Amendments to the EC Merger Control Regulation.

United Kingdom
A new Regulation came into force on 1 March 1998 making a number of important amendments to the EC Merger Control Regulation (Regulation 4064/89). The Merger Control Regulation applies to mergers or "concentrations" (including concentrative joint ventures) having a Community dimension. The new changes will inter alia lower the turnover thresholds in cases where the parties meet specific thresholds in three or more Member States, and will widen the transactional scope of the Regulation, thereby increasing its coverage.

Following the entry into force of these changes, the Commission has recently published a number of revised interpretative notices on various matters under the Regulation, including the concept of concentrations, the concept of undertakings concerned, and the calculation of turnover.

Additional thresholds to determine Community dimension

A new set of turnover thresholds have been introduced to supplement the present set of thresholds for determining when a concentration has a Community dimension. The existing thresholds are (1) the combined aggregate world-wide turnover of all the undertakings concerned being more than ECU 5 billion; and (2) the aggregate Community- wide turnover of each of at least two of the undertakings concerned being more than ECU 250 million, and (3) each of the undertakings concerned not achieving more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

The supplementary thresholds bring transactions within the Regulation where the parties' aggregate world-wide turnover is only ECU 2.5 billion, provided the following additional thresholds in at least three Member States are met:


  • in at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than ECU 100 million;
  • in each of the three Member States included for the purpose of (2), the aggregate turnover of each of at least two of the undertakings concerned is more than ECU 25 million; and
  • the aggregate Community-wide turnover of at least two of the undertakings concerned is more than ECU 100 million unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

Assessment of joint ventures

The new Regulation liberalises the jurisdictional rules relating to joint ventures, by removing the require-ment that concentrative joint ventures must not involve co-ordination between the parents or between one of them and the joint venture in order to come within the Regulation.

Concentrative joint ventures, which fall within the Merger Control Regulation are those which are jointly controlled and which perform on a lasting basis all the functions of an autonomous economic activity (a 'full function' joint venture). Previously a concentrative joint venture must involve no 'co-ordination between the parties as independent entities' ( i.e. the parties are not involved in the relevant activities in their individual capacity.) However, under the amended Regulation any joint venture which is a 'full function' joint venture and which is above the relevant thresholds will be treated as a 'concentration' even if it involves some 'co-ordination between the parties acting as independent entities' (i.e. even if they are involved in the relevant activities in their individual capacity). The co-ordinative aspects of such concentrations will be assessed by the Article 85 criteria, but these concentrations will still be subject to the procedures in the Merger Regulation so that, for example, notification and suspension are mandatory and the benefits of the strict framework and timetable of the Merger Regulation will apply.

The Commission has recently published a notice in the Official Journal on the concept or meaning of full function joint ventures. This replaces the Commission's previous notice on the distinction between concentrative and co-operative joint ventures.

Purely co-operative joint ventures which are not 'full function' i.e. do not perform all the functions of an autonomous economic entity, will remain subject to Article 85 rules and procedures. The same applies to 'full function' joint ventures which do not have a Community dimension under the above thresholds.

Modifications to a concentration to ensure its compatibility with the Common Market

The Commission may now accept modifications in the form of undertakings not only in the second phase but also in the first phase of the procedure, during the Commission's initial one month investigation, if any competition problems and the appropriate remedies can be identified. Also, the Commission has the power to require the undertakings to adhere to conditions or obligations to ensure that any modifications are actually complied with.

Referral to Commission of concentrations which do not have a Community dimension

Previously, a Member State could request the Commission to consider a concentration which does not have a Community dimension where the concentration creates or strengthens a dominant position which significantly restricts competition in that Member State ( and affects trade between Member States). Now such a referral will be possible at the joint request of two or more Member States based on the effects within the territories of the Member States making the request.

Referral to the competent authorities of the Member States

In the past, the Commission could refer a case to a Member State in response to its request when a concentration affected competition on a distinct market within a Member State. In a request for a referral the Member State had to show that the concentration threatened to create or to strengthen a dominant position on the distinct market. However, where the distinct market does not constitute a substantial part of the common market, the requesting Member State need not demonstrate the dominant position element in order for the Commission to be able to refer the concentration. Also, the Commission can now refer either the whole or part of the concentration to the competent authorities of the Member State with a view to the application of that State's competition law.

Suspension and derogations

Concentrations must now be suspended throughout the period from notification to the Commission until actual clearance. The Regulation sets out express rules which apply where the Commission derogates from any of the provisions of the Merger Regulation. Any derogation must be reasoned and the Commission must consider the threat to competition posed by the concentration as well as the effect of the suspension on the undertakings or any third party.

Calculation of turnover for credit and financial institutions

The Regulation also introduces a new basis on which the turnover for credit and financial institutions is calculated to assess whether the turnover thresholds for establishing a Community dimension are satisfied. Under the original Merger Regulation the threshold calculations for credit and financial institutions were based on the value of the institutions assets. That test is now replaced by a new definition of turnover corresponding to the value of bank's profit and loss accounts in the terms of the Directive on Annual Accounts of Banks and other Credit Institutions.

Procedure

The Commission has also adopted a separate new procedural Regulation on notification, hearings and analysis of merger cases to take into account the amendments to the Merger Regulation.