Draft EU Merger Control Guidelines

Revised “safe harbour”

The draft adjusts the market share threshold for transactions that are generally not considered to raise competition concerns to 25%, while maintaining concentration thresholds measured by the Herfindahl–Hirschman Index (HHI).

Theories of harm

The draft provides more detailed guidance on eight relevant theories of harm that may justify intervention by competition authorities. Several are familiar from the current guidelines—such as loss of head-to-head competition, closeness of competition, foreclosure, and coordination. Other theories such as the loss of investment and expansion competition, loss of innovation, entrenchment of dominance, and loss of potential competition are articulated more clearly as stand-alone theories of harm in the draft revised guidelines.

“Innovation shield”

A notable new element in the draft is the so-called “innovation shield”, recommended by the Draghi report, which is a safe harbour for acquisitions of small innovative companies, start-ups, and R&D projects. The premise for the application of this safe harbour is that the parties’ activities do not overlap in a relevant market or innovation space; or, where there is overlap, that their combined market shares remain below specified thresholds and that a sufficient number of competitors remain. In this respect, the draft suggests a more permissive approach to acquisitions of innovative start-ups—transactions that have previously often been referred to as “killer acquisitions”.

Minority shareholdings

The draft introduces more detailed guidance on how the parties’ minority interests in competing undertakings should be assessed in merger control assessments. While providing a safe harbour where the minority shareholding is below 5%, the guidelines explain that even non-controlling shareholdings in a competitor above this threshold may reduce competitive pressure due to the minority shareholder’s financial interests, influence of the risk of information exchange. Institutional investors and private equity firms with diversified portfolios should map their portfolios to identify any potentially problematic shareholdings.

Efficiencies

The draft sends a clear signal that efficiency claims will play a more central role in merger control going forward. It recognises both “direct” efficiencies (i.e., cost savings and quality improvements) and “dynamic” efficiencies linked to ability or incentives to invest or innovate—for example, the significance of combining complementary R&D, achieving economies of scale, access to financing or reduction of the incremental cost of innovation. It remains critical, however, that claimed efficiencies are verifiable, merger-specific, and benefit consumers.

Notably, the draft also recognizes that environmental and sustainability benefits, as well as resilience such as security-of-supply considerations, may constitute relevant efficiencies.

Labour markets

A new aspect of the draft is that is also acknowledges that labour markets can be relevant in merger control assessment. A merger between employers — particularly in specialised or highly local labour markets — may have negative effects such as lower wages, poorer working conditions and similar negative outcomes for employees.

What this means

Although these are still only draft guidelines, they are also intended to reflect the Commission’s existing enforcement practice. Parties considering an acquisition, merger, or other corporate transaction will therefore already benefit from stress-testing planned transactions against the draft—both to identify potential obstacles to clearance and to develop arguments in support of approval.