Mission impossible? Teresa Ribera’s mission letter and the future of EU merger review

The HMG

The HMG – adopted in 2004 -- are clearly overdue for an update. The past 20 years have seen major advances in the Commission’s merger review toolkit. The Commission has also explored topics addressed briefly or not at all in the HMG, notably non-price parameters of competition such as innovation and sustainability. The HMG also need updating to reflect related Commission initiatives, such as the 2024 market definition notice.

But the Mission Letter surely does not highlight the HMG for revision simply because they are out of date. The Mission Letter clearly calls for substantive changes in how the Commission assesses mergers under the EUMR.  But what changes?

Efficiency defense

The Mission Letter says that the future HMG should give “adequate weight to […] needs in respect of resilience, efficiency and innovation”. Resilience, efficiency and innovation are key elements of the Draghi Report, a frequently referenced touchstone in the Mission Letter.  The Draghi Report recommends introducing a new “innovation defense” as a “key element [] of a new approach to competition policy supporting a new Industrial Deal”.

The HMG indeed contain no “innovation defense.” They do set out criteria based on which the Commission can approve a transaction that would otherwise significantly impede effective competition because efficiencies generated by the transaction outweigh the potential harms – the so-called “efficiency defense.”  But these criteria are very strict, and the Commission has never approved an otherwise anti-competitive transaction based on an efficiency defense. The revised HMG called for in the Mission Letter seem likely to relax the criteria for reliance on the efficiency defense, at least in transactions involving innovation competition.

Time horizons

How could revisions to the HMG give greater weight to the time horizons and investment intensity of competition in certain strategic sectors? The Commission typically assesses the effects of notified transactions over a relatively short period of time, such as three to five years. In markets requiring significant investments and product life cycles much longer than five years, the current framework arguably does not reflect competitive realities. The Mission Letter suggests that new HMG will give the Commission flexibility to consider longer time horizons in relevant industries. The Mission Letter does not single out specific industries for this purpose, but the Draghi Report calls for changes to allow greater consolidation in the telecommunications sector.

Changed defense and security environment

How should the HMG be revised to reflect the changed defense and security environment? The current HMG do not even mention defense and security. The EUMR only addresses defense and security indirectly; under Article 21 EUMR, the EU has exclusive jurisdiction to review concentrations with a Union dimension, and Member States are precluded from applying their legislation to such transactions, with limited exceptions including “public security.”

To address the current defense and security environment, including expanded EU competences in foreign affairs and defense, the continuing war in Ukraine and Russian threats against EU Member States, the Mission Letter may again envisage expansion of the efficiency defense. The revised HMG could allow the Commission to approve otherwise anti-competitive transactions where these are considered to improve the defense and security of the EU.

Killer acquisitions

According to the Mission Letter, “killer acquisitions” raise the risk that “foreign companies” will eliminate possible sources of future competition. The Commission adopted a new to approach to review of concentrations without a Union dimension in its 2021 guidance on the application of the EUMR’s Article 22 referral mechanism.

The Commission suffered an embarrassing defeat in Illumina/Grail, where the European Court of Justice held that Article 22 EUMR does not allow the Commission to accept jurisdiction over concentrations based on referrals from Member States that lack jurisdiction under their own merger review laws. But this judgment’s impact may be less than meets the eye; a growing number of Member States have broad jurisdiction based on criteria other than the parties’ turnover. In other sub-threshold transactions, such as Adobe/Figma, the Illumina/Grail judgment does not impair the Commission’s ability to review “killer” (or “reverse-killer”) acquisitions under Article 22 EUMR. In Adobe/Figma, the Commission examined the transaction from a potential competition perspective; this is another area in which the 2004 HMG could benefit from an update but not one specifically linked to killer acquisitions.

Indeed, the Mission Letter does not call for changes to the EUMR’s jurisdictional thresholds (for instance by introducing a transaction value threshold).  Such a change would require an EUMR amendment that could be politically controversial and in any event time consuming.  Rather, the Mission Letter’s reference to killer acquisition threats coming from “foreign” companies may hint at a new approach.

In January 2024, the Commission proposed a new EU regulation on Member State review of foreign direct investment (FDI). While the proposed changes would harmonize Member State FDI review and strengthen the Commission’s coordination powers, the proposed regulation will likely undergo significant revision under the new European Parliament before adoption. The Commission may envisage changes to further strengthen the EU FDI screening framework to address the competitive effects of “killer acquisitions” that involve key sectors and/or impact EU defense and security.

Conclusion

Mission letters that Commission Presidents send to their nominees for competition commissioner are typically short on details. The specific elements they do contain rarely stoop to technical documents such as the HMG. However, the Mission Letter portends potentially significant changes to EU merger review policy, in particular through a revision of the 2004 HMG.  While the concrete changes will become clear only over time, we can expect new thinking – and probably relaxed criteria – for the application of the efficiency defense and the time horizons for the Commission’s assessments.

Important as these areas are, the Commission should not miss the opportunity to make other needed changes to the HMG. These could include, for example, a more thorough treatment of the role of non-price parameters outside the efficiency defense context, such as market definition and theories of harm. These should include not only the role of innovation, but also sustainability, which Commission officials describe as increasingly important in its merger review practice. The Commission should also not limit its review to the HMG; its 2008 non-horizontal merger guidelines (NHMG) are also overdue for an update.

Given the urgency highlighted in the Mission Letter, can the Commission update its merger guidelines fast enough? Reviewing and updating complex documents like the HMG and NHMG is a multi-year process. If the Commission launched this process in 2025, new versions might not be adopted until 2027 or even later.  But the Commission does have options to move faster.  In 2023, for example, the Commission published a call for evidence in connection with guidelines on the application of Article 102 TFEU to exclusionary abuses. This process will likely lead to the adoption of guidelines in 2025. In parallel, however, the Commission updated its 2008 guidance on its Article 102 TFEU enforcement priorities, with immediate effect. Similarly, the Commission could publish a non-binding document explaining changes to its merger enforcement policies consistent with the Mission Letter without awaiting final adoption of new versions of the HMG (and hopefully NHMG).