Mergers: Notices on certain aspects of merger control

Directorate General IV of the European Commission has published three draft Notices concerning the proposed future application of a number of important principles of the Merger Control Regulation (MCR). The first deals with ancillary restraints, the second with undertakings submitted by parties to obtain merger clearance and the third concerns simplified procedures for the approval of non-contentious concentrations. Comments on these texts should be submitted to DG IV by 8 October 1999.

Ancillary restraints
Ancillary restraints are contractual commitments assumed by the parties to a merger for the purpose of ensuring that the actual value of the transaction is realised. In many cases, these agreements would fall to be notified under Article 81 of the EC Treaty but the MCR allows their appraisal in the context of MCR approval procedure. The three most common types of ancillary restraints are covered by the Notice, namely non-compete clauses, licence agreements and purchase and supply obligations. The Commission will only examine those agreements which are individually identified and whose rationale is explained by the parties in Form CO.

Non-compete clauses
Non-compete clauses of a maximum period of two years will be considered permissible where the transfer of an undertaking only includes elements of goodwill. A restriction for a period of up to three years will generally be allowed when the transfer includes both goodwill and know-how. The parties must demonstrate the need for clauses of longer duration. Prohibitions on competition beyond the life of a joint venture will not be allowed.

Licence agreements
Licence agreements between the parents of a joint venture, or licences granted from the joint venture to one of the parents, will not generally be considered ancillary and will have to be assessed under Article 81(1) and Regulation 240/96.

Purchase and supply obligations
The draft Notice specifies the following main principles applicable to ancillary purchase and supply obligations:

- supply obligations favouring vendors will require particularly careful justification;
- the Commission will favour supply and purchase clauses providing for fixed quantities but will presume that clauses providing for excessive or unlimited quantities, or which confer preferred supplier or purchaser status, are not ancillary;
- the appropriate duration will be appraised on a case-by-case basis.

Undertakings in MCR proceedings
Undertakings submitted in either the first or the second stage of a MCR procedure must remove concerns relating to competition arising from the concentration on a lasting basis. Further, commitments must be capable of being implemented speedily and effectively within a one year period.

Divestment of assets is seen as the most effective way to restore competition. Pending divestment, the parties should undertake to maintain the independence, economic viability, marketability and competitiveness of the divested assets. It is generally appropriate to appoint a trustee (normally an investment bank or similar institution) to implement the divestment. The Commission also describes other types of commitments, such as termination of exclusive long-term supply and distribution agreements, ensuring access to infrastructure or key technology controlled by the parties and packages combining different types of commitments.

Simplified MCR proceedings
This last draft Notice proposes a simplified procedure for the treatment of concentrations which, by their nature, do not normally raise competition concerns. Provided that certain conditions are satisfied, and that there are no special circumstances, such operations will be deemed to be cleared upon expiry of the deadline for the first stage of the MCR procedure (one month following notification).

The categories of concentrations suitable for the simplified procedure are the following:

· Joint ventures which have no, or negligible, actual or foreseen activities in the EEA.
· Mergers involving sole or joint control, where the parties’ activities are not in the same product and/or geographic market, or upstream or downstream markets.
· Mergers involving horizontal or vertical relationships where the parties’ combined market share is less than 15% of the market in cases involving horizontal relationships and less than 25% for vertical relationships.

This type of approval will also apply to ancillary restrictions. The Commission specifically retain discretion to conduct a closer investigation and/or adopt a formal decision where exceptional circumstances require this.