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General Court Upholds European Commission’s Power to Review Illumina-Grail Despite Untriggered Turnover Thresholds

In Illumina v Commission, the General Court has confirmed the authority of the European Commission (EC) under Article 22 EU Merger Regulation (EUMR) to examine a transaction that does not have a European dimension, but which is the subject of a referral request made by a Member State – even if the transaction is not notifiable in that Member State.

INTRODUCTION

Article 22 EUMR includes a referral mechanism whereby one or more Member States may request the EC to examine any transaction insofar as it does not have an EU dimension but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request (Article 22 Conditions).

With a view to ensuring that non-notifiable yet potentially problematic mergers do not fly under the radar of merger control review, in March 2021 the EC issued practical guidance (Article 22 Guidance) on when it might be appropriate for a Member State to refer such mergers to the Commission. The EC referred in particular to the digital and pharmaceutical sectors (see our On the Subject on the Article 22 Guidance here).

In Illumina v Commission, which concerns a transaction in the pharma sector, the General Court has confirmed that the EC has the authority to examine transactions that do not have a European dimension nor fall within the scope of the national merger control rules of EU or EFTA Member States.

PROCEDURAL BACKGROUND

On September 21, 2020, Illumina, an American company specializing in genomic sequencing, announced its intention to acquire sole control of Grail, an American biotechnology company which relies on genomic sequencing to develop cancer screening tests, to “Launch New Era of Cancer Detection” (the Transaction).

The EUMR thresholds were not met by the Transaction, nor were any EU or EFTA Member State thresholds. The Transaction was therefore not notified to the EC nor any of the EU or EFTA Member States. However, on December 7, 2020, the EC received a complaint concerning the Transaction and, on investigation, reached the preliminary conclusion that the Transaction appeared to satisfy the Article 22 Conditions for referral to the EC by a national competition authority. The EC subsequently on February 19, 2021 sent a letter to the Member States (the Invitation Letter) to inform them of the Transaction and to invite them to submit a referral request under Article 22. The French competition authority obliged and other Member States subsequently requested, each in its own right, to join.

On March 11, 2021, the EC informed Illumina and Grail of the referral request (the Information Letter) and about a month later, on April 19, 2021, it accepted the referral request, along with the respective requests to join (the Contested Decisions). This prompted Illumina, supported by Grail, to file suit before the General Court (against the Contested Decisions and the Information Letter).

On substance, Illumina argued that (i) the EC lacked the competence to initiate, under Article 22 EUMR, an [...]

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Antitrust M&A Snapshot | Q3 2021

In the United States, the US Department of Justice’s (DOJ) challenge of American Airlines and JetBlue’s “Northeast Alliance” after the joint venture’s approval by the US Department of Transportation earlier this year demonstrates the Biden administration’s commitment to aggressive antitrust enforcement. US President Joe Biden issued an Executive Order calling for tougher antitrust enforcement, including “encouraging” the DOJ and Federal Trade Commission (FTC) to modify the horizontal and vertical merger guidelines to address increasing consolidation. At the same time, the FTC, under Chair Lina Khan, continues its rapid pace of change to the merger review process.

Under a new interpretation of Article 22 of the EU Merger Regulation (EUMR), the European Commission (Commission) asserted jurisdiction over Illumina’s acquisition of GRAIL and Facebook’s acquisition of Kustomer, even though the transactions did not meet the Commission or Member State filing thresholds. The EU General Court confirmed a significant gun-jumping fine imposed on Altice for breach of the EUMR notification and standstill obligations.

In the United Kingdom, the UK government published plans to update antitrust rules, including revising its jurisdictional thresholds and expanding the “share of supply” test to allow the CMA to more easily capture vertical and conglomerate mergers, as well as acquisitions of startups. And the Competition & Markets Authority’s (CMA) handling of the Veolia/Suez transaction demonstrates the CMA’s willingness to engage with parties to seek practical interim solutions while it is investigating a consummated transaction for potential antitrust concerns.

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Antitrust M&A Snapshot | Q2 2021

In the United States, aggressive antitrust enforcement is likely to continue with the appointment of Lina Khan as Federal Trade Commission (FTC) Chair and the nomination of Jonathan Kanter to lead the Department of Justice’s (DOJ) Antitrust Division. The premerger notification landscape continues to shift as filings reach another record high. Technology companies remain in the “hot seat” as legislators in the US House of Representatives introduced five antitrust reform bills that would change the enforcement landscape for digital platforms, including seeking to preclude large digital platform companies from acquiring smaller, nascent competitors. And the US Department of Justice is making good on President Biden’s pledge to regulate “Big Ag” by challenging Zen-Noh Grain Corporation’s proposed acquisition of 38 grain elevators from Bunge North America, Inc.

Meanwhile, in Q1 2021, the European Commission (Commission) published its Guidance on Article 22 of the EU Merger Regulation. The Guidance encourages the EU Member States to refer certain transactions to the Commission even if the transaction is not notifiable under the laws of the referring Member State(s). In Q2, not long after the issuance of the Guidance, the Commission received its first referral request to assess the proposed acquisition of GRAIL by Illumina. In light of the growing global debate on the need for more effective merger control, EU Competition Commissioner Margrethe Vestager confirmed that the Commission will not soften EU merger policy going forward. The Commission’s statement was made despite the fact no deals have been blocked by the Commission in about the last two years.

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Annual European Competition Review 2019

McDermott’s Annual European Competition Review summarizes key developments in European competition rules. During the previous year, several new regulations, notices and guidelines were issued by the European Commission. There were also many interesting cases decided by the General Court and the Court of Justice of the European Union. All these new rules and judicial decisions may be relevant for your company and your day-to-day practice.

In our super-connected age, we can be inundated by information from numerous sources and it is difficult to select what is really relevant to one’s business. The purpose of this review is to help general counsel and their teams to be aware of the essential updates.

This review was prepared by the Firm’s European Competition Team in Brussels and Paris. Throughout 2019 they have monitored legal developments and drafted the summary reports.

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Bigger Is Better. . .Or Maybe Not: The Siemens/Alstom Railway Merger

The European Commission recently reaffirmed that industrial policy objectives have no role to play when it comes to applying the EU merger control rules. Despite unusually intense industrial and political pressure to get the Siemens/Alstom railway merger done, Competition Commissioner Vestager has forcefully reiterated that the substantive test under the EU Merger Regulation remains exclusively competition based.

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Beware of “Gun Jumping”: EU Court Upholds EUR 20 Million Fine Imposed On Norwegian Seafood Company

Between 2012 and 2013, Marine Harvest ASA (“Marine Harvest”), a Norwegian seafood company, acquired Morpol ASA (“Morpol”), a Norwegian producer and processor of salmon. Marine Harvest notified the transaction to the European Commission under the European Union’s Merger Regulation (“EUMR”), but implemented it prior to the European Commission having granted clearance. In 2014, the European Commission imposed a EUR 20 million fine on Marine Harvest for “jumping the gun”. On 26 October 2017, the General Court of the European Union (“General Court”) confirmed the European Commission’s decision (“Decision”).

WHAT HAPPENED:

On 14 December 2012, Marine Harvest entered into a share and purchase agreement (“SPA”) with companies owned by Jerzy Malek, the founder and former CEO of Morpol. Under the SPA, Marine Harvest acquired 48.5% of the shares in Morpol (“Initial Transaction”). The Initial Transaction was closed on 18 December 2012. On 15 January 2013, Marine Harvest submitted a mandatory public offer for the remaining 51.5% of the shares in Morpol (“Public Offer”). Following settlement and completion of the Public Offer in March 2013, Marine Harvest owned a total of 87.1% of the shares in Morpol (together, the “Transaction”).

Marine Harvest established first contact with the European Commission on 21 December 2012 by submitting a “Case Team Allocation Request”, which initiates the pre-notification process under the EUMR. After submitting various drafts and answers to requests for information, Marine Harvest formally notified the Transaction on 9 August 2013. On 30 September 2013, the European Commission cleared the Transaction subject to some conditions.

On 31 March 2014, the European Commission formally launched a separate investigation into alleged “gun jumping” by Marine Harvest, and in the decision of 23 July 2014, the European Commission imposed a fine of EUR 20 million on Marine Harvest (“Fining Decision”). The European Commission held that Marine Harvest, by implementing the Initial Transaction, had acquired de facto control over Morpol. By acquiring de facto control, Marine Harvest had infringed Art. 7(1) EUMR (“Standstill Obligation”). Under the Standstill Obligation, transactions requiring notification to, and clearance by, the European Commission may not be implemented prior to clearance.

The European Commission rejected Marine Harvest’s argument that the implementation of the Initial Transaction was covered by an exemption provided for in Art. 7(2) EUMR (“Public Bid Exemption”). Under the Public Bid Exemption, the acquisition of control from various sellers through a public bid, or a series of transactions in securities, can be implemented prior to clearance. However, this applies only if the transaction is notified without delay to the European Commission, and if the acquirer does not exercise the respective voting rights. According to the European Commission, the Public Bid Exemption is not intended to cover situations involving the acquisition, from a single seller, of a “significant block of shares” which in itself confers de facto control.

Marine Harvest appealed against the Fining Decision to the General Court. However, with the Decision, the General Court confirmed the European Commission findings, both on substance on with respect to the level of the fine.

WHAT [...]

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THE LATEST: European Court of Justice Clarifies Application of European Union Merger Control Rules to Joint Ventures

On 7 September 2017, the European Court of Justice issued a decision (Decision) on the interpretation of the European Union Merger Regulation (EUMR). The Decision clarifies the conditions under which the EUMR applies to the setting-up of joint venture companies.

WHAT HAPPENED:
  • 3(4) of the EUMR stipulates that the “creation” of joint ventures requires a notification only if the joint venture “performs the functions of an autonomous economic entity” (Full-Function JV).
  • Companies with management dedicated to its day-to-day operations, as well as access to sufficient resources including staff, finance and assets usually qualify as Full-Function JV. If the joint venture has only one specific function for the parent companies (e.g. supplying input products or services), and has no or only very limited own resources, it is unlikely to be considered a Full-Function JV.
  • There has been considerable uncertainty whether Art. 3(4) EUMR applies only to the creation of a new company (greenfield operation), or whether it also applies if joint control is acquired over an existing company.
  • The European Commission significantly contributed to this uncertainty by repeatedly taking inconsistent and contradictory positions. In a fairly unusually move, the ECJ’s Advocate General chastised the European Commission, calling it “extremely regrettable” that the European Commission did notcommit to a clear and uniform approach and then apply it consistently”.
  • The ECJ’s Decision comes at the request of an Austrian court. The Austrian court had to decide whether the acquisition of joint control over a small asphalt plant–which does not qualify as Full-Function JV–requires notification and clearance under the EUMR by the European Commission.
  • The ECJ has now held that the change of sole control to joint control only requires a notification under the EUMR if the newly created joint venture qualifies as a Full-Function JV.
WHAT THIS MEANS:
  • The Decision brings much-awaited clarity to a key issue of European Union merger control.
  • If two or more companies create a joint venture company, it will be subject to the EUMR only if it qualifies as s Full-Function JV. This applies both to greenfield operations, where a new company is created, and the change from sole to joint control over an existing company. Whether a notification to the European Commission is actually required, will depend on whether the jurisdictional turnover thresholds under the EUMR are met.
  • The creation of joint ventures which do not qualify as Full-Function JV does not require notification to and clearance by the European Commission. However, these joint ventures may still be subject to merger control in one or several EU Member States.
  • The European Commission required and accepted in the past the notification of transactions which involved the creation of joint ventures not qualifying as Full-Function JV. Following today’s decision by the ECJ, it appears that the European Commission did not have jurisdiction. An interesting question to be explored in the coming weeks and months is therefore whether the Decision [...]

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