Transaction tips from our competition team: Merger referrals under Article 22 EUMR

Now, for the second time in two years, the Commission has accepted a referral of a concentration in a case that was not notifiable under the national laws of even a single Member State. This new referral demonstrates the readiness of the Commission to get political with merger control, and adds a new layer of uncertainty for parties engaging in transactions in key or critical sectors.

On 18 August 2023, the Commission accepted a referral request under Article 22 to review the proposed acquisition of Autotalks by Qualcomm. The Commission considered that the transaction met the criteria for referral under Article 22 primarily because it would combine two of the main suppliers of V2X semiconductors in the EEA. This marks the second time that the Commission has accepted a referral request under Article 22 since the "Guidance on the application of this referral mechanism" document was published in 2021, in which the Commission encouraged national regulators to refer concentrations to it even where they do not meet the national filing thresholds. The first deal referred was Illumina's §8 billion acquisition of Grail, where the Commission took a decision to block the transaction in a case that is currently under appeal in the EU courts.

In this new Qualcomm case, as in the Illumina Grail case, the Commission even invited relevant Member States to make the referral request. Seven did so initially, with a further eight joining the referral requests later. The result being that the Qualcomm takeover must now be put on hold until the transaction has been notified and cleared by the Commission.

This case illustrates that the jurisdictional thresholds set out in Article 1 EUMR do not constitute a safe harbour for companies. Rather, in some cases, it will be necessary for companies to make a broader assessment of the transaction in light of the criteria laid down in Article 22. More precisely, whether the transaction "affects trade between Member States" and "threatens to significantly affect competition within the territory of the Member State or States making the request". If so, then a specific assessment is going to be necessary in order to determine the risk of a Member State, whether of its own volition or at the encouragement of the Commission, making an Article 22 request. As mentioned above, this is the case even if the transaction does not meet any of the relevant thresholds for notification under national law.

For the Commission, the rationale is to address a perceived "enforcement gap", in other words to ensure that transactions involving companies that might have a significant competitive role in a market may be subject to the scrutiny of the Commission under the EUMR even though they might not be large enough to meet the jurisdictional thresholds. This is especially relevant in certain digital markets, and other critical industries, such as pharma, where innovation is the main parameter of competition. However, Article 22 is not limited to certain sectors nor to specific types of transactions. Instead, it might be used in any transaction involving a target that might not generate significant - or even any - turnover, but where this does not reflect its actual or future competitive potential. The acquisition of a start-up, or a so-called "killer acquisition", would fall into this category.

The referral mechanism has been subject to a lot of criticism. Primarily for two reasons:

• First, companies risk two parallel investigations, one conducted by the Commission and another conducted by a Member State that has not referred the case to the Commission (nor joined a referral request), since the Commission's competence under Article 22 is limited to assessing the transaction within the territory(ies) of the Member State(s) making or joining the referral.
• Second, and specifically for cases where no notifications were initially required, transactions may have already closed, and the referral process opens the door to ex-post merger review. Although the Commission will generally not consider a referral made later than six months after a transaction has closed, the Guidance does not rule out that a later referral might be appropriate in special circumstances.

Taken together, the Commission's policy regarding Article 22, in addition to the recent Case C-449/21, which states that below-threshold transactions might be regarded as an abuse of dominant position according to Article 102 TFEU, further strengthens merger control review in the EU.

During the writing of this article, the Commission accepted a further referral in a case not notifiable under the merger rules of any EU Member State, in relation to the proposed acquisition of Nasdaq Power by EEX. In that case, Denmark and Finland submitted initial referral requests, with Sweden and Norway joining the referral later.