Regulation no. 139/2004 : overview The notion of a „concentration” © Łukasz Stępkowski

Merger control has not been expressly addressed under the Treaties in a manner similar to other areas of EU Competiton law The legal basis for EU action is what is now Article 103(1) TFEU, read together with Article 352(1) TFEU Mergers are addressed by an act of secondary Union law : pricipally by the Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) https://eur-lex.europa.eu/legal- content/EN/TXT/HTML/?uri=CELEX:32004R0139&from=EN There is also the Implementing Regulation : Commission Regulation (EC) No 802/2004 of 7 April 2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (consolidated version : https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:02004R0802- 20140101&from=PL), which is essentially procedural in nature

There are also Commission guidelines, which are binding on it in so far as they are in conformity with binding EU law in force The Commission takes decisions in EU merger cases http://ec.europa.eu/competition/mergers/legislation/legislation.html The Court of Justice and the General Court interpret and apply EU law on mergers; they also exercise judicial review of the Commission’s activities, including judicial review of its decisions Regulation no. 139/2004, being a regulation, is directly applicable and is binding in its entirety; as such, individuals (undertakings and persons who are not undertakings in themselves) are its subjects and may rely on it However, Regulation no. 139/2004 is special in that it is the Commission who has exclusive power to apply the Regulation in order to take a decision under it „21(2):Subject to review by the Court of Justice, the Commission shall have sole jurisdiction to take the decisions provided for in this Regulation”

Regulation no. 139/2004 applies to „concentrations” Where there is a concentration as defined by Regulation no. 139/2004, to which Regulation no 139/2004 applies, other legal acts of the Union in the field of competition for checking its conformity with Articles 101 and 102 TFEU do not apply (e.g. Regulation no. 1/2003) This is reflected under Article 21(1) of the Regulation, which states that „this Regulation alone shall apply to concentrations as defined in Article 3, and Council Regulations (EC) No 1/2003(8), (EEC) No 1017/68(9), (EEC) No 4056/86(10) and (EEC) No 3975/87(11) shall not apply, except in relation to joint ventures that do not have a Community dimension and which have as their object or effect the coordination of the competitive behaviour of undertakings that remain independent” The Court also stated that where there is a concentration, Regulation no 139/2004 applies to the exclusion of Regulation no. 1/2003 (C-633/16 EY, para. 56)

The core element of a „concentration” for the purposes of Regulation no. 139/2004 is the change in the control of an undertaking (C-248/16 Austria Asphalt, para. 26) The act of creating a new entity is NOT a requirement for a concentration (C- 248/16 Austria Asphalt, para. 26) As there has to be a change in control, internal restructuring (even if it results in a new entity) does not equate with a concentration See para. 51 of the Commission’s consolidated jurisdictional notice https://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:095:0001:0048:EN:PDF

An alleged concentration, in order to be a concentration for the purposes of Regulation no. 139/2004, has to have a lasting effect (has to operate on a lasting basis) Therefore, ventures that operate during a „short, finite period” are not to be treated as concentrations for the purposes of Regulation no. 139/2004 The requirement that there has to be a lasting basis for a concentration to exist is accepted by the Court (see C-633/16 EY, para. 46) Where parties to a joint venture do not aim for a lasting effect (e.g. where there is a joint subsidiary meant for the completion of a particular task (para. 104, Commission’s jurisdictional notice)), there is no concentration for the purposes of Regulation no. 139/2004

A straightforward concentration entails a lasting change effected by the parties to a merger (e.g. a single share buyout whereby a purchasing undertaking becomes a sole member of a target undertaking), but there is no requirement that a concentration must be carried out by a single step In fact, the Court has accepted that a concentration (and the act of effecting a lasting change in operation) may be extended in time and composed of several steps According to the Court, a concentration is deemed to exist at the moment where the parties start to implement a predetermined change (EY, para. 46: „it follows that a concentration within the meaning of Article 7 arises as soon as the merging parties implement operations contributing to a lasting change in the control of the target undertaking”) but any transaction which cannot be regarded as contributing to the implementation of a concentration is excluded therefrom (EY, para. 43)

Article 3 Definition of concentration 1. A concentration shall be deemed to arise where a change of control on a lasting basis results from: (a) the merger of two or more previously independent undertakings or parts of undertakings, or (b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings. 2. Control shall be constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by: (a) ownership or the right to use all or part of the assets of an undertaking; (b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking. 3. Control is acquired by persons or undertakings which: (a) are holders of the rights or entitled to rights under the contracts concerned; or (b) while not being holders of such rights or entitled to rights under such contracts, have the power to exercise the rights deriving therefrom. 4. The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall constitute a concentration within the meaning of paragraph 1(b).

Article 3 (cont.) 5. A concentration shall not be deemed to arise where: (a) credit institutions or other financial institutions or insurance companies, the normal activities of which include transactions and dealing in securities for their own account or for the account of others, hold on a temporary basis securities which they have acquired in an undertaking with a view to reselling them, provided that they do not exercise voting rights in respect of those securities with a view to determining the competitive behaviour of that undertaking or provided that they exercise such voting rights only with a view to preparing the disposal of all or part of that undertaking or of its assets or the disposal of those securities and that any such disposal takes place within one year of the date of acquisition; that period may be extended by the Commission on request where such institutions or companies can show that the disposal was not reasonably possible within the period set; (b) control is acquired by an office-holder according to the law of a Member State relating to liquidation, winding up, insolvency, cessation of payments, compositions or analogous proceedings; (c) the operations referred to in paragraph 1(b) are carried out by the financial holding companies referred to in Article 5(3) of Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies(6) provided however that the voting rights in respect of the holding are exercised, in particular in relation to the appointment of members of the management and supervisory bodies of the undertakings in which they have holdings, only to maintain the full value of those investments and not to determine directly or indirectly the competitive conduct of those undertakings.

Please note that Regulation no Please note that Regulation no. 139/2004 uses both „persons” and „undertakings” „Undertaking” is understood in the same way as under other areas of EU competition law (any entity engaged in an economic activity regardless of its legal form and the way in which it is financed, where an economic activity consists in offering goods or services on a market) However, a „person” needs not be a undertaking; i.e. entities that are not engaged in an economic activity are included

Changes on a lasting basis have to be effected either to : the quality of control of the undertakings concerned, The structure of the market (cf. Commission’s jurisdictional notice, para. 28) Those changes need not be done by some specific way or in some specific form; for example, it is not required that a change be effected by way of an acquisition under relevant national law on companies – it equally may be contractual, factual, etc („any means”)

A joint venture taken in general is not the same as a concentration for the purposes of Regulation no. 139/2004 However, a joint venture may qualify as a concentration where Article 3(4) is met: „The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall constitute a concentration within the meaning of paragraph 1(b)” This includes offering goods and services on a market, having a management entrusted with its operation, sufficient financial and staffing resources (see Kokkoris/Shelanski, p. 146) The Regulation does not specify what is to be understood as a joint venture, and this has to be assessed on a case-by-case basis A joint venture may be contractual, in the form of a subsidiary, in the form of a single joint company organ, etc; however, only JVs that are „full-function” are caught by Regulation no 139/2004

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