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In late April, following a consultation last year, the European Commission released new merger control guidelines that would supersede the Horizontal and Non-Horizontal Merger Guidelines from 2004 and 2008, respectively. This Wachtell alert calls the proposed guidelines “the most significant proposed reform to EU merger control policy of the past two decades,” noting that they “aim to modernize how the EC assesses mergers,” while the statutory test (whether a merger may significantly impede effective competition) remains unchanged. Here’s more from the alert:

Under the new Guidelines, a merger’s benefits “will play a key role” in the EC’s competitive assessment. The EC proposes to give “adequate weight” to a merger’s impact on scale, innovation, investment and resilience, all “procompetitive factors that can benefit from a degree of consolidation.” In particular, the Guidelines embrace industrial scale as procompetitive where it allows companies to “reach the necessary size to compete in global markets,” especially in innovation-heavy sectors.

The Guidelines also seek to balance concerns that mergers may harm competition by eliminating innovation rivalry or weakening investment incentives with the recognition that mergers can lead to “dynamic efficiencies” that increase the combined firm’s abilities or incentives to invest and innovate.

For example, the guidelines include:

– A proposed “innovation shield,” a “safe harbor for certain deals involving small innovators where the merging parties do not exceed certain market share thresholds or the acquirer is not considered a ‘gatekeeper’ in the relevant industry;”

– That the EC will “consider other non-price effects, such as a merger’s impact on supply‑chain resilience, sustainability, and consumers’ privacy, in its competitive assessment of a potential merger’s harms and benefits;” and

– An updated framework for the analysis of market power that takes a more “holistic” approach, including looking “beyond a static assessment of market power to other factors, such as the competitive potential of the merging parties’ R&D activities, level of R&D investment, and innovation track record” in innovation-heavy sectors.

The alert suggests that the proposed changes might result in the approval of more “scale-enhancing mergers” but also might “increase the risk of divergent outcomes between Europe and the United States.”

– Meredith Ervine