The European Commission’s DG Comp is one of the superpowers of merger control. But until now, its jurisdiction has been largely limited by revenue-based thresholds. This means that - with a few notable exceptions - the EC has generally not been able to review deals in which a large platform acquires a nascent (or even not so nascent) business.
At the end of March however, the EC published its much anticipated Guidance on how it plans to use an existing referral mechanism to catch otherwise non-reportable deals. The new approach has the potential to transform the global merger control landscape for tech deals.
Mind the (enforcement) gap
The EU's strict (and high) thresholds have left what many perceive to be an enforcement gap: the enforcers' oft-quoted statistic is that the GAFAM quintet made over 250 acquisitions between 2014 and 2019, only a handful of which were reviewed (and where they were, generally not at EU level). There has been a growing consensus among enforcers (and within the EC) that such acquisitions - variously referred to as killer acquisitions, reverse-killer acquisitions, or zombie acquisitions - can harm competition.
How to plug this "gap" has been the subject of intense debate. Germany and Austria introduced transaction value-based thresholds, but reform to the jurisdictional thresholds at EU level was considered and dismissed. Instead, last year, Commissioner Vestager announced that the EC would use a tool that had been "hiding in plain sight": its power to take referral of mergers from Member States under Article 22 of the EU Merger Regulation.
The possibilities (for EC review of mergers) are limitless
The new guidance is clear that referrals may be made and accepted under Article 22 even where no Member State has jurisdiction under its own national rules. Referrals can be accepted if the EC and Member State agree that the deal would threaten competition in the relevant Member State, and affect trade between Member States. In practice this is likely to be a low bar for the kinds of deals the new guidance targets.
This is a volte face on the EC’s previous position, which discouraged national competition authorities from asking for a referral up to the EC if they do not themselves have jurisdiction.
Transforming the global merger control landscape?
Without a doubt, the new power (or more accurately, new interpretation of an old power) will see the EC reviewing many more tech deals and will change the landscape for global merger control in innovation-heavy sectors. The first case taken under the new guidance - Illumina's planned acquisition of Grail - illustrates the potential difference well: just last year, Illumina's last major deal was abandoned following opposition from the US DoJ and the UK's CMA, but the EC was not at the table.
On the other hand, there is a question over whether - given the aggressive approach taken in recent years by the UK's CMA and increasing hostility to tech deals in the US - EC involvement will prove outcome critical. In the EC's most recent big tech merger review - Google / Fitbit - it accepted controversial behavioural remedies which other authorities eschewed.
If nothing else, however, in practical terms, the EC's new approach means the instant and almost total erosion of legal certainty around an EC review of large platforms acquiring nascent businesses. In the new world, it is not possible to rule out an EC review, even where thresholds are not met at EC or Member State level and the risk of an EC "call in" should be considered for all tech deals (and especially those that fit the incumbent-challenger profile).
Read more in our Linking Competition blog post: Moving the goal posts: European Commission new guidance on merger referral policy to catch non-reportable deals.
The Guidance throws out the net potentially widely and creates additional uncertainty about deal timing and outcome where previously a deal was not reportable in the EU