Post-Illumina: EU competition authorities have three options to still catch below-threshold acquisitions

Background

In September 2020, Illumina announced its acquisition of Grail, a start-up active in pipeline cancer detection technologies, for $8 billion. The transaction was not reportable to the EC or to any Member State as it did not meet the turnover thresholds. Nonetheless, the EC sought to review the deal by requesting and accepting a referral request under Art.22 EUMR by France, which was later joined by Belgium, Greece, Iceland, the Netherlands and Norway. 

This was the first application of Art.22 EUMR to a transaction that did not otherwise meet the notification requirements. The EC sought to use the new referral policy as a way of capturing ‘killer acquisitions’ where the low turnover of the target may not be representative of its competitive importance.

Following Illumina’s appeal of the EC’s decision to accept the referral, on September 3, 2024, the ECJ delivered its highly anticipated judgment in the Illumina/Grail case (C-611/22 P and C-625/22 P). Contrary to the General Court, the ECJ held that the EC had no power to review a transaction referred to it by the NCAs under Art.22 EUMR if none of the Member States has jurisdiction to review the transaction under its own national merger control regime.

With this judgement, the EC lost a powerful component of its merger review toolkit aimed at capturing ‘killer acquisitions.’ However, this does not mean that all such mergers will escape regulatory scrutiny in the future.

The three ways out for competition authorities

1. Member State call-in powers and sectoral inquiries

In recent years, Member States have been taking additional action to ensure that they capture potentially problematic transactions within their national merger control regimes. Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia and Sweden have gained call-in powers, allowing their NCAs to call in and review a transaction that falls below national turnover thresholds and then potentially refer it to the EC. 

For example, Italy has been making regular use of its call-in powers (see further details here) and most recently used them to require notification of the proposed acquisition of Run:ai Labs Ltd by NvidiaVIDIA Corporation, which was followed by an Art.22 referral request to the EC, accepted on 28 October 2024. Nvidia’s acquisition of Run:ai reportedly triggers no mandatory notification requirements under EU Member State laws or the EUMR. This is the first Art.22 referral following Illumina/Grail. Other jurisdictions, such as Germany and Austria, have introduced transaction value thresholds and in the case of Germany sector inquiry powers with specific call-in provisions. The UK’s Competition and Markets Authority (CMA) (albeit now outside the EU) has recently gained new powers designed to catch ‘killer acquisitions’ as it will be able to review transactions where a large acquirer buys a smaller business.¹ Other countries may follow suit in light of the ECJ judgement.

Sectoral inquiries are an additional tool that NCAs can use to review non-reportable transactions. Highly concentrated sectors are particularly likely to be subject to an inquiry (e.g. energy, retail, utilities, tech, pharma) and companies should be aware of the risks regardless of their market share. Recent reform in Germany has given the German Competition Authority (the Bundeskartellamt) the power to review transactions following sectoral inquiries. Importantly, according to the authority, this new tool will be used to ‘address cases of significant and continuing malfunctioning of competition without first having to demonstrate a violation of the law. The amendment thus expands our competition law toolbox.’² The new tool allows the Bundeskartellamt to impose behavioural and structural remedies to address its concerns, even after deals have closed. Similarly, the CMA has broad market study and investigation powers, which it frequently uses. Recently, the CMA launched a market investigation into the veterinary sector with a focus on ‘roll ups’ – acquisitions of several targets in the same sector, none of which individually qualify for merger review.³

2. Review under the abuse of dominance rules

NCAs are increasing their review of non-notified transactions under the abuse of dominance rules; a possibility confirmed by the ECJ in the Towercast judgement (Case C-449/21, Judgment of 16 March 2023) and re-iterated again in Illumina/Grail.

For example, the Belgian competition authority launched proceedings shortly after Towercast against Proximus, a telecoms operator, for an alleged abuse of a dominant position on the wholesale and retail broadband internet access services market stemming from its acquisition of EDPnet. The proceedings were closed only after Proximus divested the recently acquired business.⁴ In France, the French competition authority (FCA) examined whether a series of mergers falling below the thresholds could be considered as an anticompetitive market sharing allocation agreement. Following dawn raids at the merging parties’ premises and examining several agreements consisting of five mergers between three large business groups in the meat cutting industry, the FCA ultimately closed the investigation without finding an infringement.⁵

3. Revision of the EUMR

Finally, the EC may eventually seek to revise the EUMR’s notification thresholds and consider introducing thresholds based on transaction value as in Germany and Austria. The perceived risk of this option is that opening the EUMR to review may give the EU Member States an opportunity to push for other changes to the EUMR that the EC may not be willing to support. The EUMR provides a specific mechanism in Art.1(5) EUMR according to which the Council acting on a proposal by the EC may revise the thresholds. When asked by the European Parliament at her hearing on November 12, 2024, Commissioner Designate Teresa Ribera reiterated that she would “look into all options without creating any unnecessary additional administrative burden or legal uncertainty for companies”.

Key takeaways

It is not a surprise that an increasing number of Member States are now resorting to the tool of call-in powers to be able to review transactions causing concern.

The ECJ rejected the General Court’s view that Art.22 EUMR provides a corrective mechanism to ‘remedy alleged deficiencies stemming from the rigidity of the thresholds’ for transactions affecting competition in the EU.⁶ The interpretation of the GC would, according to the ECJ, ‘undermine the effectiveness, predictability and legal certainty that must be guaranteed to the parties to a concentration.’ The role of turnover thresholds in merger control is ‘of cardinal importance’ for companies to be able to easily determine whether a transaction is subject to review, by which authority, and when a decision of that authority may be expected.⁷ At the same time, however, the ECJ recognized that acquisitions of innovative companies that can play an important competitive role could warrant the need for merger control review, even when falling below thresholds, as was the case for Grail. However, to do so, Member States should revise their own national thresholds to capture such transactions. It remains to be seen whether the new rules that have been introduced in various Member States meet the ECJ’s requirements as set out in its Illumina judgement.

Furthermore, even if the EU turnover thresholds are insufficient in capturing certain problematic transactions (such as killer acquisitions), the ECJ found that it is not for the EC, but for the EU legislator to amend the thresholds or to provide for a safeguard mechanism enabling the EC to review such transactions. This would require a legislative procedure to change the EUMR, which could lead to lengthy debates among EU Member States on the right approach.

Lastly, the ECJ referred to its Towercast judgment, which confirmed that NCAs have the power to review whether non-notifiable transactions can constitute an abuse of a dominant position under the Article 102 TFEU. The increased use of such tools to review transactions may be an unfortunate development, as non-merger specific tools do not align with the timing of M&A transactions and the need for clarity and certainty in the length of the process. It also appears to be in direct contrast to a key tenant of merger control regulations, stressed by the ECJ, which is to ensure that the duration of review is limited to ensure ‘control of mergers within deadlines compatible with both the requirement of sound administration and the requirements of the business world.’⁸ Antitrust procedures often take much longer than merger control investigations and have no specific deadlines. Uncertainty is further increased as investigations can be triggered by third parties, including competitors. 

While businesses will appreciate that the ECJ did not uphold the new Art.22 referral policy thereby strengthening legal certainty, they will now need to diligently assess whether Member States are likely to use their call-in powers and then ultimately refer the transaction to the EC.