Transaction tips from our competition team: Ex-post review of non-notifiable mergers
When we think about competition law in M&A, we often jump straight to considering merger control and whether a transaction might need notifying to one or more competition authorities. If notifications are not required, for example because the parties do not satisfy relevant jurisdictional (e.g., turnover) thresholds, then in nearly all cases this provides legal certainty that a transaction can close without a competition authority having an opportunity to review the deal.
On 16 March 2023, the CJEU in Case C-449/21 ruled that Article 102 TFEU (the prohibition on the abuse of a dominant position) can be enforced by national competition authorities and courts vis-à-vis transactions that fall below the notification thresholds at EU or national level.
The relevant test is whether the dominant company has impeded competition on the market on which it is dominant by acquiring the other company. The strengthening of a dominant position through the acquisition is of itself not sufficient for the finding of an abuse. The acquisition must instead make a material difference in the competitive landscape in the relevant market, which would likely require high levels of concentration and significant barriers to entry.
As of today, there is no clear case-law setting out how an acquisition may constitute an abuse of dominance. It seems to us most likely that Article 102 TFEU will be applied to cases where an acquisition can be directly/causally linked to some specific conduct by the dominant company that qualifies as a recognised abuse of dominance, for example exploitative pricing conduct.
Hence, although the judgment, which allows for increased intervention by national competition authorities in respect of below threshold mergers, increases uncertainty, we expect it to be used in only exceptional circumstances. Furthermore, as the Norwegian Competition Authority already has the power to call in for review mergers falling below the notification thresholds, the implications of the judgment are potentially even more limited for purely domestic transactions.
Nonetheless the ruling is significant, as it means that a company which, at the time of an acquisition, is dominant on the same market or on a related market as the target cannot rule out intervention by a competition authority, even after establishing that no one authority has jurisdiction to review the merger under applicable merger control rules. Indeed, the risk of intervention remains even after the deal is completed and also applies to acquisitions that have been completed before the judgment was handed down. The period during which an acquisition may be at risk of challenge by an authority is also not clear, nor is it apparent what penalty might be appropriate when an acquisition is found to have been an abuse of a dominant position.
As part of deal planning going forward, (potentially) dominant companies will need to weigh up these risk factors and uncertainties when conducting their go/no-go assessments, particularly when acquiring companies in highly concentrated or innovation-driven markets. In addition, we would recommend that dominant companies consider in all M&A activity the potential risk of complaints from competitors, suppliers and customers against acquisitions. The CJEU's judgment potentially lowers the threshold for frustrated complainants to reach out to a competition authority about non-notified deals going forward.
The CJEU's judgment can be seen as a continuation of recent developments providing competition authorities with additional powers to review below-threshold acquisitions, such as the European Commission's adoption of its Guidance on the application of the referral mechanism set out in Article 22 EUMR, where the Commission encourages Member States to refer cases to it where the transaction in question does not meet the Member States’ merger control thresholds.
It remains to be seen whether, with what frequency, and in what particular circumstances, national competition authorities will apply their dominance rules to non-notifiable mergers. Interestingly, however, the judgment has already triggered new proceedings, as the Belgian Competition Authority, within less than a week of the CJEU's judgment, opened an ex officio investigation into a possible abuse of dominance by Proximus following its acquisition of Edpnet, where the authority explicitly cites the CJEU's judgment as the basis for its investigation.