Killer Acquisitions In the EU Merger Control Net
Also — Euro, Chips, Amazon
Hi! Welcome to What’s up EU, your go-to newsletter to stay on top of the news. Feel free to share this newsletter with friends and colleagues.
Commission Gets a Nod from Tribunal In New Powers to Review Transactions
As the European Parliament held its final vote on the Digital Markets Act on 5 July, the European Commission received a boost from the EU General Court on 13 July, in a case that reinforces DG Competition's power to review non-notifiable M&A transactions at national level.
THE CASE • In Case T-227/21, the question was whether the Commission had the power to review the acquisition of Grail by Illumina. Ilumina and Grail are biotechnology companies active in genomic sequencing. The transaction was neither notifiable to the European Commission nor to national competition authorities in the EU Member States.
Article 22 of the EU Merger Regulation allows national competition authorities to refer a case that does not have a EU dimension to the Commission, if the project affects trade between Member States, or threatens to affect competition significantly in the territory of a Member State. Traditionally, the transaction had to be notifiable in the Member State in question for the referral to be accepted.
Since 2021, Commission guidelines allow the Commission to request a referral to DG Competition of transactions affecting trade between Member States and threatening to significantly affect competition in the territory of a Member State — without the fact that the transaction is not notifiable under national thresholds being an obstacle.
This is the first time that the Court has ruled on the application of Article 22 to a transaction that was not notifiable in the Member States in question. The case is quite extreme as Grail has no presence or income in the EU.
The Commission may be competent to examine transactions whose turnover does not justify notification to a national authority where these undertakings are nevertheless of importance for competition.
The General Court states:
“The Commission has the competence to examine that concentration which did not have a European dimension or fall within the scope of the national merger control rules of Member States of the European Union or States party to the Agreement on the European Economic Area”.
KILLER ACQUISITIONS • The Illumina v. Commission case opens a new loophole for the control of killer acquisitions — which often involve low turnover, high potential companies in the tech or biotech sector.
These deals tend to fall through the merger control net, where notification is triggered by the merging parties exceeding certain turnover thresholds. For example, Facebook's takeover of Instagram was not notifiable at European level.
The Commission had already committed itself to a more flexible interpretation of its competence to hear such cases in 2021, with guidelines to that effect. The General Court of the EU has therefore just confirmed the Commission's approach.
Moreover, some Member States, such as Austria and Germany, have introduced new thresholds in terms of enterprise value - and not in terms of turnover - to allow the examination of such transactions.
The EU General Court thus emphasises:
“The analysis thus accepted by the General Court prefigured a new approach on the part of the Commission concerning the application of the referral mechanism laid down in Article 22 of the Merger Regulation, according to the guidelines published on 31 March 2021, 4 whose implementation opens the way for the EU merger control rules to better take into account transactions involving innovative undertakings with significant competitive potential.”
APPEAL • Illumina intends to appeal the decision to the EU Court of Justice — the use of Article 22 of the Merger Regulation is only one element of the dispute.
There is widespread criticism of the legal uncertainty that would be created by allowing the Commission to decide which cases to investigate.
In the FT, Salomé Cisnal de Ugarte of King & Spalding worries:
"This is a big deal. This gives a significant power to Brussels that it didn't use before and it will encourage member states to refer deals for which they don't have jurisdiction to the commission to review them (...) Companies will have to assess a potential EU review if they are in particular sectors, like tech and life sciences. This makes dealmaking more uncertain. Any deal that could have a competition impact or any deal that could risk a complaint by competitors is now at increased risk.
Dr Christophe Enaux, Robert Hardy and Dr Lucas Wüsthof of Greenberg Traurig, writing in the National Law Review, agree:
“The Commission’s change is significant for dealmakers: any transaction that may be seen as potentially raising competition issues could end up being reviewed by the Commission, no matter how small the target, and even after the transaction has closed. Moreover, there is no clear time limit on when closed transactions can be referred to the Commission. Additionally, the Commission’s change in position is expected to increase the number of cases subject to parallel Commission and NCA merger control review”.
In Case You Missed It
THE EURO • While the ECB is due to announce on 21 July a first rise in its key interest rate in a decade, the euro continues its decline against the dollar. The euro hit its lowest level in twenty years, slipping even below parity with the dollar this week.
This downward trend is explained by the difference in interest rates between the EU and the US and the impact of the war in Ukraine on the EU's energy bill. The (possible) halt to Russian gas supplies via Nord Stream I will obviously not help the eurozone's woes. On the other hand, the fall in the euro increases the cost of oil imports, denominated in dollars — which also has an inflationary effect.
The exchange rate makes the ECB’s job tricky. The central bank must already avoid fragmentation in the eurozone — i.e. diverging borrowing costs between safe countries, such as Germany, and countries more exposed to bond market movements, such as Spain or Italy.
In Rome, political instability adds to an already long list to a problem. The fate of Mario Draghi's coalition, which has submitted his resignation to President Mattarella, is weighing on the financial markets, while the ECB due to announce a new tool to contain the spread between eurozone countries.
AMAZON • Amazon is offering commitments to the European Commission to end two antitrust proceedings launched in 2019 and 2020. The American giant offers not to use the non-public data of third-party sellers registered on Amazon when the company competes with these same sellers on the Amazon Store. Amazon also offers to increase the visibility of competing products in access to the Buy Box and the Prime program.
The Commission invites market participants to comment (market test) on Amazon's commitments. If you are concerned, you have until 9 September to send your opinion to DG Competition.
CHIPS • Chips giants STMicroelectronics and GlobalFoundries announced on 11 July a 5.7 billion euro investment plan to develop a FD-SOI chip factory in Crolles near Grenoble, France.
In February 2022, the European Commission said it wanted to see the EU's share of microchips increase from 10% to 20% by proposing the creation of a global package of €43 billion through the Chips for Europe initiative.
Thierry Breton, the European Commissioner for the Internal Market, therefore made a special trip to Crolles alongside Emmanuel Macron to praise "the creation of the largest and most advanced factory in the world for the production of semiconductors".
What we’ve been reading this week
In the Wall Street Journal, Joseph Sternberg looks at the political consequences of the decline of the euro against the dollar.
For Bruegel, Klaas Lenaerts, Simone Tagliapietra, Georg Zachmann evaluate the interest of a price cap on Russian oil.
For the European Policy Centre, Marta Mucznik dives in the debates about the European Political Community and Union’s enlargement.
This week's newsletter was written by Maxence de La Rochère, Keram Kehiaian, and Thomas Harbor. See you next Tuesday!