat interlocking directorates (in the absence of the acquisition of a controlling stake) and whether these might also become subject to the Commission's review. A report by the OECD on minority shareholdings in 2008 considered the ways in which many merger control regimes deal with interlocking directorates 3. We would be grateful if the Commission could provide guidance on how it intends to treat interlocking directorates (whether under the reformed merger control rules, Article 101 or otherwise). System design 7. If the scope of the EUMR were to be widened to include minority shareholdings, we would not favour the introduction of a mandatory notification system as we believe that this would create an unnecessary and burdensome workload both for businesses and for the Commission. Instead, we would prefer a self-assessment system that operates with a voluntary notification option. This self-assessment system should offer parties the option to seek clearance on a voluntary basis in circumstances where legal certainty is required by the parties. 8. In the interest of legal certainty we believe that it would be appropriate to include a safe harbour based on the percentage stake being acquired e.g. the Commission would not be entitled to review a transaction where the relevant percentage of voting rights is, for example, less than 25%. Where the stake exceeds this threshold, we suggest that the Commission should look at the acquisition in a wider context. The UK rules relating to the concept of "material influence" could provide inspiration for the Commission where a stake falls outside the "safe harbour". 9. We note that in section II.3 (a) of the Consultation Paper the Commission states that it might at a later stage consider issuing guidance on the types of cases it is most likely to examine. It would be undesirable if the EUMR were first amended and only later were such guidance issued, as this could create significant uncertainty for businesses. We submit that any guidance should be published at the same time as the EUMR amendments taking effect, and only after proper consultation has been carried out. Scope 10. As regards jurisdiction, we are of the view that the Commission should only have competence to review acquisitions of minority interests that have a European dimension (i.e. the jurisdictional thresholds set out in Article 1 EUMR must be met). The "one stop shop" principle should be maintained. 11. Regardless of the type of system implemented, we consider that the standstill obligation contained in Article 7(1) EUMR should not apply to notifications of minority shareholdings. 3 OECD report on Minority Shareholdings dated 23 June 2009: 2

3 Procedure 12. In our view it is important that the self-assessment system implemented includes a voluntary notification option (in relation to both anticipated and completed acquisitions). A voluntary notification option is desirable because it will enable parties to obtain legal certainty where such certainty is required. Whilst the unwinding of the acquisition of a minority stake may be technically possible, it will not necessarily be straightforward in all cases and will almost certainly come at a price (i.e. the acquirer may be forced to divest the shares at a loss). Therefore parties should have the option to voluntarily notify the Commission where they require certainty. 13. If the Commission were minded to implement a voluntary notification option for anticipated acquisitions of minority shareholdings, we would suggest that no automatic standstill obligation or "hold separate" obligation should apply. Instead, the Commission may be given the power to make a "hold separate" order where this is justified by the exceptional circumstances of the case. 14. As regards timelines, we consider that the standard EUMR timelines should apply. 15. In order to ensure legal certainty for businesses, a self-assessment system would need to be accompanied by a clearly defined limitation period. The Commission could for example set a limitation period along the lines of the UK system, i.e. 4 months from the date that the transaction or arrangements are made public. C. Referral system General comments 16. We consider that enhanced clarity and ease of reference could be achieved by grouping all referral provisions together in the revised EUMR text (i.e. Article 4(4), Article 4(5), Article 9 and Article 22)). Article 4(5) (referral by parties up to Commission where notifiable in at least 3 MS) 17. We welcome the Commission's proposal to abolish the Form RS. At present, the requirement to submit a Form RS (and wait 15 working days for it to be reviewed by Member States) is burdensome and causes unnecessary delays. In many transactions deal timing is tight and the 15-working day period is considered to be excessive; we consider that abolition of the Form RS would probably lead to more referrals under Article 4(5) as the timing of the referral process would be more in line with businesses' requirements. 18. As regards the situation where a competent Member State(s) opposes the jurisdiction of the Commission, we agree that the default position should be that the Commission renounces jurisdiction in favour of the relevant Member State(s). However, it is possible to have a situation where only one Member State opposes Commission jurisdiction and where the transaction will, in the absence of Commission jurisdiction, meet filing thresholds in several different Member States. In this scenario, the notifying party would be faced with the sudden burden of having to urgently prepare a number of individual merger control filings. This is often undesirable from a practical perspective and makes it difficult for notifying parties to accurately predict timing of the process. We would suggest therefore that the Commission provides an exception to the default position for a notifying party who would prefer that the opposing Member State and the Commission split jurisdiction, so that the notifying party does not have to file separately in a number of Member States. For example, where a competent Member State opposes Commission jurisdiction, the notifying party has, say, 2 working days in which to notify the Commission of its 3

4 desire to have split competence (i.e. that the objecting Member State has competence to review the effects of the transaction in that country and the Commission retains jurisdiction for the rest). 19. We do not object to the principle that information exchange between the Commission and the Member States be broadened as we recognise that this exchange is designed to assist Member States in their review of the case and may also benefit the parties. We would however request that, in order to protect especially sensitive information, information should only be exchanged with the consent of the notifying party. 20. We are strongly in favour of shortening the consultation period for Article 4(5) requests. It is important to notifying parties to have certainty as regards filings at the earliest opportunity. We would ask the Commission to consider shortening this period further, for example to 5 working days. 21. In relation to the Commission's proposal to inform the competent Member State(s) before the actual submission of the notification, we consider that this step carries practical benefits. However, as mentioned by the Commission in the Consultation Paper, there may be sensitivity issues particularly in relation to transactions which are not already in the public domain. Our suggestion would therefore be that the Commission shares advance information with Member States only where it has received prior consent from the notifying party. Article 22 (MS requests referral up to Commission) 22. We support the introduction of the (logical) rule that only Member States that are competent can request a referral to the European Commission under Article 22. Article 4(4) (parties request referral down where transaction has a significant effect on competition in a MS) 23. We consider that the Article 4(4) procedure is useful since, where it is clear to a notifying party that a Member State would otherwise make an Article 9 referral request, the notifying party is able to use the procedure under Article 4(4) as a "fast-track" procedure. 24. Under the current procedure, time is lost in pre-notification and the Form RS consultation period. We would therefore support the abolition of the Form RS under Article 4(4). 25. Instead of a Form RS, we would propose the introduction of a shorter form along the lines of a case team allocation request (but including an additional question on how the concentration may significantly affect competition in a distinct market within a Member State). We would also suggest shortening the waiting period as it is our view that 25 working days is an unnecessarily long timeframe for the Commission to decide whether or not to refer the case to the Member State. D. Miscellaneous 26. We agree with the Commission's proposal to expressly exclude from its jurisdiction concentrations that do not have any effect in the EEA and that would not have any conceivable impact on markets in the EEA (e.g. the creation of a full-function joint venture located and operating outside the EEA). 27. As explained in paragraph 19 above, we are of the view that any information exchange between the Commission and Member States should be carried out only with the prior consent of the notifying party. This consent could be given on an "objection basis" i.e. where the notifying party 4

5 is deemed to agree to the information being shared unless it objects to the Commission's request within, for example, 2 working days. E. Other amendments to EUMR 28. At present, the EUMR refers to two different types of "control": (i) control as set out in Article 3(3) of the Merger Regulation (definition of concentrations), and (ii) control as set out in Article 5(4)(b) (calculation of turnover) (albeit without expressly referring to the notion of "control"). We consider that this is confusing to businesses and we therefore propose using the decisive influence concept in Article 5(4) for consistency. If currently, for example, a private equity house is asked by the Commission for a list of its portfolio companies, they are faced with the question which notion of "control" to apply (particularly as they will have gone through the exercise of calculating of turnover by reference to Article 5(4)). The current review of the EUMR presents an opportunity to clarify the position. 29. We note that, under the EUMR regime, clearance decisions are not subject to an "expiry date". We consider that there may be exceptional circumstances in which completion of a transaction may be delayed by a substantial period of time (several months or even years) following the Commission's clearance decision. In such a case, it might be unclear to a notifying party whether the previously-obtained clearance decision remains applicable to the (what may reasonably be considered still the same) concentration. To provide as much certainty as possible to businesses, we would like to suggest that the Commission includes an automatic expiry date with each clearance decision (e.g. two or three years). Where this time period has expired, parties should engage with the Commission to discuss whether a new notification is required. There may, for example, be cases that originally required a full Form CO but for which a simplified procedure may be appropriate given the fact that the Commission has reviewed the market in question relatively recently. We would be happy to clarify or discuss any of the above if it would assist the Commission. If so, please contact Ajal Notowicz (t: +44 (0) , e: ajal.notowicz@dmws.com) or Ruth Osborne (t: +44 (0) , e: ruth.osborne@dmws.com). Dickson Minto W.S. (AJN/RLO) London, 11 September