Lex Mundi Europe/Middle East/Africa Regional Conference

THE EUROPEAN UNION MERGER CONTROL REFORM

Edurne Navarro Varona Paris, 16 May 2003 URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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1. Introduction (I) Background of the reform ü Green Paper of 11 December 2001 on the review of the EU Merger Regulation 4064/89 ü Recent judgments of the European Court of First Instance overruling Commission prohibition decisions (Airtours, Schneider and Tetra Laval) Objectives of the reform ü Bring more analytical rigor into the merger review process ü Increase transparency in the decision-making process ü Increase legal certainty of undertakings URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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1. Introduction (II) REFORM PACKAGE Adopted by Commission on 11 December 2002

1. Proposal for new merger Council Regulation (“RP”), replacing current Regulation 4064/89 2. Draft Commission Notice on horizontal mergers (“DN”) 3. Other non legislative measures (some of which are included in a draft Best Practices Guidelines)

URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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2. Regulation Proposal Entry into force: 1 May 2004 Ø Amended substantive test for assessing mergers Key proposed changes:

Ø Allocation of cases between Commission (“C”) and member States (“MS”) Ø Flexibilisation of “triggering event” and deadline for notification Ø Extension of the deadlines for C’s decisions Ø Increased powers of investigation of C URÍA & MENÉNDEZ

Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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2. Regulation Proposal 2.1. Amended substantive test for assessing mergers New definition of dominant position (Art. 2):

“one or more undertakings shall be deemed to be in a dominant position if, with or without coordinating, they hold the economic power to influence appreciably and sustainably the parameters of competition”

? Concentrations giving rise to oligopoly situations may be subject to review ? Dominance test not replaced by “substantial lessening of competition” test (applied in other jurisdictions) URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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2. Regulation Proposal 2.2. Allocation of cases between Commission and member States

Simplified system for the referral of cases from C to MS and vice-versa (Arts. 9 and 22):

Ø Merging parties may request referral at prenotification stage Ø C will have exclusive jurisdiction in cases where at least three MS make a referral to C Ø C may invite MS to make referrals to C and C may refer cases to MS

Ø The simplification of the referral system may be jeopardised given the extensive deadlines laid down for the different stages of the procedure Ø Companies may find more difficult to predict which jurisdiction will ultimately review their merger URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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2. Regulation Proposal 2.3. Flexibilisation of “triggering event” and deadline for notification

Ø Possibility to file a concentration prior to the conclusion of a binding agreement (Art. 4), provided that : ü The undertakings concerned demonstrates to C good faith intention to conclude a binding agreement ü In case of public bid, the undertakings concerned have publicly announced their intention to make such a bid Ø Abolishment of the requirement that concentrations be notified within a week from the conclusion of the binding agreement

URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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2. Regulation Proposal 2.4. Extension of deadlines for Commission’s decisions

Ø Where parties submitted remedies (Art. 10 (1) and (3)): ü In Phase I, automatic extension by 35 additional working days (instead of the current 30 working days) ü In Phase II, automatic extension by 15 additional working days Ø Extension of the timeframe in complex Phase II cases (Art. 10 (3)) ü Possibility for parties to request extension of 20 working days ü Possibility for C to extend deadline by 20 working days, with consent of notifying parties URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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2. Regulation Proposal 2.5. Increased powers of investigation of the Commission

Ø Increased fact-finding powers of C, including possibility to take oral statements to be recorded and used as evidence (Art. 13) Ø Possibility of imposing higher fines for failure to comply with C’s requests of information (Art. 14). LIMIT: 1% of turnover Ø No right of C to search companies’ representatives private homes, as the “Modernisation Regulation” does in non-merger investigations

URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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3. Draft Notice on horizontal mergers Entry into force: 1 May 2004

Key proposed changes:

Ø Categorisation of anti-competitive effects Ø Consideration of efficiencies Ø “Failing firm defence”

URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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3. Draft Notice on horizontal mergers 3.1. Categorisation of anti-competitive effects (I) Three-way categorisation of potential effects arising from horizontal mergers: I.

Paramount market position (single firm dominance) Ø The merged firm has very large market share and is not constrained by actual competitors

II. Non collusive oligopolies Ø Mergers in oligopolistic markets which remove competitive constraints, even if there is no risk of co-ordination amongst the remaining oligopolists Ø New category in EU law, widens scope for C’s intervention URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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3. Draft Notice on horizontal mergers 3.1. Categorisation of anti-competitive effects (II) III. Collusive oligopolies: Mergers that give rise to an increased risk of co-ordination amongst the remaining competitors Ø Possibility to establish the terms for co-ordination (homogeneity of products, stable supply and demand conditions, transparency of cost structure, etc.) 3 criteria must be fulfilled

Ø The oligopolists must be able to monitor oneanother’s market behaviour in order to detect whether any firm deviates from the terms of co-ordination Ø Credible and timely deterrent mechanisms in order to prevent deviation from the co-ordinated practice URÍA & MENÉNDEZ

Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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3. Draft Notice on horizontal mergers 3.2. Consideration of efficiencies

C will consider efficiencies that

Ø Directly benefit consumers (e.g., cost efficiencies leading to reductions in variable or marginal costs are more relevant than reductions in fixed costs) Ø Are merger specific (e.g., direct consequence of the merger) Ø Are timely (e.g., the longer the efficiencies are projected into the future, the less weight C will assign to them) Ø Are verifiable

Ø The merging parties have the burden of proof Ø Unlikely that efficiencies imply clearance of merger creating monopoly or quasi-monopoly URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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3. Draft Notice on horizontal mergers 3.3. Failing firm defence

A “failing firm defence” could be accepted by C if: ü The acquired undertaking would be forced out of the market in the near future because of financial difficulties if not taken over by another undertaking; and ü There is no less anti-competitive purchase than the notified concentration; and ü Absent the merger, the assets of the failing firm would inevitably exit the market URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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4. Other non legislative measures Key changes introduced by draft Best Practices guidelines:

Ø“State of play” meetings ØParties’ access to the file ØIncreased transparency

Other non legislative changes: Ø Chief Competition Economist in DG Competition Ø Appointment of a peer review panel Ø New organisation of DG Competition Ø Additional support staff to the Hearing Officers Ø Appointment of a Consumer Liaison officer URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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4. Other non legislative measures 4.1. Draft Best Practices guidelines “State of play” meetings Meetings between C and merging parties to be regularly held at decisive points of the procedure to guarantee constant information on progress of investigation and allow discussions with senior C management

Parties’ access to the file Merging parties may examine C’s file on a continuous basis, rather than only after issuing of Statement of Objections

Increased transparency Merging parties may review third party submissions and, where possible, discuss such concerns directly with those third parties and C URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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4. Other non legislative measures 4.2. Other changes Chief Competition Economist in DG Competition The Chief Economist will be involved in merger and other antitrust investigations. Directly attached to Director General. May 2003

Appointment of a peer review panel Phase II: a peer review panel of experienced officials will scrutinise the investigating team’s conclusions at key points of the enquiry

New organisation of DG Competition Merger control units will integrate into 4 sector-specific antitrust Directorates. A smaller MTF will remain to ensure effective co-ordination of merger control across the DG (reform completed by May 2004) URÍA & MENÉNDEZ Madrid, Barcelona, Valencia, Bilbao, Bruselas, Nueva York, Londres, Lisboa, Buenos Aires, Lima, Santiago de Chile, São Paulo, MéxicoD.F.

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