Non-Notifiable M&A Deals Can Be Reviewed Under Abuse Of Dominance Rules: Does Heightened Regulatory Intervention In Deal-Making Lie Ahead?

• Jurisdiction: European Union
• Law Firm: Herbert Smith Freehills
• Subject Matter: orporate/Commercial Law, Antitrust/Competition Law, M&A/Private Equity, Corporate and Company Law, Antitrust, EU Competition
• Author: Mr Daniel Vowden, Sergio Sorinas, Kyriakos Fountoukakos, Abhijeet Sinha, Agathe Esch and Souzanna Omran
• Published date: 03 April 2023

INTRODUCTION

On 16 March 2023, the Court of Justice of the European Union (CJEU) issued its keenly anticipated judgment in Towercast¹(Judgment), following a request for a preliminary ruling by the Court of Appeal, Paris (Court of Appeal). The Judgment clarifies that acquisitions by dominant companies that do not meet the EU or national merger control thresholds can still be reviewed by national competition authorities (NCAs) following completion under the rules prohibiting the abuse of a dominant position.

The Judgment marks a further increase in the regulatory scrutiny of M&A deals. It potentially heightens deal execution risks faced by dominant companies, particularly when acquiring businesses in highly concentrated or innovation-driven markets (e.g., technology, life sciences or pharmaceutical markets).

This Judgment follows the landmark ruling in Illumina/Grail² in 2022, in which the General Court endorsed the European Commission's (EC) broader interpretation of the merger referral system under Article 22 of the EU Merger Regulation (EUMR) (see our previous coverage of Illumina/Grail, here, here and here). This policy initiative, enabling NCAs to refer non-notifiable transactions to the EC for review under the EUMR, was adopted to address a perceived enforcement gap in relation to so-called "killer acquisitions" (i.e., acquisitions by incumbent players of start-ups or nascent rivals with a view to eliminating competition, with acquired businesses having insufficient turnover to trigger merger notification requirements).

The Judgment provides NCAs with an alternative means of exercising jurisdiction over non-notifiable deals (and also provides third-party complainants with a basis to challenge deals post-completion, as was the case in Towercast). Indeed, on 22 March 2023, less than a week after the CJEU's Towercast ruling, the Belgian Competition Authority launched an investigation under the rules prohibiting the abuse of a dominant position against a below-the-thresholds acquisition by a telecommunications company, citing the Judgment as a basis for its probe.³

As a result, when evaluating M&A opportunities, dominant companies may now need to conduct more detailed and extensive deal planning in respect of transactions falling below the EU and national merger control thresholds, including a careful assessment of the likely impact of a relevant acquisition on the structure of competition on an affected market.

BACKGROUND

Facts

Towercast S.A.S.U. (Towercast), a French company, lodged a complaint before the French Competition Authority alleging an abuse of a dominant position by TDF Infrastructure Holdings S.A.S. (TDF). Towercast claimed that TDF enjoyed a dominant position on the French market for terrestrial television broadcasting and abused its dominant position by acquiring the only company operating on this market other than TDF and Towercast: Itas S.A.S. (Itas). This acquisition'according to Towercast'constituted an abuse of a dominant position, contrary to Article 102 of the Treaty of the Functioning of the European Union (TFEU). This was on the basis that TDF significantly strengthened its dominant position through the acquisition, which adversely impacted competition on the upstream and downstream wholesale markets for digital transmission of terrestrial television services.

The French Competition...