EU tests new “killer acquisition” strategy on Illumina/Grail
Royaume-Uni | Vidéo | octobre 2021 | 08:26
Video Details
| Jay Modrall | Richard, it’s a pleasure to be talking with you again, this time about developments in European merger control. The Commission, as we know, has been trying for many years to find ways to get jurisdiction over so-called “killer acquisitions”, which are competitively significant but fall below the Merger Regulation thresholds. The Commission, uniquely in the world, I think, has found a way to use its referral system to get at these transactions. How did they get there and why did they think it was a good idea? |
| Richard Whish QC |
Well, hello Jay. A great pleasure to talk to you again. It is an interesting story. So, as we know under the Merger Regulation, certain concentrations have to be notified to the Commission in Brussels, but for that to be the case the parties have to exceed certain thresholds – €5 billion worldwide, each of them has to have at least €250 million within the EU etc. A fairly simple rule and the basic idea is that if you are above those thresholds, you go to Brussels. If you are below the thresholds, you go to the Member States. There has always been a system under the Merger Regulation whereby, in certain circumstances, the Member States can ask for jurisdiction back from the Commission and whereby, in some circumstances, the Member States can send cases to Brussels. Now, the concern of the Commission has been, is that you get what has become to be known as killer acquisitions, which is a rather loaded term, of course, but the idea is that sometimes the firm is acquiring a start-up company with valuable technology, for example, and it may pay a very large amount of money for the acquisition and yet the target has minimal turnover, and so the transaction falls below the relevant EUMR thresholds and the question is, should there be circumstances in which the Commission can investigate those cases? Now, the point historically is that, under Article 22, Member States have normally only made a reference to the Commission if they themselves had jurisdiction under their own national system of merger control. But the thing that has changed in the last year or so is that the Commission will now invite, and certainly accept, references from the Member States even if the Member State did not have jurisdiction under its own merger control thresholds. And that’s where the controversy lies and it’s all come to a head now with the reference of the Illumina/Grail transaction to the Commission in Brussels. |
| Jay Modrall | Speaking of that case, it has become quite an extraordinary legal saga already just in the past few months, with an in-depth review in parallel with an appeal against the Commission’s jurisdiction, a closing in violation of the suspensory obligation, a gun-jumping investigation and a soon to be the first ever interim measures in a gun-jumping situation. How is this going to play out? |
| Richard Whish QC | Well, of course, I have no idea how it’s going to play out. But just to unpack that a little bit, the first point to make is six Member States made the reference to the Commission in Brussels. Certainly, in the case of France and the Netherlands, the case was not notifiable under their own merger rules and, in both of those jurisdictions, Illumina challenged the reference by the Member State in their own courts and both of those challenges have been unsuccessful. In the meantime, Illumina has also gone to the General Court in Luxembourg saying that the Commission didn’t have jurisdiction to receive the reference and that is still ongoing. I have to say, to my mind, the fact that the Member States did not have jurisdiction under their own thresholds is irrelevant because, when Article 22 was originally implemented, the point was that there were Member States with no merger control at all, and this was a vehicle whereby they could transfer cases to Brussels for scrutiny. Now those words have the same meaning today in 2021 that they did then, so if originally a reference could be made even though you didn’t have jurisdiction, I can’t see how today it still isn’t possible to make a reference even though you lack jurisdiction. |
| Jay Modrall | Indeed, although the original purpose of allowing Member States with no jurisdiction to refer cases to the Commission was the assumption those cases would have local effects and not be notified in other places, whereas the Commission’s current approach leads to the potential for parallel reviews, not only by the Commission but by one or more Member States, and that’s already happening in the Facebook/Kustomer case. My understanding is that the Commission’s approach is very controversial among quite a few Member States, not only over the question of whether it should be applied to transactions that are not subject to national review but, for example, the applicable time periods. The issues in Illumina/Grail were well known all over the world long before the Commission accepted the referral and the referral came long after the applicable time period arguably had run out. How do you see the controversy and these risks of parallel review disciplining the Commission? Will it make them more reluctant, do you think, to accept so many of these cases? |
| Richard Whish QC | Well, the first point I would make is that it may be that the purpose of Article 22 has changed from what it was in 1989/1990 but, to my mind, the words of Article 22 remain the same and I think that is incontrovertible. Now, there is controversy here because, for many years, the policy of the Commission was not to accept these references and now it has changed that policy. Of course, that is controversial, I can understand that. And this particular deal, in a sense, gets stuck in the cross-hairs of the change because were the appropriate conditions contained in the share purchase agreement? But what I would say is, first, I know that some Member States have said they would not make a reference if they lacked jurisdiction. I believe Andreas Mundt of the BKA has just said that very recently. On the other hand, other Member States are obviously happy to make these references, but I assume they would only do so according to a properly exercised discretion and I would think that these cases would actually be very rare. And I see that the Commissioner, last week I think it was, in Fordham said, we will be very careful about the way in which we use this discretion, and maybe people who don’t like what we are doing should be a little bit careful what they wish for because, if we didn’t have this flexible approach under Article 22, we might then go and propose new thresholds for these kinds of cases which could lead to mandatory notification, which is not the case at the moment. So I have to say, to my mind, I think this is quite an elegant way of dealing with a difficult problem. I know that there are people that will profoundly disagree with me. |
| Jay Modrall | Richard, I am much more cynical than you. I suspect, personally, that the Commission wanted to make those amendments a long time ago and didn’t because they knew that the Member States would never pass the amendment to the Merger Regulation, but time will tell. Thank you very much for your thoughts on this really timely and fascinating issue. |
| Richard Whish QC | It’s a pleasure. |
Senior Counsel
Courriel
jay.modrall@nortonrosefulbright.com