Merger control

Adapting to the new economic realities

Adapting to the new economic realities

In a complex, fast-paced and globalised economic environment, it is essential that competition authorities update their rules so that the behaviour of economic actors cannot thwart the concepts and instruments of competition law. The possible ways we can adapt have been identified, and the modernisation of control has been initiated, both at the national and European levels. A look at the main advances in this area.

The economic world is constantly evolving and demands that regulatory rules be adapted to issues that did not exist when they were created. This progressive overhaul is underway at the national level, with measures to simplify and modernise the tools of French competition law implemented by the Autorité. At the European level, the change in the Commission’s approach, which now accepts that national competition authorities refer sensitive mergers to it for examination, including those below the thresholds, is a major step forward, but it is also worth noting the current revision of the Notice on the definition of relevant market.

Revision of the french merger guidelines: clarification, simplification and modernisation

On 23 July 2020, the Autorité published its new merger control guidelines, which replaced those of 4 July 2013. This publication, which followed a public consultation held in late 2019, completes a substantive modernisation process that started in 2017.

These new guidelines are intended to provide companies and their boards with an instructive presentation to help them better understand the scope of merger control in France, the way in which the procedure before the Autorité de la concurrence is conducted and, finally, the objectives, criteria and methods used for the substantive analyses.

Among the new features, we can highlight the following:

  • An extension of the scope of the simplified procedure;
  • An update of the section dedicated to procedural infringements (failure to notify, gun jumping) in order to incorporate recent advances in decision-making practice and case law;
  • A recast of the section on competitive analysis which highlights the main criteria for analysis taken into account by the Autorité when it examines a transaction, regardless of its horizontal, vertical and/or conglomerate nature;
  • A section dedicated to the principles applicable to remedies (both procedural and structural) which sets out the Autorité’s approach in this area and makes companies aware of the considerations to be taken into account when they propose commitments;
  • The integration of recent decision-making practice and evolutions in case law on the subject of non-compliance with commitments, in order to make companies aware of the importance of complying with the commitments they have made to the Autorité;
  • Enhanced appendices setting out the Autorité’s analysis methodology for certain recurring issues:
    – assessment of the competitive effects of a transaction on local retail markets;
    – consideration of the competitive pressure exerted by online sales in certain retail sectors;
    – provision of structural commitments models and mandate agreement models, updated to reflect recent developments in decision-making practice;
    – clarifications on requests for internal documents which may be made by the Autorité during investigations.
Adapting to the new economic realities

The guidelines also incorporate suggestions taken from the contributions to the public consultation. As such, they take into account the preference expressed by companies and their boards to be able to request the appointment of a team to examine the case prior to the notification of the merger. Following this request, the information will be communicated to the notifying party within 5 workdays.

The Autorité also undertakes to ensure that a response concerning the completeness of the notifications will generally be given within 10 workdays of the notification. An indicative period of 10 workdays is also introduced for confirming whether a transaction can be processed under the simplified procedure, which gives the notifying party more visibility to organise the timetable for finalising its transaction. Finally, certain aspects of the presentation of the competitive analysis have been clarified and adapted, in particular with regard to the time horizon of the prospective analysis.

Merger Control Guidelines, 23 July 2020

The objective of the new guidelines is to provide companies with a better understanding of the scope of merger control, its procedure and criteria.

Adapting to the new economic realities

Enhanced control to avoid any blind spots

Change in the European Commission’s approach to the referral of transactions

Article 22 of Council Regulation No 139/2004 of 20 January 2004 enables a national competition authority to request that the European Commission examine a merger that does not have a European dimension but would affect trade between Member States and threaten to significantly affect competition within the territory of the Member State or States making the request. The Regulation does not require the Member State or States to be competent to control the relevant merger. The European Commission had, nonetheless, always stated up until now that it would only accept a referral pursuant to this article if the merger transaction exceeded the national notification thresholds in at least one Member State. Amending its policy in this field, at the request of the French Autorité in particular, the European Commission announced on 11 September 2020 that it would withdraw this recommendation and that it would now accept referral requests pursuant to this article submitted by national competition authorities, including when the merger transactions concerned do not exceed the national notification thresholds of any Member State, providing that the conditions established in this article have been met.

Adapting to the new economic realities

Discover our webinar on Article 22 referrals with Olivier Guersent, Director General of the European Commission’s Directorate General for Competition, Angélique de Brousse, Senior Competition Legal Officer EMEA at Johnson&Johnson and Anne Wachsmann, Partner at Linklaters


A major step forward to review sensitive transactions that could escape control

The Autorité welcomes this development, which it has repeatedly called for, in order to gain a better understanding of the phenomenon of “killer acquisitions” or “sub-threshold acquisitions”, which may be carried out by digital platforms, but also, for example, in the pharmaceutical or biotechnology sectors, or in certain highly concentrated industrial sectors. Such blind spots could raise competition concerns in terms of the competitive dynamic of the markets or maintaining incentives to innovative. This change is a major step forward in improving the handling of merger transactions, especially those involving innovative players.

One risk identified was that some transactions involving highly innovative players, which are only just starting to earn returns on their innovations in the market, may not be subject to merger controls, as the target has an insufficient turnover to trigger the notification thresholds. The takeover of Instagram or WhatsApp by Facebook are topical examples of this. Another potential problem was the possibility for an undertaking in a dominant position to buy out its various small competitors on markets with already high levels of concentration.

This change in the approach of the European Commission is therefore an excellent solution, which contributes to addressing the concerns that have been raised about the risk of a number of merger transactions that have a negative impact on competition eluding controls by competition authorities, even though they are sometimes under examination outside the European Union, for example in the United States. It is also a swift solution because it can be implemented without affecting current legislation. Finally, it is a targeted solution: all other possible measures to fill this gap in merger control, such as the definition of new notification thresholds, would have made control much more cumbersome for both companies and administrations, which would not have fulfilled the ultimate objective of precise control of a few transactions with a potentially substantial impact.

The Autorité immediately set up a market watch to detect transactions that could be referred to the European Commission. The Commission has also adopted an Interpretive Communication in order to provide companies and their boards with as much predictability as possible, it being understood that the decision-making practice that will be developed will provide additional clarifications.

Press release, 15 September 2020

Adapting to the new economic realities

The failing firm defence

The criteria of case law in order for it to apply:

  • the short-term exit of the acquired company;
  • the absence of alternative supply that is less harmful to competition;
  • the exit of the company in difficulty would be no less harmful to consumers than the planned takeover.

Future consequences of the pandemic on market structures

An OECD study anticipates that “a structural consequence of the economic crisis triggered by the Covid-19 pandemic will probably be an increased level of concentration in markets, insofar as some firms will undergo financial distress and exit the market. Next to market exit, concentration will be favoured by M&A activities driven by companies seeking to improve their condition by merging with healthier competitors. As a result, competition authorities will be called to scrutinise a number of urgent and critical mergers, including alleged “rescue mergers”, i.e. acquisitions of firms that may be facing bankruptcy.  In this context, merger control may play a key role in preventing transactions that would result in long-lasting harm to market structures” (OECD Competition Policy Responses to Covid-19, 27 April 2020).

In cases where the targeted firm would have exited the market in the absence of the merger, the merger may sometimes be allowed to proceed despite the increased market power of the new entity. Consequently, the challenge is to carefully verify that the “failing firm defence” is indeed applicable in order to avoid a lasting negative impact on the structure of the French market in question.

Adapting to the new economic realities

Étienne Chantrel

Head of the Mergers Unit of the Autorité de la concurrence

The legal deadlines for merger control pose genuine challenges in times of pandemic. What solutions have been put in place to facilitate the examination of transactions in this context?

The Autorité has a permanent policy of supporting companies in their reasonable requests and of taking their constraints into account. In 2020, the legal and regulatory deadlines set out in Articles L. 430-5 and L. 430-7 of the French Commercial Code (Code de commerce) were suspended, from 12 March 2020 to 24 June 2020. However, the Autorité decided to make every effort to maintain the usual deadlines, without taking advantage of this shift in the legal deadlines, and continued to do its utmost. As such, between 18 March 2020 and 18 May 2020, 25 mergers were cleared, within an average of 22 workdays, including significantly large transactions. This rapid effort was maintained throughout 2020, despite the constraints due to the state of emergency relating to the corona crisis, which also weighed heavily on our teams.

What are the main trends you are observing in terms of quality and quantity this year?

In 2020, compared to previous years, the number of mergers decreased overall as a result of the crisis: 195 merger decisions compared to 270 in 2019. The pattern during the year was very marked with a collapse in notifications between March and June, followed by a strong rebound at the end of the year. As regards the type of transactions, there has been no global revolution in the type of cases submitted to the Autorité. Nevertheless, 2020 was marked by a significant number of cases, especially in the retail sector (clothing), concerning companies in difficulty that were taken over in the context of insolvency proceedings and therefore benefited from a derogation from the standstill effect of merger control.