Companies involved in intended or completed M&A transactions falling below EU and national merger notification thresholds should beware that their deals may still catch the European Commission’s eye. The General Court has upheld the Commission’s decision to accept a national referral request regarding Illumina’s acquisition of Grail: a transaction not triggering any of the notification thresholds within the EEA.
Until it is clear whether the European Court of Justice shares the General Court’s view, the Commission will continue its quest to catch (non-notifiable) ‘killer acquisitions’ with low turnovers but high competitive potential. Possible EU review of non-notifiable transactions with resulting extended timelines and potential gun jumping risks may therefore be imminent (see our December 2021 newsletter).
Companies can rely on the Commission’s guidance (see our May 2021 newsletter) but may also reach out to national competition authorities for comfort on ‘referral risks’. The Authority for Consumers and Markets (ACM), for instance, has stated to be available for consultation.
In September 2020, genomic sequencing company Illumina announced its acquisition of Grail, a start-up with ‘pipeline’ cancer detection technologies. The acquisition was not notified to the European Commission or in any of the Member States as it did not meet any of the relevant notification thresholds within the EEA.
Following a complaint on the Illumina/Grail transaction in December 2020, the Commission sent invitation letters to the Member States to request a referral of the transaction under Article 22 of the EU Merger Regulation (EUMR) on 19 February 2021. On 9 March 2021, the French competition authority sent a referral request to the Commission (which was later joined by Belgium, Greece, Iceland, the Netherlands and Norway). The Commission accepted France’s referral request by decision of 19 April 2021.
Legal action before the French and Dutch court against the referral request was dismissed, leaving Illumina to appeal to the General Court for annulment of the Commission’s decision to accept the referral request.
Upward referral of below-threshold transactions upheld
On appeal, Illumina (supported by Grail) argued that the Commission lacked competence to accept a Member State’s Article 22 EUMR referral request of a concentration falling outside the scope of that Member State’s national merger thresholds. The General Court disagreed.
According to the General Court, a literal, contextual, teleological and historical interpretation of Article 22 EUMR confirms that a referral request can be made “irrespective of the scope of national merger control rules”. Article 22 EUMR serves as a ‘corrective mechanism’ “to remedy control deficiencies inherent in a system based principally on turnover thresholds which, because of its rigid nature, is not capable of covering all concentrations which merit examination at European level”.
As a result, Member States are entitled to request referral of any concentration to the Commission – irrespective of the existence or scope of national merger control rules – as long as the following four cumulative conditions of Article 22 EUMR are fulfilled:
- the referral request is made by one or more Member States;
- the transaction qualifies as a concentration within the meaning of Article 3 EUMR without meeting the thresholds for a European dimension set out in Article 1 EUMR;
- the concentration affects trade between Member States, and
- the concentration threatens to significantly affect competition within the territory of the Member State or States which made the referral request.
15 working days-period requires ‘active transmission’ of sufficient information
Furthermore, Illumina argued that the referral request had been submitted out of time. Member States have 15 working days from the date on which a below-threshold concentration was ‘made known’ to them to submit a referral request. The General Court clarified that this ‘making known’ requires the “active transmission” of sufficient information to the Member State concerned for it to make a preliminary assessment as to whether the cumulative referral conditions of Article 22 EUMR are fulfilled.
According to the General Court, the Commission’s invitation letter qualified as the ‘active transmission’ of sufficient information and the referral request was therefore made in time. However, the Commission did receive a slap on the wrist for having taken 47 working days (from receipt of the complaint) to send out the invitation letter. Even though this failure to comply with a reasonable time limit did not lead to the annulment of the Commission’s decision (the General Court found that it had not been established that Illumina’s rights of defence had been infringed), it may still result in an action for damages before the General Court.
Illumina intends to appeal the General Court’s ruling, but for now the Commission’s upward referral policy shift has been confirmed (see our October 2020 newsletter). More third-party complaints to competition authorities on non-notifiable M&A deals are likely to follow. However, if we take the General Court’s and the Commission’s word for it, no floodgate of referral requests will actually be opened.
The General Court has stated that “the number of transactions capable of falling within the scope of Article 22” remains limited due to the four cumulative conditions that need to be fulfilled. The Commission has indicated to be particularly interested in tackling ‘killer acquisitions’ in the digital and pharma sectors (with the Digital Markets Act’s reporting obligation as a helpful monitoring tool; see our April 2022 newsletter) and the Article 22 Guidance adds “access to or impact on competitively valuable assets” as a further referral-trigger.
Nevertheless, companies in all sectors are advised to conduct a preliminary assessment of a potential Article 22 referral of their transactions. In addition, it is advisable to anticipate extended deadlines and include potential referral risks in transaction documentation (including post-closing scenarios; see our May 2021 newsletter).