Last week the European Commission published a Q&A guidance note complementing its 2021 guidance on the referral of mergers under Article 22 of the EU’s merger regulation. The Q&A note provides guidance on which cases are typically suitable for referral as well as the Commission’s process for reviewing requests by merging parties or third parties to determine whether cases are suitable for referral under Article 22.

The Commission’s 2021 guidance reversed the Commission’s recommendation that Member States should only refer transactions falling below the EU’s jurisdictional thresholds where such States have jurisdiction over the case under their own national merger control regimes. The change was driven by a perception that certain potentially problematic acquisitions were missed under the European merger control regimes involving targets which could become a significant competitive force but whose value was not yet reflected (fully) in (European) sales. A concern for which Illumina/Grail has since become the (presumptive) poster child.

For merging parties, the change raised the prospect of the Commission intervening in transactions that competition regulators in the EU would not have previously reviewed at all. Carrying with it increased execution risk.

To address these concerns (at least in part), the 2021 guidance permits parties to voluntarily contact the Commission concerning potential candidate cases. The Commission would, in turn, give an early indication that the relevant transaction was not a good candidate for a referral under Article 22 ‘where appropriate’. So far, the use of the procedure is limited. We understand that the Commission, since it issued the 2021 Guidance, has considered approximately 30 transactions that were not reportable anywhere in Europe to determine whether a further investigation was required. Of these 30 cases, only one was pursued (Illumina/Grail), about half were reviewed at the Commission’s own initiative; the other half were brought to the Commission’s attention in more or less equal proportion by merging parties, national competition authorities and third parties (including Illumina/Grail, which was triggered by a third party complaint).

To facilitate (and encourage) this process, the Q&A guidance note puts flesh on the bones of the Commission’s new review system. While the additional guidance provides copious hypothetical examples of cases suitable for referral under Article 22, the added value is very much on the “how” as the Commission has sketched out the “notification” process, being one falling somewhere between the UK CMA’s informal briefing paper and a Short Form CO.

We have highlighted below a number of key features of the voluntary consultation process:

• The process starts with a submission of a case team allocation request and, consistent with formal filings under the merger regulation, can be started on the basis of a good faith intention to conclude an agreement (e.g. based on an MoU). This means the process cannot be run anonymously or hypothetically.
• The briefing paper used for this purpose should include information on: (i) the parties’ activities and turnover, (ii) the transaction status (i.e. whether it has closed already), value, structure, rationale and associated documents, (iii) the relevant markets and the competition situation on these markets, and (iv) interactions with national competition authorities (e.g. whether the merging parties have been in contact with national competition authorities and whether the parties are willing to allow the Commission to speak to national authorities).
• While there is no legal deadline for the Commission to revert, the Commission commits that it will normally conduct a review of the briefing paper within five working days from receipt to confirm whether it has further questions or not.
• At the request of the merging parties, the Commission ‘may’ provide an ‘early indication’ that the relevant transaction does not appear to be a suitable candidate for referral under Article 22. The upshot of the process should be an informal nod with regard to the likelihood of a “call in”.

The Q&A guidance also sets out how third parties can complain about transactions that are potentially eligible for referral for Article 22.

In practice, the most important element of the “briefing paper” approach is likely to be explaining why a transaction does not threaten ‘to significantly affect competition within the territory of the Member State or States making the request’ and hence isn’t eligible for referral under Article 22. The process therefore blurs the line between the jurisdictional and substantive assessment, moving away from the “bright line” EU’s jurisdictional rules towards a system where (prima facie) competition concerns will drive decision-making over whether to review.

The briefing paper process does not change merging parties’ rights vis-a-vis their transactions. They can in principle (at their own risk) close the transaction up until the moment the Commission informs them that that a Member State has made a referral request under Article 22 (initiating the process to start a potential formal merger control review). As such, mergers cannot be held hostage by a voluntary process.

It will be interesting to see how the timelines will work out in practice. The General Court in Illumina/Grail recognised that the time that the Commission took to request a referral from the Member States was unreasonably long (but not illegal). In this regard, Article 22(4) of the EU’s merger regulation states that a referral request must be made by the Member State within 15 working days of the date on which the transaction is made known to it. The latter requires an ‘active transmission of relevant information to the Member State concerned’. Further guidance (and consistency) from national competition authorities or the Commission about the level of information required and the interplay with the new voluntary notification procedure would be welcome. It may be that the European Competition Network will provide further guidance in this respect. We understand there is also the idea to provide for a one-stop approach with either the Commission or a single (leading) national competition authority, eliminating the need to address all relevant Member States.

We look forward to seeing the effects of the Q&A Guidance. The Commission may, however, hope that it isn’t too successful at stimulating voluntary consultations: a flurry of guidance requests post-Christmas may be more regulatory hangover than regulatory boon.