EU Market Definition Notice – Commission proceeds from evaluation and fitness check to public consultation

In an earlier blog post we discussed the ‘evaluation and fitness check roadmap’ conducted by the European Commission (Commission) in relation to its 1997 Notice on the definition of relevant markets (Notice).

In light of the initial feedback received by the Commission, on 26 June 2020 it published a ‘public consultation for the 2020 Evaluation of the [Notice]’ (Consultation). The Commission will consult with stakeholders from the public and private sectors, including consumer associations, EU national competition authorities and government bodies, academia, as well as legal and economic practitioners. Continue reading

JD Sports appeals CMA prohibition decision citing impact of Covid-19 as a key consideration

JD Sports has filed an appeal with the Competition Appeal Tribunal (CAT) against the decision by the CMA to prohibit its acquisition of rival retailer Footasylum, with the appropriate treatment of Covid-19 a key area of dispute between the parties and the CMA.

Among the grounds of appeal published on 23 June 2020, JD Sports alleges that the CMA erred in law and / or acted irrationally by excluding the effect of Covid-19 on Footasylum when considering the relevant counterfactual (i.e., the competitive situation that would have prevailed absent the merger).  JD Sports further alleges that the CMA was also mistaken in finding that Covid-19 would not materially affect the competitive constraint exercised by Footasylum. Continue reading

Views on an evolving automotive industry: Responding to competition law challenges

The automotive industry is unquestionably evolving at considerable pace, whether through advances in connectivity and autonomy in vehicles, developments in the way that consumers access and use vehicles or changes driven by the “electric revolution” and the unprecedented industry disruption caused by the Covid-19 pandemic.

In the latest article in a series entitled “Views on an evolving automotive industry”, we look at the key competition law challenges currently faced by the industry. We focus in particular on the trend towards increased consolidation and collaboration, the growing importance of data and digital platforms, and contractual arrangements associated with new business opportunities, for example, the growth of mobility services and the licensing of key technology.

To view the full article please click here.

Contacts

Veronica Roberts
Veronica Roberts
Partner, London
+44 20 7466 2009
Ruth Allen
Ruth Allen
Professional Support Lawyer, London
+44 20 7466 2556
Sam Poole
Sam Poole
Associate, London
+44 20 7466 2869

Significant amendments to UK merger control regime targeting foreign investment

The UK government has announced two significant amendments to the UK merger control regime, intended to enhance its powers to scrutinise certain foreign direct investment (“FDI”) into the UK, against the backdrop of the Covid-19 pandemic and wider national security concerns. These amendments come ahead of the National Security and Investment Bill (“NS&I Bill”), which is expected to be brought before Parliament in the coming weeks to create a new distinct FDI regime in the UK, introducing standalone powers enabling the government to review a broad range of transactions on the grounds of national security (following on from a White Paper published in July 2018, although the detail of the regime has not yet been confirmed – see our previous briefing).

The headline changes are:

  • the addition of “to combat and mitigate the effects of a public health emergency” as a criterion for intervention in a transaction by the government on public interest grounds, under the existing public interest merger regime contained in the Enterprise Act 2002 (“EA02”) – to be implemented by way of a statutory instrument The Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2020 tabled today, which will take effect from tomorrow (23 June 2020); and
  • the introduction of lower jurisdictional thresholds for review of transactions in three specific sectors: artificial intelligence, cryptographic authentication technology and advanced materials – also to be implemented by way of two statutory instruments (the Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2020 and the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2020) tabled today, but to be debated before they enter into force.

The intention behind these reforms is to enable the government to review proposed acquisitions of businesses directly involved in the response to a pandemic (including any future pandemic, other than Covid-19), whilst also expanding the government’s powers to intervene in mergers in sectors which are deemed to be central to national security. The reforms cover not only companies directly involved in the response to a pandemic (e.g. pharmaceutical or medical equipment suppliers) but also companies which mitigate its effects (examples given include internet service providers and food supply companies) as well as, potentially, usually stable UK businesses suffering a short-term impact to their  share price or profitability as a result of the economic uncertainty caused by a pandemic. Further guidance from the department of Business, Energy and Industrial Strategy is expected shortly and should provide additional clarity on the circumstances in which the government would exercise its powers.

These amendments are significant for investors in the identified sectors, particularly non-UK investors, although notification of affected mergers to the Competition and Markets Authority (“CMA”) will remain voluntary. However, it is also important to note that – as expressly flagged in the government’s press release – these changes are primarily intended to “mitigate risks in the short term”, ahead of the introduction of “more comprehensive powers” in the NS&I Bill. We expect that Bill to be brought before Parliament in the coming weeks, and will provide a further update as soon as it is published.

For further detail on the amendments set out in the statutory instruments tabled today, please see our full briefing.

Contacts

Veronica Roberts
Veronica Roberts
Partner, London
+44 20 7466 2009
Ruth Allen
Ruth Allen
Professional Support Lawyer, London
+44 20 7466 2556
Max Kaufman
Max Kaufman
Senior Associate, London
+44 20 7466 2898

The European Commission adopts White Paper on how to address foreign subsidies in the EU internal market

On 17 June 2020, the European Commission (“the Commission”) issued a “White Paper on levelling the playing field as regards foreign subsidies” (“the White Paper”), launching a public consultation on a number of ambitious and far reaching possible options and legal instruments to address distortions in the European Union’s (“EU”) internal market resulting from foreign subsidies. The White Paper underlines that while the EU remains open to global trade and investment, it will pursue a model of “open strategic autonomy” to ensure fair conditions of competition and a “level playing field” for all economic operators in the EU internal market.

The publication of the White Paper follows a series of actions taken at both EU and Member State level to tighten the rules on foreign companies investing and operating in the EU internal market. In March 2020, the Commission launched its new Industrial Strategy for Europe, with one of its objectives being to “uphold a global level playing field” for European industry (see our earlier blog post). The Commission committed to strengthen its anti-subsidies toolbox to address distortions in the EU internal market created by foreign subsidies.  In parallel, there has been growing support from Member States for reform of EU competition rules to take into account potential abusive behaviour by economic operators from outside the EU, including in particular state-subsidised companies, as illustrated by a letter sent to EU Commissioner Margrethe Vestager by Germany, France, Italy and Poland in February 2020.

The Commission argues that there is a regulatory gap that is not addressed by existing legal tools:

  • EU State aid rules apply to public support provided by EU Member States and does not cover subsidies granted by non-EU authorities (with the exceptions of the EEA regime and certain EU trade / association agreements).
  • The EU competition rules do not cover conduct that distorts competition in the internal market due to (foreign) subsidies.
  • EU merger control only assesses the impact on competition and not whether an economic operator has benefitted from third-country public funds.
  • The EU framework for screening foreign direct investment (“FDI”) targets potential threats to security and public order from investments into critical assets, but does address the issue of distorting foreign subsidies.
  • EU trade defence tools can only cover subsidised goods imported into the EU and do not extend to trade in services and investment, while EU public procurement legislation does not provide for any specific rules on the participation of economic operators benefiting from foreign subsidies.
  • With regard to EU funding, the rules on access to EU financial support are aimed at protecting a “level playing field”, but do not consider the issue of foreign subsidies and its impact on the ability of the companies to apply for EU funding.

The White Paper puts forward for discussion three innovative tools intended to fill this regulatory gap:

  • Module 1: A general ex-post tool to investigate and possibly take measures against foreign subsidies provided to beneficiaries established or active in the EU.
  • Module 2: A mandatory mechanism for ex-ante notification, investigation and possibly remedial measures on foreign subsidies facilitating the acquisitions of EU companies.
  • Module 3: A mandatory mechanism for prior notification of foreign subsidies in the context of public procurement procedures

A mechanism for prior notification similar to Module 3 for public procurement procedures is also proposed to tackle distortions caused by foreign subsidies in the context of EU funding.

All, or a combination of, the three models could be implemented to tackle foreign subsidy related conduct.

The proposals are far reaching and will spawn a major debate. A spokesperson for China’s mission to the EU has been reported as saying that China’s subsidies are in line with WTO rules and that the EU should refrain from protectionist measures. For more information, see the statement issued by the Chinese Mission to the EU here.

The consultation on the proposals is open until 23 September 2020.

For more detail on the proposed tools, please see our briefing here.

Contacts

Kyriakos Fountoukakos
Kyriakos Fountoukakos
Managing Partner, Brussels
+32 2 518 1840
Lode Van Den Hende
Lode Van Den Hende
Partner, Brussels
+32 2 518 1831
Daniel Vowden
Daniel Vowden
Partner, Brussels
+32 2 518 1851
Eric White
Eric White
Consultant, Brussels
+32 2 518 1826
Adrian Brown
Adrian Brown
Of Counsel, Brussels
+32 2 518 1822
Morris Schonberg
Morris Schonberg
Senior Associate, Brussels
+32 2 518 1832

General Court Landmark Ruling in Three/O2 Commission Prohibition

On 28 May 2020 the General Court handed down its ruling in CK Telecoms UK Investment Ltd v European Commission (Case T-399/16) in which it annulled the EU Commission’s decision which prohibited the proposed acquisition by CK Hutchison Holdings Ltd (Hutchison) of Telefónica Europe plc (O2). The proposed transaction would have brought together two of the UK’s four mobile network operators (MNOs), Three and O2.

The judgment is a landmark ruling for EU merger control with a wider significance beyond the telecommunications sector. It provides helpful guidance on the application of the significant impediment to effective competition (SIEC) test of the EU merger regulation (EUMR) and, in particular, its application to so-called “gap cases”, i.e. mergers in oligopolistic markets where the merger does not result in the creation or strengthening of a dominant position. Continue reading

FULL FEDERAL COURT DISMISSES ACCC’S APPEAL AGAINST PACIFIC NATIONAL’S INTERMODAL TERMINAL ACQUISITION

The Full Federal Court has dismissed the ACCC’s appeal in respect of its case against Pacific National and Aurizon. In dismissing the ACCC’s appeal, the Full Federal Court confirmed the test to be applied when assessing whether a firm’s conduct will be likely to have the effect of substantially lessening competition.

While this case centred around section 50 of the Competition and Consumer Act 2010 (CCA), which prohibits mergers or acquisitions having the effect or “likely” effect of substantially lessening competition in a market in Australia, the case is significant as it confirms the standard to be applied in relation to all of the competition provisions that contain a substantial lessening of competition or “SLC” test.

The Full Court confirmed that the word “likely” means “real commercial likelihood”. Hence, an acquisition will contravene section 50 of the CCA where there is a real commercial likelihood of it having the effect of substantially lessen competition in a market in Australia.

The Full Court also confirmed that the Court has power to accept an undertaking proffered by an acquiring party in lieu of the grant of an injunction in circumstances where the relevant acquisition would contravene section 50.  Further, the Court may accept an undertaking as it considers appropriate in the circumstances of a case.

These issues arise out of Pacific National’s proposed acquisition of various intermodal assets from Aurizon in 2017.  For more details, please see our briefing.

Contacts

Liza Carver
Liza Carver
Regional Head of Practice, Australia
+61 2 9225 5574
Patrick Gay
Patrick Gay
Partner, Sydney
+61 2 9322 4378
Sarah Benbow
Sarah Benbow
Partner, Melbourne
+61 3 9288 1252
Paul Burton
Paul Burton
Senior Associate, Sydney
+61 2 9322 4582

FEDERAL COURT RELEASES REASONS IN TPG & VODAFONE MERGER CASE

On 13 February 2020, the Federal Court of Australia declared that the proposed merger between TPG Telecom Limited (TPG) and Vodafone Hutchison Australia (Vodafone) would not have the likely effect of substantially lessening competition in the retail mobile market, and therefore would not contravene of section 50 of the Competition and Consumer Act 2010 (CCA).

Subject to any ACCC appeal (which must be lodged by 12 March 2020), the Court’s decision effectively overrules the ACCC’s May 2019 decision to oppose the transaction, and provides TPG and Vodafone with competition clearance to proceed with the proposed $15 billion merger.

The HSF contested mergers team assisted TPG in achieving this great outcome. With this recent success, the HSF contested mergers team has acted in and won five of the seven contested merger cases in the last 15 years.

This result represented another great outcome for the HSF contested mergers team, which has now acted in and won five of the seven contested merger cases in Australia in the last 15 years. Please see our more detailed update for an overview of Middleton J’s findings on the three issues critical to the Court’s decision, focusing on the key TPG evidence.

Contacts

Liza Carver
Liza Carver
Regional Head of Practice, Australia
+61 2 9225 5574
Bruce Ramsay
Bruce Ramsay
Partner, Sydney
+61 2 9225 5534
Rebecca Maslen-Stannage
Rebecca Maslen-Stannage
Partner, Sydney
+61 2 9225 5500
Patrick Gay
Patrick Gay
Partner, Sydney
+61 2 9322 4378

German merger control deadlines to be substantially extended in light of COVID-19 pandemic

The German Federal Ministry for Economic Affairs and Energy has drafted an amendment to the German Act against Restraints on Competition (ARC) that will, inter alia, significantly extend the deadlines for Phase I and II proceedings under the German merger control regime in reaction to the ongoing COVID-19 pandemic. This will have some important practical implications for those involved in M&A in Germany, and we highlight below some key tactical considerations.

Although the timeline for the passing of the bill is not fully clear at the time of writing, it appears likely that the new regime will enter into force shortly.

Extension of merger control timelines

Like many other merger control regimes, the German regime is a suspensory one – in other words, notifiable transactions may not be completed prior to obtaining merger control clearance. The review process following notification is divided into two phases: an initial Phase I review, followed by a more in-depth Phase II investigation where the Federal Cartel Office (FCO) concludes at the end of Phase I that further investigation is needed.

The FCO is currently required to complete its Phase I review within one month of receiving a complete notification from the merging parties. If an in-depth Phase II investigation is not opened within that one month period, the transaction may be implemented. For a Phase II investigation, the FCO is required to issue a clearance or prohibition decision within four months from the date of receipt of a complete notification. If it does not do so, the transaction is deemed to be cleared.

Under the proposed amendments to the ARC, these deadlines will be significantly extended for all transactions that have been notified or will be notified to the FCO between 1 March 2020 and 31 May 2020:

  • Phase I will be extended by one month, i.e. overall duration of two months from notification; and
  • Phase II will be extended by two months, i.e. overall duration of six months from notification.

An exception will apply for transactions notified between 1 March 2020 and 31 May 2020 for which, as of the date the revised ARC enters into force:

  • Phase I has already ended and the FCO has not adopted a decision to initiate a Phase II investigation;
  • Phase II has already ended and the FCO has not adopted a clearance or prohibition decision; or
  • the FCO has already adopted a clearance decision.

The proposed new law also provides that these extended deadlines will apply to the review of transactions which have been referred from the European Commission to the FCO between 1 March 2020 and 31 May 2020.

Key practical implications and tactical considerations
Will transactions which have already been notified be affected by these changes?

The draft amendments to the ARC provide that the new extended deadlines will apply retroactively to all transactions notified to the FCO between 1 March 2020 and the date the revised ARC enters into force (as well as to notifications submitted between the date of entry into force and 31 May 2020), subject to the exceptions mentioned above.

In practice, this means that all notified transactions which are part-way through the Phase I review process as at the date of entry into force of the revised ARC will automatically fall under the new extended deadline regime.

For transactions which are subject to a Phase II investigation as at the date of entry into force of the revised ARC, the assessment is more nuanced: for concentrations notified prior to 1 March 2020, the previous Phase II deadline applies, i.e. the FCO has four months from notification to decide the case. For all other cases that were notified on or after 1 March 2020, and subsequently moved into Phase II review, the new six-month deadline applies.

Will there be any way to expedite proceedings?

The new extended deadlines could prove particularly problematic for straightforward cases where the merging parties have, based on the current legal framework, agreed tight closing deadlines for their transaction in anticipation of a Phase I clearance within one month from notification.

However, the FCO has been widely acclaimed for its pragmatic approach to merger review under the current framework, often not using the full one-month period available to it in Phase I before concluding that a Phase II investigation is not necessary (as seen for example in previous cases such as the sales of parts of the insolvent Thomas Cook group, cleared by the FCO in November 2019). It is anticipated that it will seek to continue to follow this approach, as far as it is possible to do so, under the proposed new regime.

The legislator’s main goal in revising the review deadlines is to give the FCO sufficient time to investigate the impact of a transaction on the relevant market(s) under the difficult conditions resulting from the COVID-19 pandemic (in particular the difficulties in obtaining critical information from third parties). In straightforward cases which do not require detailed market investigations, it is at least conceivable that the FCO will be able to reach a decision in substantially less time than that available to it under the new extended deadlines. The FCO may also be more inclined to issue a Phase I clearance decision more swiftly than the new two-month deadline would suggest where time is of the essence, for example where the target is experiencing serious liquidity issues due to the impact of the COVID-19 pandemic.

Against this backdrop, it will remain the case that one of the most important ways in which merging parties can expedite the review process is by providing all potentially necessary information to the FCO upfront as part of the notification.

Should a planned notification be delayed?

From a strategic point of view, merging parties may wish consider whether to delay notification of a planned transaction until early June 2020, to avoid the application of the extended deadlines. The German merger control regime does not specify any deadline for notification of a transaction, provided that the transaction is not implemented (even partially) prior to obtaining clearance. This means that merging parties enjoy a degree of flexibility when deciding exactly when to notify the FCO of a transaction which meets the relevant thresholds.

However, merging parties should carefully consider whether such strategy is in fact beneficial in their individual case – in practice, the position is unlikely to be as simple as it may at first appear.

Firstly, it cannot be excluded that the application of the extended deadlines could be prolonged by last minute changes to the current proposal, or by way of further amendment to the ARC in due course, potentially at short notice, depending on how COVID-19 pandemic develops. Indeed, the legislator’s explanatory statements accompanying the draft amendments to the ARC appear to envisage the possibility of prolonging the current extension if the overall situation has not substantially improved by mid-May 2020.  In such circumstances, artificially delaying a planned notification until early June 2020 could ultimately simply cost additional time overall.

Secondly, the benefits of delaying notification may vary depending on the complexity of the transaction in question and the estimated likelihood of a Phase II investigation. As noted above, it is anticipated that the FCO will still seek to reach a Phase I decision as quickly as possible in “straightforward” cases, and may not need to exploit the full two month period available to it under the new extended deadlines. In such cases, delaying notification until early June may therefore simply result in a delay in receiving a clearance decision. However, the position is likely to be different for more complex transactions, where it is anticipated that the FCO is likely to conclude that an in-depth Phase II investigation is required. In such cases, it may indeed make sense to use the remaining time until end of May for pre-notification discussions with the FCO (which are not mandatory in Germany), and then formally notify at the beginning of June. Even if the extended deadlines ultimately continue to apply to notifications made in June, the benefit of more in-depth pre-notifications discussions will not be lost; indeed, in cases where the need for a Phase II investigation is finely balanced, such an approach may increase the potential for a Phase I clearance decision being reached within an extended two-month deadline.

What precautions should be taken in ongoing M&A negotiations?

Parties to transactions that are currently still under negotiation need to take the government’s plans for extended merger review deadlines into account when agreeing terms and deal documentation. Particular care should be taken in relation to the agreement of:

  • long stop dates: the deadline for implementation of the deal should, as a fall-back, be based on the newly extended timeframes for merger control review (including where it is anticipated that a formal notification will be submitted after 31 May 2020, given that it cannot be excluded that the application of the extended deadlines may be prolonged); and
  • deadlines to notify the merger: it may be advisable to include a degree of flexibility to allow for formal notification to be delayed for a short period for strategic reasons, as discussed above.

Contacts

Florian Huerkamp
Florian Huerkamp
Counsel, Dusseldorf
+49 211 975 59063
Marcel Nuys
Marcel Nuys
Partner, Dusseldorf
+49 211 975 59065

CMA guidance on merger assessment during the COVID-19 pandemic

The Competition and Markets Authority (CMA) has published guidance on its approach to merger control during the COVID-19 pandemic.  The guidance deals with procedural issues as well as substantive assessment, and makes it clear that on the whole the CMA’s approach remains one of ‘business as usual’.  Unlike in many other jurisdictions, statutory timelines have not been suspended or extended.  The CMA has of course had to make some practical adjustments to its working arrangements and recognises that some aspects of its investigations, in particular the pre-notification phase, may in some instances take longer than usual.

On substantive assessment the CMA is keen to highlight that COVID-19 will not result in a relaxation of its current standards, which remain essential to protect the interests of consumers in the longer term.  On the failing firm defence, the CMA recognises it is likely to see an increase in the number of applications as a result of the economic impact of the pandemic.  It will treat these on a case by case basis “in a fair and transparent way that appropriately protects the interests of consumers”.  For good measure the CMA has attached a summary of its position on mergers involving failing firms as an annex to the guidance, which reflects its existing Merger Assessment guidelines and decisional practice on the issue.

Continue reading