INSIGHT: Commission aims to cut merger red tape but needs more data

03 June 2013 16:59  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--The European Commission is trying to make EU merger control legislation more business-friendly, but may be putting a heavier burden on companies.

Back in March, the Commission said it sought to cut red tape and to streamline merger notification procedures which might mean that 10% more mergers than today come under a simplified notification process.

“This could result in savings for the merging companies concerned, cutting lawyers' fees by up to one half and reducing preparatory in-house work,” it said at the time.

“In addition, the Commission proposes to reduce the net amount of information required to notify all mergers, which will significantly lessen the administrative burden,” it added.

All good, companies may think. But the details suggest otherwise.

The Commission looks at all mergers and acquisitions with a European impact to see whether market concentration thresholds might be breached, to try to ensure effective competition within the European Economic Area (EEA) or, as its says, “a substantial part of it”.

Most mergers and acquisitions don’t push competition boundaries, and in some that may do there are mechanisms - such as the sale of certain businesses or production plants in certain parts of Europe - which can allow the transaction to proceed. As a result, most mergers and acquisitions are cleared after a routine review. The Commission has 25 days to decide whether it can clear a proposed deal or whether it needs to start an in-depth investigation.

It says that proposed changes are a “technical reform” within the existing framework of merger control so they don’t require any amendment of the EU’s merger legislation.

What it intends to do is update a notice on the so-called “simplified procedure” for certain mergers which means that companies may be able to use a shorter notification form to announce their plans if those plans are unlikely to raise competition concerns.

It also wants to modify the forms for both the simplified procedure and the full-length notification form.

The market share threshold for firms competing in the same market should be raised from 15% to 20%, the Commission says. “For mergers between firms active in upstream and downstream markets - such as between a producer of car parts and a car manufacturer - the threshold should rise from 25% to 30%,” it said.

“The Commission also wants to make it possible to treat a case as simplified where the combined market share of two firms active in the same market is above the 20% threshold but the increase in market share resulting from the merger is very small,” it added.

The consulting period on the Commission’s proposals end on 19 June

“It is notable that the Commission’s proposed changes will actually result in increasing the scope of information required in certain cases", the Brussels office of the law firm Jones Day says.

At first sight, it seems as if potentially notifying more mergers and acquisitions on the simplified form would cut the amount of data needed by the Commission. But Jones Day says that the information to be provided “upfront” and required for evaluation of the completeness of the form effectively increases the need for information in most cases.

The Commission wants to increase the scope of supporting information for the proposed concentration of market share.

This would include any information related to the market concentration received by a management board member of the companies concerned and information for the past three years that would be needed to assess any affected markets.

The Commission also wants more detailed information on relevant markets.

“Market definitions must now include all plausible alternative product and geographic market definitions (in particular but not limited to alternative product and geographic market definitions that were considered in previous Commission decisions),” the law firm says. Now, only the market definitions considered by the relevant parties need to be provided.

And the law firm adds that detailed market information must be provided “for each of the affected markets under all such plausible market definitions.

“Thus, while the net amount of information required to notify all mergers (short form and full form) may decline, as stated by the Commission, the actual end result of the Commission’s proposed changes is a potential, material increase in various and upfront information requirements placed on parties.”

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By: Nigel Davis
+44 20 8652 3214

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