New guidance on referral of concentrations

The new guidance

The European Commission's guidance relates to the referral mechanism in Article 22 set out in the Merger Regulation. According to the provision, national competition authorities may request that the European Commission examine a concentration even if the thresholds in the Merger Regulation are not met, if the concentration affects trade between Member States, and if the concentration threatens to significantly affect competition within the territory of the Member State or States making the request. 

The Danish competition authorities have previously interpreted the referral mechanism in Article 22 in line with the Commission Notice on Case Referral in respect of concentrations issued in 2005. So far, the Danish competition authorities have never referred concentrations to the European Commission where Danish turnover thresholds had not been exceeded. In connection with Microsoft’s offer to buy Navision in 2012, the Danish Competition and Consumer Authority considered referring the transaction to the European Commission under Article 22, but did not do so. The Authority noted in that connection that it had not applied this mechanism so far but that it had been considered three times before (MD Foods’ acquisition of Kløver Mælk; MD Foods’ merger with Arla e.k, and Carlsberg’s wish to acquire Albani). However, this was due to the fact that a merger control system did not apply in Denmark at the time.  

The European Commission’s new guidance entails a new – and more excessive – interpretation of the referral mechanism in Article 22. 

In the European Commission’s assessment, market developments and increasing focus on digital economy in recent years have implied an increase of the number of undertakings having significant competitive potential, also even if the turnover is low. This includes in particular start-ups and the following types of undertakings:

• Undertakings having a significant number of digital users
• Undertakings having commercially significant collections of data
• Undertakings having innovation as a particularly important competitive parameter, including within Life Science & Pharma, or within Research & Development
• Undertakings having access to or impact on competitively valuable assets, such as raw materials, intellectual property rights, data or infrastructure.

In the European Commission’s assessment, an approach based solely on turnover thresholds is not sufficient in terms of concentrations involving such types of undertakings, as it implies a risk of overlooking concentrations that are essential to competition. Going forward, the Commission recommends that national competition authorities refer concentrations to the Commission even if neither the thresholds in the Merger Regulation nor the national thresholds have been exceeded, if just one of the merging parties has (actual or future) competitive potential that is not reflected in that party’s turnover, and the general conditions under Article 22 of the Merger Regulation are therefore deemed to be fulfilled.

The merging parties may risk that a concentration is referred to the European Commission after closing. However, the European Commission will generally refuse to examine concentrations which are referred more than six months after publication of closing.

Plesner's comments

In connection with transactions involving a start-up, an undertaking within one of the above sectors, or an undertaking providing basis for assuming that the turnover potential in the near future is far greater than shown by the latest revised account, the parties must in future be aware of the fact that a merger notification cannot necessarily be excluded because the relevant turnover thresholds have not been exceeded. A more detailed assessment should be made of the specific undertaking’s competitive potential. Where appropriate, it should be considered whether the transaction could have the interest of national competition authorities, including if the parties are “strong” undertakings in a very small market, or if an already strong player acquires a smaller but important player having a large potential. 

In case of doubt, the parties should consult the relevant national competition authorities or the European Commission prior to completing the transaction in order to obtain clarification as to whether there is a risk of the intended transaction being referred under Article 22.

Read the European Commission’s guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation here.