In this trend we take a closer look at the developments in merger review by the European Commission (the “Commission”), the Netherlands Authority for Consumers and Markets (“ACM”) and the Dutch Healthcare Authority (the “NZa”). The most important (overall) trend in the M&A practice is that parties to a merger, an acquisition or the establishment of a full function joint venture (a “merger”) may be faced with a notification process in new ways. This is possible in the case of (i) killer acquisitions, (ii) the DMA/DSA and (iii) the Investments Screening Bill or Wet Vifo.
Mergers in the new economy: killer acquisitions & DMA/DSA
These past eighteen months, the Commission’s merger review of what is known as “killer acquisitions” has been the subject of much debate (see also this blog). Killer acquisitions are acquisitions of (highly) innovative companies that do not yet generate a great deal of turnover. In light of the killer acquisitions reviewed to date, this applies in particular to mergers involving tech and (med)tech start-ups. As a result, these acquisitions remain below the national turnover thresholds. Because of the impact that these acquisitions may have on competition, the Commission nevertheless wishes to examine them after referral by national competition authorities under Article 22 of the Merger Regulation.
Critics believe that Article 22 of the Merger Regulation is being used to unduly expand the Commission’s merger review powers (see also this blog). In July 2022, in Illumina / GRAIL, the General Court nevertheless confirmed that the Commission has the power to review killer acquisitions after referral under Article 22 of the Merger Regulation. Commissioner Vestager welcomed this ruling and immediately stated: “We have a few acquisitions within our sights that may be relevant candidates for Article 22.” The Commission has prohibited, under the EU Merger Regulation, the implemented acquisition of GRAIL by Illumina.
The Digital Markets Act (“DMA”) and the Digital Services Act (“DSA”) will enter into force in late 2022/early 2023. By means of these Acts, the Commission is introducing a new regulatory framework for (large) tech companies. The Commission will have the opportunity to curb the power of large online platforms, known as “gatekeepers”. The DMA also gives the Commission an additional means of reviewing killer acquisitions and even banning them a priori. The DMA obligates gatekeepers to report all concentrations that they wish to enter into (large or small), i.e. also when an acquisition is not referred by a competition authority of an EU Member State (which is currently a precondition of Article 22 of the Merger Regulation). More information on the DSA/DMA can be found here.
Investments Screening Bill: an additional notification requirement
The M&A practice is faced also in another manner with a notification requirement in mergers and acquisitions: the Wet veiligheidstoets investeringen, fusies en overnames (Investments Screening Bill – the “ISB”), which was adopted in May 2022, is expected to enter into force in early 2023. The ISB follows from the European Screening Regulation and sets out a notification requirement and an investment test for acquisition activities (which may also be a non-controlling minority interest) in vital providers and companies that operate in the field of sensitive technology. The purpose of the ISB is to assess whether these acquisition activities may present risks to national security. Notifications are made to the Bureau Toetsing Investeringen (Investment Assessment Agency). It is noteworthy that when the ISB takes effect, transactions may also be reviewed by that Agency retroactively (as of September 2020). The Minister for Economic Affairs and Climate Policy may furthermore extend the scope of the ISB by decree, by designating additional categories of vital providers or sensitive technologies (it has already been suggested, for instance, to designate food supply as a vital sector). More information on the ISB can be found here.
Merger control by the European Commission
The Commission is currently conducting three Phase II investigations. It is remarkable that the Commission approved three mergers in a short period of time this year subject to the condition that a division of one of the parties involved was divested (known as a structural remedy). These were (i) the acquisition of Meggitt by Parker, (ii) the acquisition of Welbilt by Aligroup and (iii) the acquisition of ENGIE subsidiary Equans by Bouyques. A divestment is usually considered the most far-reaching remedy. It is worth noting that the parties in question offered this remedy to the Commission in Phase I already. All three of these cases therefore involved a formal notification process of less than six months. This is considerably shorter than the average remedy process in Phase I or Phase II at the Commission (an average of 10 and 19 months, respectively). This confirms that a thoroughly prepared pre‑notification process at the Commission (but also at ACM) may help accelerate the approval process of complex transactions.
The Commission also has a specific procedure for accelerating the processing of a notification, known as the simplified procedure. That procedure is intended for mergers of which it can quickly be established that they do not present any problem to competition (around [90-95]% of the total). The Commission is currently renewing this procedure so that more mergers can benefit from it (see here). This way, the Commission wishes to free up more time and resources for more complex mergers.
Merger control by ACM
After a busy 2021, with eight Phase II cases and two merger prohibitions, ACM has found calmer waters in the field of merger review (in terms of absolute number of cases). But ACM is nevertheless currently handling four Phase II cases, namely (i) RTL/Talpa, (ii) AEB/AVR, (iii) Landal/Roompot and (iv) Ter Beke/Stegeman. In our opinion, the most high-profile Phase II case is the merger between RTL and Talpa. ACM is currently conducting an in‑depth data analysis of the possible price effects of the merger on the Dutch advertising market. It is also considering the impact that the merger might have on the quality of the programmes on offer and the transmission of television channels. Competitor DPG Media and the Dutch Association of Advertisers have meanwhile publicly announced that they will oppose the merger at ACM. ACM is expected to complete its Phase II investigation by the end of 2022. It is furthermore noteworthy that ACM imposed a fine for gun jumping in both March and May 2022 (see here and here).
Case law on merger control
Several court rulings have recently been issued in the EU/NL that are relevant to the merger control practice:
- In 2019, ACM conditionally approved the acquisition of Iddink by Sanoma. Sanoma had to open its digital platform Magister to other publishers on fair, reasonable and non-discriminatory terms to ensure a level playing field. In July 2022, the CBb (Trade and Industry Appeals Tribunal) annulled a 2021 ruling issued by the Rotterdam Court. The CBb ruled that ACM had sufficiently substantiated why it was implausible that Sanoma and Iddink would shield competitors by means of a bundling strategy. The ruling demonstrates that ACM has broad discretionary powers when substantiating its damage theories. A scenario outlined by ACM need not actually materialise in practice: it suffices that a scenario is (or is not) plausible.
- In early June 2022, the CBb ruled that the State Secretary for Economic Affairs (after an earlier refusal by ACM) could not grant a licence for the acquisition of Sandd by PostNL. The granting of the licence was in breach of Article 47 of the Dutch Competition Act: the State Secretary was not allowed to replace ACM’s opinion on the universal postal service with its own opinion on the subject. Reversal of the acquisition is complicated. PostNL’s appeal against the original licence refusal by ACM is also still pending.
- In a judgment in June 2022, the General Court upheld the Commission’s prohibition of a joint venture between ThyssenKrupp and Tata Steel. The General Court found that the Commission was not necessarily required to carry out an SSNIP test when assessing the interchangeability of products. That assessment is (usually) made when defining the relevant product market. Other methods may also suffice for this purpose. ThyssenKrupp may appeal the General Court’s judgment.
- The General Court decided in May 2022 to uphold a €28 million fine imposed on Canon by the Commission for gun jumping. This ruling is important for the merger control practice, since the General Court confirms that a first step in a “warehousing arrangement” within the framework of an acquisition can already give rise to a notification requirement, even if no actual acquisition of control takes place yet.
Merger control in healthcare: less prompt notification to NZa and ACM
Both ACM and the NZa will restructure their merger control as of 1 January 2023 and 1 July 2022, respectively. As a result of these changes, companies will be less likely to have to report a merger to ACM or the NZa.
NZa
The NZa changed its healthcare-specific merger test on 1 July 2022. The NZa test will have a limited scope. After 1 July 2022, mergers and acquisitions will have to be reported to the NZa only if a healthcare provider is directly involved. This way, the NZa wishes to prevent mergers that have nothing to do with healthcare from nevertheless being reviewed by the NZa. We consider this a positive development. At the same time, the NZa will intensify its assessment of transactions that do have to be notified. Notifying parties will, for instance, have to involve staff and clients in a transaction proposal sooner and will in certain cases have to submit more financial information to the NZa. In our opinion, abolition of the NZa’s healthcare-specific merger test remains the most desirable for several reasons (see here). More information on the NZa’s amended healthcare-specific merger test can be found in this blog and this podcast.
ACM
In July 2022, the Ministry of Health, Welfare and Sport announced in a letter to parliament that it intended not to extend the lowered ACM turnover thresholds for healthcare mergers. If this intention is carried through, only the (higher) regular turnover thresholds for healthcare mergers will apply as of 1 January 2023:
- all merging companies in a healthcare merger have a combined annual worldwide turnover of at least €150 million (instead of the current €55 million); and
- at least two of the merging companies have an annual turnover in the Netherlands of at least €30 million (instead of the current €10 million).
The Ministry’s intention is not only contrary to expectations, but also to ACM’s advice. These past few years, ACM has in fact very strictly tested healthcare mergers, resulting in, for instance, two healthcare merger prohibitions in 2021 (see also this blog), despite the fact that the Ministry’s intention could actually be regarded as a relaxation of the rules for healthcare mergers. We have previously argued in favour of a voluntary notification regime that would allow ACM to assess a limited number of healthcare mergers in a targeted manner (based on the British model; see this blog). The Ministry is now apparently opting for a more drastic approach.
