There was a time when transactions outside the scope of EU or national merger control rules were implemented without much thought given to a competition assessment. Such acquisitions could be and were often signed and closed on the same day with no provision for merger control. Then came the guidance reviving Article 22 of the EU Merger Regulation (read our previous post), encouraging Member States to consider referring such transactions to the EU even where they are not caught by national merger control mandatory notification rules.

The recent Towercast judgment revives another route for competition authorities to investigate such mergers. It confirmed that the acquisition of a company by an already dominant player can be considered an abuse. Any such abuse is illegal, even in the absence of a formal process prohibiting it. The Belgian competition authority appears to have been waiting for the judgment, as they immediately opened an investigation into the acquisition of edpnet by Proximus following its publication.

The objective of merger control

There has been a view that rules on merger control are there to provide legal certainty. Mergers that require notification must be notified and cleared by the relevant competition authority before implementation. Where this is not the case, mergers can close. This facilitates deal making as sellers and buyers can easily assess whether there is an implementation risk.

Following Advocate General Kokott’s opinion, the European Court of Justice (ECJ) proposes an alternative view: the EUMR “forms part of a legislative whole intended to implement Articles 101 and 102” and was adopted “in order to close gaps in the system of protection against distortions of competition”. It was never intended to exclude the applicability of antitrust provisions, but to complement them.

The discretion that underpins the enforcement of Article 102 (and 101) TFEU therefore remains a ‘Damocles sword’ over anticompetitive transactions and is further complemented in the form of Article 22 EUMR. Legal certainty is only available for those transactions that are notified or for those where guidance is provided in the European Commission's guidelines on Article 22 referrals. Other mergers fall into a system of self-assessment, where the parties must consider the risk of later enforcement.

When is an acquisition an abuse?

The ECJ’s Towercast judgment sets out three key criteria to consider:

First, in principle, a merger cannot be an abuse if it is cleared by an ex-ante merger control process.

Second, the acquirer needs to be in a dominant position. If dominance is only established as a result of the merger, there is no pre-merger dominance that could be abused.

Third, the acquisition must substantially impede competition, to the extent that “only undertakings whose behaviour depend on the dominant undertaking would remain in the market”. This standard seems to be higher than the test under the EUMR where a “significant lessening of effective competition” justifies a prohibition.

Enforcement against non-reportable mergers is not unheard of

At EU level, a non-reportable merger can be referred to the European Commission under Article 22 EUMR. It has been used once, in Illumina/Grail, which the Commission prohibited. Many more transactions have been screened using Article 22 EUMR and the Commission continues to do so.

Sweden has its own call-in right for some non-reportable mergers. There are turnover thresholds, and indications of significant harm to competition are required.

In Belgium, Luxembourg, and Italy, abuse of dominance rules have already been applied to mergers with different outcomes. In Alken-Maes/AB InBev, the BCA took the view that mergers below national thresholds can be reviewed under national antitrust rules if they lead to a prima facie anticompetitive effect. The Brussels Court of Appeal upheld this view but the BCA did not go on to block this acquisition. The review of the acquisition of edpnet by Proximus is now pending following the ECJ’s blessing in Towercast.

The competition authority in Luxembourg concluded in the Utopia case that a merger can be subject to antitrust rules if it has produced anticompetitive effects on the market. This case concerned the acquisition of a local cinema by a neighbouring (dominant) one. The takeover was eventually cleared, as the NCA found that the failing firm defence was applicable and that therefore the acquisition did not produce anticompetitive effects on the market.

In December 2020, the Italian competition authority fined TicketOne for abusing its dominant position by, inter alia, completing four acquisitions below the national merger control thresholds. However, a regional court annulled the fine, arguing that Article 21(1) EUMR excludes the application of antitrust rules to concentrations. Towercast now proves the Italian court wrong and the national competition authority right.

In the Netherlands, the Authority for Consumers and Markets prohibited the acquisition of Mauritskliniek by Bergman Clinics, both health care providers, in 2021. Bergman Clinics had previously completed multiple small acquisitions below national merger control thresholds. Martijn Snoep, chairman of the ACM, noted: “Growing independently is always possible. But there is a limit to a growth strategy of 'stringing beads', in which a very strong party takes over other smaller healthcare providers, because this can cause prices to rise further.” Towercast enables NCAs to intervene earlier in cases of creeping acquisitions by a dominant undertaking.

Practical implications and takeaways

The EU is now more aligned with other global merger control regimes like the US and China (and, some may say, inching closer to the UK’s more flexible toolkit). There is no safe harbour for anticompetitive mergers that are below jurisdictional thresholds. Article 22 EUMR seems better suited for international mergers that the European Commission may be better placed to review. Meanwhile, Towercast provides a tool that seems better suited to smaller acquisitions at Member State level where they are of interest to a national competition authority.

In any event, the takeaway is that merging parties will have to consider whether competition concerns and complaints are likely, even if their merger does not require notification. The risk assessment will not be the same for buyers and sellers and different ways to address this in transaction documents have already emerged.