Short Reads

Upward referral of killer acquisitions: enlightened or one-stop shop flop?

Upward referral of killer acquisitions: enlightened or one-stop shop

Upward referral of killer acquisitions: enlightened or one-stop shop flop?

06.05.2021 EU law

Companies involved in M&A deals falling below the EU and national notification thresholds need to think twice about their deal’s potential impact on competition from now on.

The Commission has kept its promise to tackle (non-notifiable) killer acquisitions and published Guidance on its upward referral mechanism. The Guidance has already been put to the test through a national referral of the (non-notifiable) Illumina/Grail acquisition to EU level. Until it is clear whether the EU courts share the Commission’s views, companies – particularly in the digital and pharma sectors – should anticipate potential EU review of both intended and completed (non-notifiable) M&A transactions and extended timelines.

Meanwhile, the Commission is looking into ways to cut red tape in its merger review procedure. Good news for companies, but also for the Commission: this would seemingly free up time for it to deal with the (likely) increase in upward referral cases. 

Upward referral mechanism

The Commission notes in its evaluation of procedural and jurisdictional aspects of EU merger control (the “evaluation”) that over the years an increasing number of M&A deals with a high competitive potential (in particularly the digital and pharma sectors) have escaped its scrutiny because they involved companies with low turnover. To catch these potential killer acquisitions, the Commission has opted for a policy shift, and will now accept upward referrals under Article 22 of the EU Merger Regulation (“EUMR”), even if the referring Member State does not have initial jurisdiction over the M&A deal (see our October 2020 newsletter).

According to the Guidance on Article 22 referrals, Member States may request the Commission to review any concentration falling below the EUMR’s turnover-based thresholds if:

  1. the concentration affects trade between Member States: this would be the case if the concentration is liable to have an impact on cross-border economic activity. Relevant factors to consider in this context include the location of (potential) customers, the availability and offering of the products or services at sake, the collection of data in several Member States or R&D projects whose results may be commercialised in more than one Member State, and
  2. the concentration threatens to significantly affect competition within the territory of the Member State making the request: this would be the case where there is prima facie evidence of a possible significant adverse impact on competition. Relevant factors to consider in this context include the elimination of an important competitive force or the reduction of competitors’ ability or incentive to compete or to leverage a strong market position from one market to another.

The Guidance mentions as likely referral candidates those cases that involve (a) a start-up or recent entrant with significant competitive potential that has yet to implement a viable business model, (b) an important innovator, (c) an actual or potential important competitive force, (d) access to competitively significant assets or (d) products or services that are key inputs or components for other industries. The first ‘real life’ example of a referred non-notifiable transaction is medical company Illumina’s planned acquisition of Grail, a start-up with ‘pipeline’ cancer detection technologies. In line with the Guidance’s examples, the Commission accepted France’s referral request (which was later joined by Belgium, Greece, Iceland, the Netherlands and Norway) because it considers the combined entity “could restrict access to or increase prices of next generation sequencers and reagents to the detriment of Grail's rivals active in genomic cancer tests following the transaction”. 

A Member State has until 15 working days from the date on which the transaction was ‘made known’ to it to make a referral request to the Commission. The 15 working days period applies irrespective of whether the transaction has already been closed (although the Commission will generally not accept referral requests made more than six months after closing). For non-closed transactions, the suspension obligation applies once the Commission has informed the merging parties that a referral request was made. If the Commission decides to accept the referral, the merging parties will need to notify their concentration, and the standstill obligation remains applicable during the Commission’s review.


According to the Commission, the upward referral-option is preferable to adding a value-based threshold to the current turnover-based jurisdictional thresholds in the EUMR. This is not only because it saves the Commission from having to enter the political arena to modify the EUMR, but also because it offers a more targeted solution: it should catch (non-notifiable) killer acquisitions without having to impose a notification obligation on all acquisitions fulfilling a value-based threshold.

However, transaction value can still be an important indicator of an imminent referral, as illustrated by the Commission noting in its press release on the Illumina/Grail transaction that “Grail’s competitive significance is not reflected in its turnover, as notably evidenced by the USD 7.1 billion dollar deal value”. Legal action before the French and Dutch court against the referral request was dismissed; leaving it to the EU courts to put the Commission’s policy shift to the test. According to a press release, Illumina has filed an action before the General Court for annulment of the Commission’s decision.

One-stop shop flop?

Companies should note that the Commission’s policy shift may lead to a further weakening of the ‘one-stop shop principle’. The EUMR provides a ‘one-stop shop’ system providing the Commission with exclusive jurisdiction to review concentrations with an EU dimension. Contrary to this system, Article 22 provides the Commission with jurisdiction only for the territories of those Member States that have made (or joined) a referral request. As a result, the same transaction can be subject to parallel investigations by the Commission and national competition authorities within the EU.

The Commission’s policy shift may result in more referral requests (since referrals of non-notifiable concentrations may now also be accepted) and more parallel investigations. Member States (such as Germany and Austria) that have introduced value-based thresholds in their national merger control laws to address killer acquisitions may, for instance, be less inclined to join a referral request of a transaction caught by their value-based thresholds and decide to review in parallel with the Commission instead. The Guidance mentions that the Commission could reject a referral request of transactions, which have already been notified in one or more Member States that have not made or joined the referral request. Even so, the policy shift may increase the risk of diverging outcomes between different Member States and the Commission.

Cutting red tape

Apart from the Article 22 referral policy shift, the evaluation’s findings have resulted in the Commission looking for ways to cut red tape for companies in notifying their transactions, by (i) expanding and clarifying the scope of its simplified procedure, (ii) streamlining the review of non-simplified cases and (iii) allowing companies to notify their merger deals electronically. Stakeholders have until 18 June to submit their feedback on the proposals.


The promise of a reduced administrative burden may be of little comfort to companies faced with increased uncertainty of potential (post-closing) referrals and extended transaction timelines due to the Commission’s review of their non-notifiable transactions. 

Companies are advised to anticipate these potential risks, for instance, by:

  • conducting a preliminary assessment of a potential Article 22 referral of their transaction at an early stage of the process;
  • considering whether it would be worthwhile to liaise with the national competition authorities and/or the European Commission up front, and provide them with sufficient information on the transaction (another factor to consider in this context is the likelihood of third parties contacting the relevant authorities);
  • anticipating extended deadlines and risks of potential reviews in transaction documentation (including post-closing scenarios).

This article was published in the Competition Newsletter of May 2021. Other article in this newsletter: 

- Abuse of economic dependence: lessons drawn from the first judgments


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