EU commission confronts national governments on mergers29/11/06 / cata_european-union-news

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

Under Article 21 (4) of the Merger Regulation, “Member States may take appropriate measures to protect legitimate interests other than those taken into consideration by [the Merger Regulation] and compatible with the general principles and other provisions of Community law”[1]. In practice, this provision was hardly ever used by Member States partly due to national authorities being able to influence mergers in other ways and partly because the procedure provided by Article 21 (4) could clearly lead to a rapid negative decision by the Commission without chance of negotiation. Indeed, the Commission and the ECJ have traditionally adopted a narrow interpretation of “legitimate interests” of Member States.

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

The Commission recently extended its policy, stating before the European Parliament that it considered single market rules and Article 21 of the Merger Regulation to be its “two principal instruments […] for addressing undue interference by national authorities in relation to corporate restructuring” and that it would enforce these rules “wherever appropriate”. Indeed since the beginning of 2006, the Commission has formally threatened Poland and Spain with legal action on the basis of Article 21 and relevant single market rules. The Commission has also raised similar concerns 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 for guidance on the interpretation of Article 21 (4) and its application over the various stages of a merger - for instance, before prior notification and after the merger decision is taken. It will be necessary to follow how these issues are resolved by the Commission as it is already being challenged about the way it conducts merger review.

Notes

[1] Article 21 (4) further distinguishes:

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