By Hattie Van Metre
Merging companies are facing higher scrutiny from the European Union’s competition regulatory body, creating uncertainty for transactions that might have otherwise escaped review.
In September 2020, Commissioner Margrethe Vestager of the European Commission (“EC”) announced that the EC would begin evaluating mergers “worth reviewing at the EU level” based on referrals from the national competition authorities of EU Member States even if those authorities were powerless to review the case themselves. In March 2021, the EC published new guidance on existing Article 22 of the Council Regulation (EC) No 139/2004 of Jan. 20, 2004 (“Merger Regulation”) which set out the referral mechanism, formally encouraging referrals from the EU Member States even when national filing thresholds are not met.
The Merger Regulation grants the EC exclusive jurisdiction to review “concentrations with a Community dimension,” defined as transactions between two parties that generate sufficient revenue to meet established EU dimension thresholds. In principle, the threshold triggers authority for the EC to review any transaction which impacts the market beyond the national borders of Member States and thus is better handled at the greater EU level. Article 22, nicknamed the “Dutch” clause, was inserted into the Merger Regulation at the Netherlands’ request in 1989, because the country lacked a merger control regime at the time and wanted the ability to ask that the EC review deals that might harm competition. Since then, the EC has held the authority to review transactions that don’t meet the necessary revenue thresholds. However, the EC has traditionally discouraged referrals from the Member States that lacked jurisdiction to review the transaction. That the EC now intends to “encourage and accept” referrals under Article 22, demonstrates the EC’s move to mirror the “progressive implementation of national regimes” of its Member States.
Article 22 allows referrals of transactions that 1) “affect trade between Member States” and 2) “threaten to significantly affect competition within the territory of the Member State or States making the request.” Potential transactions that are able to meet this test include those that would result in “the elimination of a recent or future entrant.” These so-called “killer” acquisitions occur when a large company acquires a small but significant innovator or entrant in the market. Additional transactions now facing higher scrutiny are mergers between “two important innovators.” Transactions in the digital and pharma sectors are of particular interest under the referral structure. Since the amendment came into effect, the EC has utilized Article 22 to assert jurisdictional review over Facebook’s acquisition of Kustomer, and Illumina’s acquisition of GRAIL. Neither transaction met Member State or Commission merger filing thresholds but it’s clear that both transactions are of the kind the EC sought to investigate in its reappraisal of Article 22. The EC, along with the competition regulatory bodies of its Member states, intends to protect against mergers that target innovative or nascent companies.
While the outcomes of these cases will set the tone for mergers of all sizes across Europe, the very fact that they face review illustrates the growing trend of higher scrutiny in ever-consolidating industries. Further, although the referral mechanism has been an option for the EC since the Merger Regulation was enacted, actual utilization of the mechanism in practice sparks uncertainty for merging companies that otherwise would have not faced regulatory review, and thus now face possible deconstruction. If the merger parties were to challenge EC decisions, the EU courts could have an integral role in clarifying application of the EC’s new policy. As big pharma and technology continue to take center-stage in merger conversations, companies in these sectors may be saying I Knew You Were Trouble to the EC’s new approach to Article 22 and the latest move towards increased scrutiny of consolidation.
 The European Commission is the branch of the European Union responsible for proposing and enforcing legislation and implementing policies and budget. European Commission, European Union (Nov. 20, 2021, 11:59 AM), https://europa.eu/european-union/about-eu/institutions-bodies/european-commission_en.
 Margrethe Vestager, Comm’r., Eur. Comm’n. The Future of EU Merger Control at the International Bar Association 24th Annual Competition Conference (Sep. 11, 2021), https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/future-eu-merger-control_en.
 Council Regulation (EC) 139/2004 of Jan. 20, 2004, O.J. L (24) 1, on the control of concentrations between undertakings [hereinafter Merger Regulation].
 Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases, COM (2021) 1959 final (Mar. 26, 2021) [hereinafter Merger Guidance] https://ec.europa.eu/competition/consultations/2021_merger_control/guidance_article_22_referrals.pdf
 Merger Regulation, supra note 3.
 A transaction has a Community (aka an EU) dimension where: “(a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5000 million; and (b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.” Alternatively, a transaction can also meet the EU dimension threshold where: “(a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 2500 million; (b) in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million; (c) in each of at least three Member States included for the purpose of point (b), the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million; and (d) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.” Merger Regulation, supra note 3, at Art.1(2).
 Bill Batchelor, et al., New EU Guidance Creates Legal Uncertainty for Merger Control and a De Facto ‘Killer Acquisition’ Review Power, Skadden, Arps, Slate, Meagher & Flom LLP (Apr. 8, 2021), https://www.skadden.com/insights/publications/2021/04/new-eu-guidance-creates-legal-uncertainty.
 Merger Guidance, supra note 4.
 Id. at ¶¶ 8, 11.
 Merger Regulation, supra note 3, at Art. 22.
 Merger Guidance, supra note 4.
 Amy C. Madl, “Killing Innovation?: Antitrust Implications of Killer Acquisitions” (2020). Yale Journal on Regulation Online Bulletin 5. https://digitalcommons.law.yale.edu/jregonline/5.
 Merger Guidance, supra note 4.
 Id. at ¶ 10.
 Press Release, European Commission, Mergers: Commission opens in-depth investigation into proposed acquisition of GRAIL by Illumina (July 22, 2021), https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3844; Press Release, European Commission, Mergers: Commission opens in-depth investigation into proposed acquisition of Kustomer by Facebook (Aug. 2, 2021), https://ec.europa.eu/commission/presscorner/detail/en/ip_21_4021.
 Foo Yun Chee, EU to examine Illumina’s $7.1 billion acquisition of Grail on antitrust grounds, Reuters (April 20, 2021, 7:41 AM), https://www.reuters.com/article/us-grail-m-a-illumina-eu/eu-to-examine-illuminas-7-1-billion-acquisition-of-grail-on-antitrust-grounds-idUSKBN2C71MA; Simon Van Dorpe, EU steps up Big Tech crackdown with in-depth probe of latest Facebook deal, Politico (July 30, 2021, 3:31 PM), https://www.politico.eu/article/eu-steps-up-big-tech-crackdown-with-in-depth-probe-of-latest-facebook-kustomer-deal/.
 The EU has set a deadline for decision on the acquisition for January 7, 2022. The EU review of the Illumina/GRAIL acquisition runs until February 4, 2022, but the EC has ordered that GRAIL remain a separate entity until then. Philip Blenkinsop, EU orders Illumina to keep Grail a separate company, Reuters (Oct. 29, 2021, 10:06 AM), https://www.reuters.com/business/healthcare-pharmaceuticals/eu-orders-illumina-keep-grail-separate-company-2021-10-29/.
 Taylor Swift, I Knew You Were Trouble (Taylor’s Version), on Red (Taylor’s Version) (Republic Records 2021).