The SIEC test is the cornerstone of the concentration control, since a decision of a competition authority of whether a transaction should or not be cleared derives from an economic assessment structured on the substantive test. Mergers that lead to a significant impediment of effective competition in the relevant market or a substantial part of it are prohibited under the EU Merger Regulation as well as respective laws of other jurisdictions beyond the EU (e.g. the USA, Canada, Turkey, Ukraine). The SIEC test enables a more effects-based approach when assessing concentrations.
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The SIEC test is a substantive test that the competition authorities apply in the course of the merger review. Merger controls of various jurisdictions vary with respect to the test for compatibility of the proposed concentration with the competition in the market with the SIEC and dominance tests being the most commonly used ones.
Article 2 of the EU Merger Regulation sets forth the SIEC test as the basic rule for appraising the concentrations with the EU dimension with a view to establishing whether they are compatible with the internal market. For that purpose, the European Commission must assess whether a concentration would significantly impede effective competition, in particular as a result of the creation or strengthening of a dominant position in the market or a substantial part of it. Concentrations will be allowed unless they lead to a significant impediment of competition.
The SIEC test goes beyond the concept of dominance. The SIEC test captures transactions that do not necessarily create or strengthen a dominant position but still cause an impediment to competition (i.e. where the merging firms are able to raise prices, and thus exercise market power, without coordination and without holding the largest market share in the market). As practice shows dominance is viewed as a leading (although not the only) factor that may cause the SIEC. The creation and strengthening of a dominant position is no longer a prerequisite for prohibiting the transactions as long as a healthy post-merger competitive environment exists. In order to assess whether or not a healthy competitive environment exists or will exist after the concentration, in the first stage, it is assessed whether or not the entity to be formed as a result of concentration shall be able to impede effective competition in the market. Creation or strengthening of a dominant position is cited as a major factor causing such an effect.
When assessing whether a concentration significantly impedes competition the competition authorities would look at the structure of all related markets, actual and potential competitors, market shares of undertakings party to the concentration, convenience of access to market and inputs by these undertakings, availability of product/service alternatives to the products/services of the undertakings which are part of the concentration, supply and demand trends related to these products/services, legal and/or other barriers to entrance to the market, benefits to intermediaries and consumers and finally contribution to economic and technical development.
The competitive conditions existing at the time of the merger constitute the relevant comparison for evaluating the effects of a merger in most cases. In some circumstances, the future changes to the market that can reasonably be predicted may be considered. In particular, the likely entry or exit of firms absent the merger may be taken into account. For example, in Essilor/Luxottica the European Commission concluded that Luxottica’s current and planned activities in ophthalmic lenses would be insufficient to allow it to exert a strong competitive constraint on Essilor as an existing or potential competitor.
Dominance is considered as part of the economic analysis while applying the SIEC test. For instance, in EssilorLuxottica/Grandvision the Turkish Competition Authority assessed the company’s dominant position within the framework of factors such as market shares, market entry conditions and buyer power. It stated that concentrations could significantly impede competition in two ways, including by: (i) creating or strengthening a dominant position as a result of the transaction, and (ii) cooperating with undertakings with which there was no coordination prior to the transaction. It was concluded that in the retail market where horizontal overlap was observed, the product and customer portfolios of the undertakings differed to a large extent and their market shares did not reach a level that would raise competitive concerns, so that a situation that would significantly impede competition would not arise. The remarkable point in the decision in terms of the SIEC test is the parties’ submission of commitments regarding vertical markets, even though the dominant position was not determined. While the dominant position test was insufficient to go beyond the dominance evaluation, together with the economic evaluations made within the scope of the SIEC test, competitive concerns that can be observed even in the absence of determination of a dominant position were put forward and the transaction was cleared conditionally.
Projekt Migros/Carrefour can be cited as another example of the SIEC test in practice. The TCA evaluated the transaction regarding the acquisition of the tenancy right of 34 stores of Carrefour by Migros. Here, the TCA’s assessment was not limited to market shares and dominant position analysis. It looked into the possibility of the new entries to the market, obstacle for competitors to increase capacity, market foreclosure etc. Based on these considerations, the TCA concluded that there would be no significant impediment of effective competition and granted clearance to the transaction. Although it was determined that a dominant position would not be created as a result of the transaction, the examination was not limited to this.
The main difference between the SIEC test and the dominance test may be seen in terms of the transactions that do not create a dominant position or strengthen an existing dominant position, but the ones in which the undertakings can increase the price unilaterally after the transaction. The Marport, the first case that was blocked by the TCA due to the application of the SIEC test, emphasizes that the SIEC test may prohibit the transactions that significantly impede competition, within the evaluation of theories of harm, in addition to the transactions that result in the creation of a dominant position or the strengthening of the current dominant position.
All in all, the SIEC test shows less reliance placed on market share indicators, but with greater emphasis to assessing the competitive characteristics of the relevant market, the dynamics of competition between the concentration parties and the effects of notified transactions.
The EU merger control rules, which apply to large-scale merger and acquisition transactions, are set out in the EU Merger Regulation (EUMR). The regime applies to the European Economic Area (EEA) and the three members of the European Free Trade Association.
The EUMR is enforced by the Directorate-General for Competition (DG Comp) of the European Commission (the Commission) in Brussels. EUMR notifications are reviewed by sector-specific units within DG Comp, which have integrated merger control competence.
In addition to the sector-specific merger units, the Commission’s internal decision-making process involves a number of other stakeholders: the chief economist team and the case support and policy unit (within DG Comp), and the legal service and the sectoral directorates-general (eg, transport and energy) (outside DG Comp).
The Commission also uses peer review panels in Phase II cases to test the validity of the case team’s arguments. The panels comprise a team of lawyers and economists from DG Comp, who are independent of the original case team. In addition, two hearing officers, who are independent of DG Comp and report directly to the Commissioner for Competition, organise and conduct oral hearings in Phase II cases. They also act as independent arbitrators if a dispute arises on the effective exercise of procedural rights between parties and DG Comp.
The Commission has published a series of notices and guidelines to assist in the interpretation of several key issues under the EUMR. These include:
- notices on jurisdictional and procedural issues, including:
- the Consolidated Jurisdictional Notice (2008);
- the Notice on the Simplified Procedure (2013; a revised version enters into force on 1 September 2023); and
- the Notice on Case Referrals (2005);
- the Guidelines on the Assessment of Horizontal Mergers (2004); and
- the Guidelines on the Assessment of Non-Horizontal Mergers (2008);
In addition, the Commission has published a number of best practices and communications, including the Communication on the Transmission of Documents (2023), the Best Practices on the Conduct of Merger Proceedings (2004) and the Best Practices for the Submission of Economic Evidence (2011). These and other notices are available on the Commission’s website.
The EUMR is based on the one-stop shop principle, whereby once a transaction triggers notification to the Commission, the national authorities of the member states are precluded from applying their own competition laws to the transaction (except in circumstances in which the Commission refers transactions to the national authorities of the member states).
Dne 16. března 2023 v Towercast, the EU Court of Justice ruled that a concentration without a Community dimension may still be subject to control by the national competition authorities (NCAs) and by the national courts, on the basis of the direct effect of article 102 of the Treaty on the Functioning of the European Union (TFEU), which prohibits the abuse of a dominant position. NCAs have already started investigations on this basis (eg, the Belgian competition authority opened an investigation of Proximus’ acquisition of Edpnet shortly after the issuance of the Towercast decision).
The ability of national authorities to apply non-competition laws to transactions subject to the EUMR is circumscribed; however, member states have tested the ambit of those principles (eg, Hungary in VIG/Aegon, 2022; Spain in E.ON/Endesa, 2006; Italy in Abertis/Autostrade, 2006; and Poland in Unicredito/HVB, 2005).
Scope of legislation
What kinds of mergers are caught?
A ‘concentration’ is defined in the EUMR as a merger of two or more previously independent undertakings (or parts of undertakings), or the acquisition of direct or indirect control of the whole or parts of another undertaking, which brings about a durable change in the structure of the undertakings concerned. The EUMR applies to concentrations that have an EU dimension (ie, meet certain turnover thresholds).
What types of joint ventures are caught?
Provided that the applicable turnover thresholds are met, the creation and change of control over full-function joint ventures are caught by the EUMR. A full-function joint venture is an autonomous economic entity resulting in a permanent structural market change, regardless of any resulting coordination of the competitive behaviour of the parents.
Non-full-function joint ventures, such as strategic alliances and cooperative joint ventures (eg, production joint ventures), are not governed by the EUMR but by the rules of the TFEU on restrictive practices, notably article 101, which prohibits agreements between undertakings that may affect trade between member states and that have as their object or effect the prevention, restriction or distortion of competition.
According to Council Regulation (EC) No. 1/2003, article 101 of the TFEU can be enforced by the Commission or by NCAs; however, non-full-function joint ventures can trigger merger control in a number of member states (eg, Germany and, in some circumstances, Austria) by the acquisition of a minority interest.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
‘Control’ means the possibility of exercising decisive influence over an undertaking on the basis of rights, contracts or other means. When outright legal control is not acquired (eg, through the acquisition of shares with the majority of the voting rights), the Commission will consider whether the acquirer can still exercise legal or de facto control over the undertaking through special rights attaching to shares or contained in shareholder agreements, board representation, ownership and use of assets, and related commercial issues.
There is no precise shareholding or other test for decisive influence and each case is decided on its facts. For example, in News Corp/Premiere (2008), the Commission found that the acquisition by News Corp of a 24.2 per cent shareholding was sufficient to confer on it a de facto majority of the voting rights, resulting in a notifiable concentration; by contrast, in Vivendi/Telecom Italia (2017), a holding of 29.94 per cent of the voting rights was deemed not to amount to either de jure or de facto control.
The EU General Court has also considered the extent to which minority shareholdings come within the scope of the EUMR and confirmed that the EUMR does not empower the Commission to assess minority shareholdings where these do not lead to an acquisition of control under article 3(2) of the EUMR (see Aer Lingus Group plc v Commission, T-411/07, 2010).
Thresholds, triggers and approvals
What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?
The purpose of the EUMR is to review concentrations that have an EU dimension and specific thresholds are designed to ensure that only large-scale acquisitions, mergers and joint ventures are caught.
A concentration will be caught by the EUMR where:
- the aggregate worldwide turnover of all the parties exceeds €5 billion; and
- the aggregate EU-wide turnover of each of at least two parties exceeds €250 million, unless each of the parties achieves more than two-thirds of its aggregate EU-wide turnover in one and the same member state.
In an attempt to reduce the need for businesses to make multiple applications for clearance at the national level within the European Union, the EUMR also applies to smaller concentrations that have an impact in at least three member states if:
- the aggregate worldwide turnover of all the parties exceeds €2.5 billion;
- the aggregate EU-wide turnover of each of at least two parties exceeds €100 million;
- in each of those member states, the aggregate turnover of all the parties exceeds €100 million; and
- in each of those member states, the turnover of each of at least two parties exceeds €25 million, unless each of the parties achieves more than two-thirds of its aggregate EU-wide turnover in the same member state.
Turnover is deemed to be the amount derived from the sale of products or the provision of services (excluding turnover taxes) in the preceding financial year.
In an acquisition, on the buyer side, the turnover of the whole group to which the relevant undertaking belongs is taken into account in accordance with detailed tests set out in the EUMR. The calculation can be complex and may involve certain adjustments to the turnover figure in the most recent audited accounts, for example to account for certain recent disposals or acquisitions. On the other hand, the turnover of the vendor is irrelevant except for that of the target business being acquired. In the case of joint ventures, the whole turnover of the parents and their groups that intend to jointly control the venture is taken into account.
In addition, there are rules for the calculation of turnover in specific sectors – in particular for banks and other financial institutions and insurance undertakings – as well as principles based on case experience for the geographic allocation of turnover in particular sectors, such as airlines, telecommunications and financial services.
The EUMR establishes a system of referrals to ensure that a concentration is examined by the authority best placed to conduct the assessment (in line with the principle of subsidiarity). Under articles 4(4) and 9 of the EUMR, in certain cases, the NCA or the merging parties can request that a transaction that meets the EUMR thresholds be reviewed – in whole or in part – by the NCA. For example, in Phoenix/McKesson (2022), the Commission partially referred a proposed acquisition to the French competition authority under article 9 of the EUMR while unconditionally approving the transaction outside France.
By the same token, under articles 4(5) and 22 of the EUMR, provided that certain conditions are met, the merging parties or one or more member states may request the Commission to review a transaction that does not meet the EUMR thresholds (eg, Illumina/GRAIL, 2022; Kingspan/Trimo, 2022; a Meta (formerly Facebook)/Kustomer, 2021)
On 26 March 2021, the Commission published a policy paper in which it reported on an evaluation that started in 2014 on whether the jurisdictional thresholds in the EUMR leave an enforcement gap and whether the administrative burden on merging firms and other market participants is proportionate. The evaluation found that the current jurisdictional thresholds generally suffice to capture transactions that merit EU review; however, the Commission expressed concern that some killer acquisitions, especially in the digital and pharma sectors, might have flown under the radar in recent years.
To close this gap, the Commission published guidance on a new policy to encourage and accept referral requests from member states under article 22 of the EUMR, even where transactions do not meet the national merger control thresholds of the referring member states. The first case referred to the Commission under this new policy was Illumina/GRAIL in 2021. This referral was appealed to the EU General Court, which confirmed the Commission’s new interpretation of article 22. The Commission ultimately prohibited the transaction.
Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?
Filing is mandatory for concentrations with an EU dimension. There are no exceptions, and the EUMR empowers the Commission to fine undertakings that fail to notify.
In certain circumstances, parties may request that a transaction that meets the EUMR thresholds be referred wholly or partly to a member state.
In light of the Commission’s new policy on article 22 referrals, parties may consult with the Commission on whether a transaction is likely to be called in for review under that provision of the EUMR (eg, in April 2023, it was reported that Pfizer briefed the Commission of its planned acquisition of Seagan).
Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?
The EUMR applies to all concentrations that have an EU dimension. Because the turnover thresholds are based on geographic turnover and not on the location or registered office of the parties, even foreign-to-foreign transactions essentially involving non-EU groups are caught if the financial thresholds are met.
Certain extra-EEA joint ventures have to be notified to the Commission as a result of the parents’ turnover in the EEA, but have no effect in the EEA. As of September 2023, parties will be able to notify these concentrations without any pre-notification contacts under the super-simplified procedure.
Are there also rules on foreign investment, special sectors or other relevant approvals?
The EUMR applies to all transactions that meet the relevant turnover thresholds. There are no sector-specific rules.
Foreign direct investment (FDI) is governed at the member state level; however, pursuant to the EU framework regulation for the screening of FDIs that became fully applicable on 11 October 2020, the Commission has the power to issue an opinion when an investment poses a threat to the security or public policy of more than one member state. This framework enhances the cooperation between the Commission and the member states in their actions on foreign investments.
Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market (the Foreign Subsidies Regulation) will apply to transactions signed after 12 July 2023 and closed after 12 October 2023. This new set of rules is aimed at addressing distortions caused by foreign subsidies and introduces a mandatory notification system for relevant transactions and public procurement procedures involving parties that have received foreign subsidies, as well as an ex officio review of foreign subsidies and awarded public procurement contracts. This represents an independent new ex ante notification procedure for transactions with dedicated thresholds, timelines and redressive measures.
The transaction-related regime introduced by the Foreign Subsidies Regulation requires an ex ante notification if:
- the transaction constitutes a concentration in the form of a change of control on a lasting basis, including full-function joint ventures;
- at least one of the merging undertakings, the acquired undertaking or the joint venture is established in the European Union and generates an aggregate turnover of at least €500 million in the European Union; and
- the undertakings concerned were granted combined aggregate financial contributions from third countries exceeding €50 million in the previous three years.
The Foreign Subsidies Regulation provides that even if those thresholds are not met, the Commission can call in any concentration if it suspects that the undertakings concerned may have benefitted from foreign subsidies in the previous three years. The procedural rules – including the review periods, penalties and rules on gun jumping – mirror EU merger control rules.
Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector will require designated gatekeepers to inform the Commission of any intended concentration that involves core platform services or any other services in the digital sector, or enable the collection of data, irrespective of whether they are notifiable to the Commission under the EUMR or to a competent NCA under national merger rules (article 14).
