Antitrust

Where there’s a will, there’s a way: What’s next for EU below-threshold M&A transactions in a post Illumina/Grail world?

As we have discussed previously, the European Court of Justice ruled on September 3, 2024 that the European Commission’s recalibrated approach to using Article 22 of the EU Merger Regulation to review otherwise non-reportable M&A transactions is unlawful.

This ruling is a clear blow to the EC’s ability to review below-thresholds deals going forward, particularly the so-called “killer acquisitions” aimed at removing targets with little or no EU turnover on which the EC had set its sights. However, as stated in several recent statements, this judgment has not weakened the political resolve of both the EC and national competition authorities to review perceived killer acquisitions through the alternative powers at their disposal.

Dealmakers should therefore closely monitor the emergence of new EU and national tools designed to enable merger review, with important implications for the practical risk assessment and timing of potential M&A deals.

“Traditional” Article 22 referrals

Merging parties should continue to assess the risk of Article 22 referrals to the EC as “traditionally” interpreted.

Article 22, under its original interpretation, allowed Member States that did not have their own system of merger control to request that the EC review a transaction that affects its territory despite it not meeting the EU thresholds.

Today, Luxembourg remains the only Member State without a national merger control regime, and could provide an additional avenue for future EC reviews on the grounds of Article 22, provided that the transaction threatens to affect competition significantly in (at least) Luxembourg. It is however doubtful that the EC would have the political appetite to rely on its smallest Member State alone to continue its practice of calling in below thresholds deals, bearing in mind that there is an ongoing appeal procedure before the General Court relating to the EC’s decision to accept Luxembourg’s sole referral of Brasserie Nationale/Boissons Heintz under Article 22.

Even so, Luxembourg is currently in the process of adopting a national merger control regime, meaning that it may soon no longer be able to refer transactions falling below its future national thresholds.

Legislative amendments to the EU rules

While the EC recently expressed an openness to change the current EU thresholds, merging parties should not be overly concerned by these remarks at present since the EC also specified that this would not be the preferred option, and certainly not in the short-term.

In particular:

• Lowering the applicable turnover thresholds would lead to an increased workload for DG Comp and to the systematic review of mergers which – in most cases –  are harmless (over the past three years, 97% of the below-threshold mergers examined by the EC did not require further review).
• The same can be argued regarding the potential introduction of alternative transaction-value based thresholds: in the past three years, most acquisitions reviewed by the EC in the digital and tech sectors, which were highly valued despite the low turnover of the target, did not raise competition concerns.
• The EU legislator could also be tempted to update the EU rules introduce a so-called “safeguard mechanism” within Article 22 to allow the referral of below-threshold transactions under specific circumstances. However, this may recreate some of the legal certainty concerns which led to Illumina/Grail being set aside by the ECJ.

Evolving national merger control tools

Merging parties should be aware that there are several national mechanisms that the EC could use in order to continue to examine transactions via Article 22. These mechanisms involve deals that meet the criteria for review under national law, yet fall below the EU thresholds.

(a) Transaction value thresholds

Some EU Member States have already introduced lower or alternative thresholds, such as Austria and Germany, which adopted “value of transaction” thresholds in 2017. On the basis of these new thresholds, high-value transactions will be notifiable under Germany and Austria’s merger control rules, provided that certain revenue thresholds are met by the acquirer and that the target has a local nexus with Germany or Austria (which does not necessarily involve sales).  

As shown in the table below, these new German and Austrian transaction value based thresholds have not shown so far their efficiency in catching perceived killer acquisitions.

(b) “Call-in” mechanisms

Following the recent Illumina/Grail judgment, deals that meet national criteria but are below EU thresholds could still be referred by Member States using the increasing number of “call-in powers” of certain NCAs.

Call-in powers refer to the ability for NCAs to review non-notifiable concentrations based on indications of competition risks, sometimes even retroactively. While certain Member States already have call-in powers, others are actively considering introducing them into national law:

The above call in powers have until now been used sparingly – explainable in part by the fact that transactions still generally need to fulfill some alternative sets of criteria to be called in. 

By contrast, there are several ongoing in-depth inquiries by the Italian Competition Authority into mergers that were caught under new powers introduced in 2022. And, last week, the EC accepted its referral request to assess NVIDIA’s proposed acquisition of Run:ai under Article 22. Despite not meeting the relevant national turnover thresholds, the ICA found that the transaction satisfied the requisite conditions enabling its use of call-in powers (see above). In accepting the referral, the EC stated that the transaction “threatens to significantly affect competition in the markets where NVIDIA and Run:ai are active, which are likely to be at least European Economic Area-wide and therefore include the referring country Italy”. The EC concluded that it is best placed to examine the transaction given its knowledge and case experience in related markets. This decision will likely be a blueprint for the future referral of deals by way of national call-in powers.   

That said, while proliferating national call in powers will give NCAs (and the EC) greater flexibility to review below-threshold deals, they do raise questions of legal certainty and predictability, and could lead to further litigation in coming years. Interestingly, except for Italy, none of the largest Member States (e.g. Germany, France, Spain and Poland) have so far introduced call-in powers. (In France, the possibility had been explored following various public consultations by the FCA between 2000 and 2018, but was abandoned following the “recalibrated approach” to Article 22, and may now be resurrected.) This means that – for now at least – the EC may have to rely on smaller Member States to catch below-threshold transactions that primarily affect larger economies in the EU. Some commentators have argued that, among the NCAs of these smaller Member States endowed with call-in powers, the Irish Competition and Consumer Protection Commission may be better placed to refer killer acquisitions to the EC in the future as many Big Tech groups have their European headquarters in Ireland.

European ex post antitrust tools

Last year, in its Towercast judgment, the ECJ recognized the possibility for NCAs (and logically for the EC) to review completed mergers that raise competition concerns. Since then, however, only a limited number of cases have undergone such a review and none has led to a sanction for dealmakers yet:

In other words, there is a heavy evidential burden for both NCAs and the EC to establish that previously completed mergers can either give rise to an abuse of dominance or to an anticompetitive agreement. Advocate General Kokott, who was in charge of the Towercast case, even said that use of Towercast powers should remain “exceptional”.

Sector surveys and “new competition tools”

The 2024 Draghi Report on competition policy suggests the introduction of a “New Competition Tool”, which would allow the EC, after placing certain markets under surveillance, to “conceive and accept, with undertakings, efficient corrective measures to remedy the systematic failures of competition and to impose their application”. The Tool would only be activated following indications of potential anticompetitive conduct or a “preliminary evaluation of positive effects” expected from the resolution of structural issues previously identified.

What about the Digital Markets Act?

Article 14 of the Digital Markets Act requires designated gatekeepers to inform the EC of their intended digital concentrations, even when they are not notifiable to the EC or to NCAs. The logic was that Article 22 could then be used to enable EC review. The ECJ’s Illumina/Grail judgment clearly reduces the effectiveness of Article 14, but NCAs could decide to review mergers based on the information provided by gatekeepers to the EC if they have call-in powers or if they believe that these can lead to an abuse of a dominant position having anticompetitive effects in their jurisdiction.