EU commission confronts national governments on mergers

Opportunities are increasing for EU wide mergers to take place given thesuccess of the internal market and its enlargement. At the same time MemberStates have less and less control over such mergers due, among other reasons, toextensive privatization in many sectors. The Commission of the EuropeanCommunity (“Commission”) and ECJ have also curtailed the use ofgolden shares and equivalent provisions.

Under Article 21 (4) of the Merger Regulation, “Member States may takeappropriate measures to protect legitimate interests other than those taken intoconsideration by [the Merger Regulation] and compatible with thegeneral principles and other provisions of Community law”[1]. In practice, this provision was hardly everused by Member States partly due to national authorities being able to influencemergers in other ways and partly because the procedure provided by Article 21(4) could clearly lead to a rapid negative decision by the Commission withoutchance of negotiation. Indeed, the Commission and the ECJ have traditionallyadopted a narrow interpretation of “legitimate interests” of MemberStates.

In fact, it was the Commission who used Article 21 (4) of the MergerRegulation against Member States, to fight national measures against mergerstaken without prior notification to the Commission. This interpretation ofArticle 21 (4) was later confirmed by the ECJ (see Case C-42/01).

The Commission recently extended its policy, stating before the EuropeanParliament that it considered single market rules and Article 21 of the MergerRegulation to be its “two principal instruments […] for addressingundue interference by national authorities in relation to corporaterestructuring” and that it would enforce these rules “whereverappropriate”. Indeed since the beginning of 2006, the Commission hasformally threatened Poland and Spain with legal action on the basis of Article21 and relevant single market rules. The Commission has also raised similarconcerns towards Italy and France.

However this trend and the Commission’s recent application of Article 21 (4)of the Merger Regulation raises a number of questions, including the need forguidance on the interpretation of Article 21 (4) and its application over thevarious stages of a merger - for instance, before prior notification and afterthe merger decision is taken. It will be necessary to follow how these issuesare resolved by the Commission as it is already being challenged about the wayit conducts merger review.

Notes

[1] Article 21 (4) further distinguishes:

“Public security, plurality of the media and prudential rules shall beregarded as legitimate interests within the meaning of the first subparagraph.Any other public interest must be communicated to the Commission by the MemberState concerned and shall be recognized by the Commission after an assessment ofits compatibility with the general principles and other provisions of Communitylaw before the measures referred to above may be taken. The Commission shallinform the Member State concerned of its decision within 25 working days of thatcommunication.”