In 1989 after a long history of failed proposals1 by the European Commission (the Commission), the European Council adopted the European Community Merger Regulation2 (ECMR). Neither Article 81 nor 82 of the EC Treaty made specific mention of mergers (in the late 1980s especially, the Commission made a concerted effort to utilize those provisions to control or influence a number of mergers and joint ventures to which they were able to apply3. The ECMR filled this gap by imposing a system of ex ante control on all mergers, acquisitions and other forms of concentration that met specific turnover thresholds.
The number of concentrations notified to the Commission increased exponentially over the years, turning the task of merger control assessment into the most prolific and visible activity of DG Competition (DG Comp). Until 2002, it had an unbeatable record of case management: with just one exception4, no Commission merger decision had ever been annulled by the European Courts.
In 2002, the Court of First Instance (CFI) annulled a number of high-profile and controversial Commission merger decisions. This triggered substantial public criticism of the Commission's decision-making process, its use of economics, and its alleged lack of due process. Given the level of adverse press comment, the situation was perceived to be serious and potentially damaging to DG Comp's reputation as one of the leading antitrust/competition enforcement authorities in the world.
The Commission took note of the criticism and implemented an immediate additional review to improve the quality of its decision making process to supplement previous suggestions for the amendment of the ECMR. Following comments received on its Green Paper on the review of the Merger Regulation5, the Commission submitted a merger reform control package, including a recast Merger Regulation (the new ECMR). Published in January 2004, the new ECMR, along with is accompanying regulations, notices and guidelines, introduces major changes to merger control assessment and process6. Non-legislative changes have also been adopted in order to improve the quality and reliability of the whole merger review process.
This paper focuses on the major changes introduced by the new ECMR. For this purpose, we first examine clarifications on the scope of ECMR (Part 1). We then focus on the new mechanisms dealing with the prenotification and post-notification allocation of cases between the Commission and the EU Member States (the Member States) (Part 2) as well as within DG Comp (Part 3). The new substantive test, which has been the subject of intense debate, together with the new guidelines on horizontal mergers are also analysed (Part 4). Last but not least, we examine new procedural changes designed to improve the quality, effectiveness and rigour of merger control in the enlarged EU (Part 5).
1. CLARIFICATION OF THE SCOPE OF THE ECMR.
The ECMR applies to mergers, acquisitions, and other forms of concentration that bring about a lasting structural change in control.
The new ECMR clarifies the types of transactions that fall within its scope. It still covers (de) mergers, acquisitions and full-function joint-ventures, but it now captures interrelated transactions such as creeping-mergers, conditional or staggered transactions. The Commission will treat as a single concentration those transactions that are closely connected if they are linked by conditions, or those that take the form of a series of transactions taking place within a two-year period7. Various types of transactions can be identified as falling within this category:
* acquisition of control through a public bid;
* the acquisition of control of an undertaking through the gradual acquisition of shares;
* acquisition of control from various sellers through a series of transactions in securities;
* exchange of assets between two or more undertakings, regardless of whether these constitute legal entities; and
* acquisition of joint control of one part of an undertaking and sole control of another part.
1.2 COMMUNITY DIMENSION.
Nothing has changed under the new ECMR. The Commission still has exclusive competence over concentrations that are deemed to be of "Community dimension" because they exceed the turnover thresholds contained in Article 1 (2) of the ECMR. These thresholds have remained unchanged. Despite previous Commission proposals in the review process to alter these provisions to give it the ability to deal with concentrations that fell below the turnover thresholds yet had had effects in a number of Member States (so falling within the scope of their merger control), it was considered better to reform the case allocation provisions contained in Articles 9 and 22 of the ECMR, as well as introducing some possibility for pre-notification referrals. Following the new provisions introduced by the recast ECMR, if a concentration does not have a Community dimension, national law applies, unless a referral has been made.
2. CASE ALLOCATION WITHIN THE EU: THE NEW REFERRAL SYSTEM.
The ECMR contains a mechanism enabling mergers falling within its scope to be referred back by the Commission to one or more Member States, and a reverse mechanism whereby a merger notified to one or more Member States (i.e. which does not have a Community dimension) can be referred to the Commission.
The former ECMR contained a post-notification referral mechanism (i.e. a transaction had to be filed before it could be referred to a best-placed authority), at Articles 9 and 22 respectively which only operated at the request of the Member State(s). The new ECMR contains a supplemental referral mechanism (both from a Member State(s) to the Commission and to the Commission from a Member State(s) that merging parties themselves can request at the pre-notification stage, i.e. before filing.
While the mechanisms of the old post-notification referral (Articles 9 and 22, as amended) remain, the purpose of the referral mechanism introduced by the new ECMR is to facilitate the re-attribution of cases between the Commission and the Member States, and to provide additional flexibility to ensure that the best placed authority deals with the case while avoiding multiple filings of mergers below the turnover thresholds.
We firstly identify the guiding principles and the key elements underpinning the amendments to the referral system and secondly, examine the main changes to the procedure.
2.1 CASE ALLOCATION: KEY PRINCIPLES AND ELEMENTS.
A) Guiding principles.
The new referral system is designed to fine-tune case allocation between the EU and National Competition Authorities (NCAs). To comply with the principle of subsidiarity contained in Article 5 EC, any decision on a referral has to follow certain guiding principles identified by the Commission in its draft Notice on Case Allocation8.
Three guiding principles underpin the new referral system:
1) Allocation of cases to the best placed authority: the determination of the referral authority must be made on the basis of not only legal/economic analysis, such as the likely geographic impact of the transaction, but also practical considerations, such as the particular expertise and available powers of the respective authority. The latter may also involve consideration of the cost or inconvenience likely to be associated with the investigation being carried out by multiple authorities.
2) Guarantee of a one-stop-shop for cases that have cross-border effects: given the continued importance of this underlying principle and the need to avoid time-consuming, uncertain and costly multiple filings, the avoidance of case fragmentation through partial referrals is stressed by the Commission and is most welcome. This echoes the CFI ruling in Philips c. The Commission9 where the court stated that fragmentation of cases is undesirable, in view of the one-stop shop principle and the risk of inconsistent, or even irreconcilable, decisions that can result from a referral system.
3) Need for legal certainty: the Commission states in its Notice that case reallocation to an authority which was not initially competent must remain the exception. Therefore, referrals, and in particular prenotification referrals, are confined to straightforward cases and conflicts between pre-notification and post-notification referrals should be avoided.
B) Key elements .
The whole referral system has been recast in order to facilitate a fine-tune and quicker allocation of cases between the EU and NCAs. The postnotification referral mechanisms of Articles 9 and 22 have been revised to make them more effective and enable the Commission and Member States to speed-up the process. The new ECMR introduces a wholly new prenotification referral mechanism under Article 4 (either from the Commission to a Member State - Article 4(4) - or from three or more Member States to the Commission - Article 4(5)) that can be triggered by the merging parties themselves but only before a formal filing has been made in any EU jurisdiction.
The key elements of this new referral system are the following:
* Application only at pre-notification stage and solely at the parties' request: the big novelty of the referral system is the new Article 4 that enables the merging parties to request referral, before any notifications have been submitted, through a reasoned submission. This is a welcome development as it provides some additional flexibility to the merger review system and allows the parties to identify, at the pre-notification stage, their preferred review agency.
* At post-notification stage, the Commission can now take the initiative of seeking a referral: under the revised Article 9, the Commission can trigger the referral process, by asking one or more Member States to request it to refer a concentration to the Member State(s) concerned. Alternatively, under the new Article 22, the Commission can invite one or...