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Merger control between companies

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1) OBJECTIVE

To enable the Commission to ensure that mergers do not endanger competition, which is vital to the single market. The Commission is to vet in advance mergers caught by the Regulation; previously, it was authorised only to assess the effects of certain merger transactions after the event. The Regulation establishes rapid decision-making procedures and a clear legal framework for industry. Where a large-scale merger would affect several Member States, the Regulation will avoid the application of different national rules.

2) ACT

Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings [Official Journal L 395 of 30 December 1989]. Amended opinion: Official Journal L 257 of 21 September 1990.

Amended by:

Council Regulation (EC) No 1310/97 of 30 June 1997 [Official Journal L 180 of 9 July 1997].

3) SUMMARY

The Regulation applies to all "concentrations" (mergers) with a "Community dimension"; there is a Community dimension where:

  • the combined aggregate worldwide turnover of all the companies is more than 5 000 million, and;
  • the aggregate Community-wide turnover of each of at least two of the companies is more than 250 million, unless each of the companies achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

Any merger that does not meet these thresholds nevertheless has a Community dimension where:

  • the combined aggregate worldwide turnover of all the companies is more than 2 500 million;
  • in each of at least three Member States, the combined aggregate turnover of all the companies is more than 100 million;
  • in each of at least three Member States, the aggregate turnover of each of at least two of the companies is more than 25 million, and;
  • the aggregate Community-wide turnover of each of at least two of the companies is more than 100 million; unless each of the companies achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

Mergers are appraised with a view to establishing whether or not they are compatible with the common market. A merger which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded will be declared incompatible. This also applies to the establishment of a joint venture constituting a merger which has as its object or effect the coordination of the competitive behaviour of companies that remain independent.

A "concentration" or merger arises where:

  • two or more previously independent companies merge,
  • one or more companies, or one or more persons already controlling at least one company, acquire control of one or more other companies.

Mergers with a Community dimension must be notified to the Commission not more than one week after the agreement.

Turnover comprises the amounts derived by the companies in the preceding financial year from the sale of products and the provision of services falling within the companies' ordinary activities after deduction of sales rebates and taxes directly related to turnover.

The Commission examines the notification as soon as it is received, and:

  • where it concludes that the merger does not fall within the scope of the Regulation, it records that finding by means of a decision;
  • where it finds that the merger, although falling within the scope of the Regulation, does not raise serious doubts as to its compatibility with the common market, it declares that it is compatible with the common market;
  • where it finds that the merger does fall within the scope of the Regulation and does raise serious doubts as to its compatibility with the common market, it decides to initiate proceedings. It may, however, in the light of changes made by the companies, declare the merger compatible with the common market.

These decisions must be taken within one month. If the Commission decides to initiate proceedings and investigate further, it has another four months in which to adopt a final decision.

The main test of compatibility with the common market is the effect of the merger on competition on the markets on which the merging businesses operate.

As a general rule a merger with a Community dimension cannot be put into effect either before its notification or within the first three weeks following its notification. This automatic suspension may be extended or dispensed with.

The Commission may refer a notified concentration to the competent authorities of the Member State concerned where:

  • a merger threatens to create or to strengthen a dominant position as a result of which effective competition will be significantly impeded on a market within that Member State, which presents all the characteristics of a distinct market, or
  • a merger affects competition on a market within that Member State, which presents all the characteristics of a distinct market and which does not constitute a substantial part of the common market.

The Commission may have all necessary investigations carried out into firms and associations of firms by officials authorised for the purpose. It may obtain all information necessary to its enquiries.

An Advisory Committee consisting of representatives of the authorities of the Member States has to be consulted by the Commission before it takes any decision holding a merger compatible or incompatible or imposing a fine.

The Commission has sole jurisdiction to take decisions. No Member State may apply its national legislation on competition to any merger that has a Community dimension.

By way of exception, if the Commission finds, at the request of a Member State, that a merger that has no Community dimension significantly impedes effective competition within the territory of that Member State, it has power to deal with the case.

The Regulation does not apply to mergers which took place before it entered into force.

The Regulation provides for a possible review of two of its important aspects. These are the turnover thresholds under Article 1(3) and case referral to the competent national authorities under Article 9(10).

Before 1 July 2000 the Commission must report to the Council on the operation of the thresholds and criteria laid down in the Regulation, following which the Council may revise it.

Regulation (EEC) No 4064/89 was replaced by Regulation (EC) No 139/2004 as of 1 January 2004.

ActDate of entry into forceFinal date for implementation in the Member States
Regulation 4064/89/EEC21.09.1990-
Regulation 1310/97/EC01.03.1998-

4) IMPLEMENTING MEASURES

1) MAIN CONCEPTS

Over the years, the Commission has developed a series of notices designed to explain to companies the circumstances in which a merger transaction would be problematic from the competition viewpoint.

Commission notice - Official Journal C 372, 09.12.1997 
Commission notice on the definition of relevant market for the purposes of Community competition law.

The relevant market must combine the characteristics of the product market (i.e. the market for all products and/or services which are regarded as interchangeable or substitutable by the consumer) with those of the geographic market (i.e. the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and can be distinguished from neighbouring areas) of which the assessment criteria are being examined.

Commission notice - Official Journal C 66, 02.03.1998 
Commission notice on the concept of full-function joint ventures under Council Regulation (EC) No 4064/89.

Joint ventures are undertakings which are jointly controlled by two or more other undertakings. In practice, however, joint ventures encompass a broad range of operations, from merger-like operations to cooperation for particular functions such as R & D, production or distribution. Joint control occurs where the joint venture performs, on a lasting basis, all the functions of an autonomous economic entity.

Commission notice - Official Journal C 66, 02.03.1998 
Commission Notice on the concept of concentration under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings

Concentrations may arise from a merger between previously independent undertakings or from an acquisition of control by a single undertaking, by more than one undertaking or by a shareholder. However, there are three cases in which acquisition of a controlling interest does not constitute a concentration, i.e. (a) the acquisition of securities by companies whose normal activities include transactions and dealing in securities; (b) where control is acquired by an office-holder according to the law of a Member State; and (c) where a financial holding company acquires control, provided that this company does not have voting rights.

Commission notice - Official Journal C 66, 02.03.1998 
Commission Notice on the concept of undertakings concerned under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings

Undertakings concerned are the direct participants in a merger or acquisition of control. This notice identifies undertakings concerned in three different types of operation, such as mergers, acquisition of sole control, acquisition of joint control, acquisition of control by a joint venture, change from joint control to sole control, change in the shareholding, acquisition of control by individual persons, management buy-outs and acquisition of control by state-owned companies.

Commission notice - Official Journal C 66, 02.03.1998 
Commission Notice on calculation of turnover under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings

In principle, turnover comprises the amounts derived by the undertakings concerned in the preceding financial year from the sale of products and the provision of services and corresponding to their ordinary activities, minus reductions on sales and tax relating directly to turnover. This notice also investigates the impact on the geographic market of holding a certain turnover and the factors which should be taken into consideration when calculating turnover derived from a banking, financial or insurance activity.

Commission notice - Official Journal C 66, 02.03.1998 
Information from the Commission - Information on the assessment of full-function joint ventures pursuant to the competition rules of the European Community

Full-function joint ventures are undertakings which have a Community dimension and which have as their object or effect the coordination of the competitive behaviour of undertakings that remain independent.

2) MERGER PROCESSING PROCEDURES

Merger transactions with a Community dimension are subject to a formal merger processing procedure. However, the Commission has preferred to introduce a simplified procedure for certain merger operations and certain restrictions defined as directly related and necessary to mergers. Where appropriate, undertakings may also demonstrate their goodwill vis-à-vis the Commission by adopting corrective measures designed to reduce the market power of the parties to the merger and avoid the creation of a dominant position, thus restoring effective competition.

Commission Regulation (EC) No 447/98 - Official Journal L 61, 01.03.1998 
Commission Regulation (EC) No 447/98 of 1 March 1998 on the notifications, time limits and hearings provided for in Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings

The Commission must be notified of mergers with a European dimension within one week of conclusion of the agreement, publication of the take-over bid or acquisition of a controlling interest. Notification must be made on the CO form attached to the Regulation. A merger may not go ahead until it has been notified and declared compatible with the common market, failing which the Commission may impose fines. The Commission will provide notifying parties who have so requested in their written comments with an opportunity to put forward their arguments orally in a formal hearing. The undertakings concerned have three weeks from the date of receipt of the notification in which to propose commitments to the Commission with a view to having the merger prohibited. The CO form, the requisite additional documentation and details of commitments must be submitted, or sent by registered letter, to the address indicated on the form.

Commission notice - Official Journal C 217, 29.07.2000 
Commission notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EEC) No 4064/89 

The simplified procedure followed by the Commission concerns merger transactions: (a) where the joint venture's turnover and total assets are each less than 100 million; (b) where, in the case of a merger or of acquisition of sole or joint control of another undertaking, the parties are not engaged in business activities on the same market as any other party to the merger; (c) where, in the case of a merger or of acquisition of sole or joint control of another undertaking, the parties are engaged in business activities on the same market as another party to the merger but their combined market share is not 15% or more for horizontal relationships and 25% or more for vertical relationships. Notifying parties must describe the relevant product markets and geographical markets; where it is difficult to define the relevant markets, the simplified procedure will not be applied. If the conditions are met, the Commission will issue a short-form decision within one month of the date of notification. This decision will be published in the Official Journal.

Commission notice - Official Journal C 68, 02.03.2001 
Commission Notice on remedies acceptable under Council Regulation (EEC) No 4064/89 and under Commission Regulation (EC) No 447/98. Remedies acceptable are modifications to concentrations designed to reduce the merging parties' market power, to avoid the creation of a dominant position and to restore conditions for effective competition. The Commission's main remedy is divestiture of business, although other remedies are also accepted: divestiture of exclusive agreements or divestiture of know-how for key technology, etc.). However, it may be that no remedy adequate to eliminate competition concerns can be found. In such circumstances, the only possibility is prohibition.

Commission notice - Official Journal C 188, 04.07.2001 
Commission Notice on restrictions directly related and necessary to concentrations.

This Notice replaces the Commission Notice regarding restrictions ancillary to concentrations (Official Journal C 203 of 14 August 1990) and forms part of a coherent simplified procedure for treatment of certain concentrations (Notice published in Official Journal C 217 of 29 July 2000). Agreements which are directly related and necessary to a concentration, i.e. without which the concentration could not be processed, do not oblige the Commission to initiate proceedings.

In the context of a transfer of an undertaking, the following agreements are directly related and necessary to concentrations: non-competition obligations which are imposed on the vendor, licence agreements for patents, similar rights or know-how and purchase and supply obligations providing for fixed quantities.

In the context of acquisition of control of one or more undertakings by means of a public tender, the following agreements are directly related and necessary to concentrations: agreements to refrain from making separate competing offers; agreements to divide production facilities or distribution networks and arrangements that make the break-up possible.

In the context of creation of joint ventures, the following agreements are directly related and necessary to concentrations: non-competition obligations, licence agreements and purchase and supply obligations between the parents and the joint venture.

Commission notice - Official Journal C 203, 14.08.1990 
Commission notice regarding the concentrative and cooperative operations under Council Regulation (EEC) No 4064/89.

The notices published in Official Journal C 385 of 31 December 1994 no longer apply.

5) FOLLOW-UP WORK

On 31 January 1996 the Commission adopted a Green Paper on the Review of Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings [COM(96) 19 final - Official Journal C 58, 28.02.1996].
This document reviews merger control in the Community and puts forward a number of operational improvements.

Commission report to the Council on the application of the Merger Regulation thresholds
[COM(2000) 399 final].
 
The Regulation requires the Commission to report to the Council before 1 July 2000 on the operation of the thresholds and criteria set out in Article 1(2) and 1(3).
The main purpose of this report is to analyse whether the existing turnover thresholds are appropriate to determine which concentrations have a Community dimension. It will assess the operation of thresholds from the perspective of the experience gained by the Commission, the National Competition Authorities ("NCAs") and finally from the viewpoint of the European business community. The data used for this report is primarily based on data relating to the period from March 1998 until December 1999.
In conclusion, it appears that the criteria in Article 1(3) and perhaps even those in Article 1(2) have as a result that an important number of transactions with significant cross-border effects, and therefore a Community interest, remain outside the Community rules on merger control. Consequently, the Commission believes a more in-depth analysis of the appropriate mechanism for establishing Community jurisdiction in merger cases is necessary. At this stage it would also appear that any change to the Merger Regulation that would remove this imbalance is likely to require a significant change to the existing system of case allocation (work distribution) between the Commission and the NCAs, the attribution of significant additional Commission resources dedicated to treating all mergers with significant European cross-border effects and a more thorough review, not only of the existing turnover thresholds, but also of other substantive and procedural rules relating to the control of concentrations.

Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) [Official Journal L 024 of 29.01.2004].

This summary is for information only.
It is not designed to interpret or replace the reference document, which remains the only binding legal text.

Last updated: 07.07.2005
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