On 23 July 2020, the French Competition Authority (the “FCA”) released its new Guidelines on merger control (the “Guidelines”). In force since the day of their publication, the Guidelines are “intended to be a clearer guide to enable companies to better anticipate the various aspects taken into account by the FCA when examining a transaction”.
These Guidelines, published after a public consultation, incorporate the FCA’s case precedent since 2013 and complete its process of modernization and simplification of the French merger control launched in 2019. What are the main changes introduced by the Guidelines? Are they sufficient and do they meet the expectations of companies and legal practitioners?
In essence: The new Guidelines have been restructured to become clearer, by following the chronological organization of the merger control process and by recasting the sections related to competition analysis and remedies. They are also more didactic, thanks to the use of numerous examples and references to the previous decision-making practice.
The Guidelines provide quite a few clarifications and improvements on the filing procedure, the procedural constraints imposed on companies. There are however various aspects that would have deserved to be further specified and clarified. This is the case, for instance, of the specific issues frequently raised by the acquisition of real estate assets or by the creation of joint ventures, the practical arrangements for exchanging information between the parties before any merger clearance decision or the method for calculating fines applied in specific procedural infringements cases (gun jumping, etc.).
Transactions in the real estate sector: The Guidelines do not provide the expected clarification regarding the specific issues raised by the acquisition of real estate assets. In particular:
Concerning the concept of a full-function joint venture: The Guidelines recall that the only creation of a full-function joint venture constitutes a concentration which may be subject to prior authorization of the FCA.
Application of the “full-function joint venture” test: The Guidelines mention three situations corresponding to the creation of a joint venture: (i) the creation of a new joint venture, (ii) the transfer of assets that the parent undertakings previously held individually in an already existing joint venture, and (iii) “the acquisition by one or more new shareholders of joint control of an existing undertaking” (see paragraph 63).
Regarding the latter (iii) situation, the FCA refers specifically to the Austria Asphalt ruling of the CJEU, which however considers only one specific situation, i.e. the acquisition of joint control of an existing undertaking. The FCA thus seems to consider that the “full-function” test should only apply in this specific scenario, even though its recent decision-making practice shows that it does not limit the application of this test to the scenario mentioned in the Austria Asphalt ruling. A listing of the different cases of application of the “full-function” condition would have been welcome to ensure better legal certainty for undertakings and to limit formal or informal requests for comfort letters to the FCA’s merger control unit.
Autonomy of the joint venture: The Guidelines, referring to the Commission Consolidated Jurisdictional Notice on the control of concentrations, now provide a turnover threshold for the sales with third parties (50%), for characterizing the autonomy and the full-function nature of a joint venture (see paragraph 74).
Request for a derogation from the suspensive effect for companies in difficulty: The Guidelines contain a number of useful clarifications regarding the request for a derogation from the suspensive effect of merger control. They refer in particular to the acquisition of companies in difficulty. They also enable the potential acquirer (which cannot exclude that the contemplated transaction will be subject to merger filing) to file a notification without the target’s turnover being provided, being specified that the filing may be withdrawn, if necessary (see paragraph 150). According to the Guidelines, when granting the derogation, the FCA may also formally report the anticipated threats to competition resulting from this transaction.
Request for the appointment of a case handler: The Guidelines also introduce a formalised procedure for the appointment of a case handler. In order to anticipate the forthcoming notification of a merger, companies (if they wish so) may contact the FCA’s merger control unit, in order to ask for the appointment of a case handler in charge of examining the filing, as it is the case before the European Commission. Following this request, the name of the case handler is communicated to the notifying party within five working days (see paragraphs 188 to 190).
Simplified procedure: The Guidelines confirm the enlargement of the scope of the simplified procedure. They also identify for the first time the transactions which are unlikely to raise competition concerns and for which the notification form can therefore be simplified (see paragraph 230). This is the case, for instance, of transactions involving overlapping activities resulting in a cumulative market share of less than 50% and a market share increment of less than 2%.
Completeness of the merger filing: The FCA also provides useful clarifications concerning the submission to the notifying party of the acknowledgment of receipt of completeness of its merger filing. This receipt enables the legal investigation phase of the transaction by the FCA to officially start. The FCA states that it shall generally inform the parties of the completeness of their merger filing within 10 days after filing. The time limit for investigation shall start as of the working day following the day mentioned in the acknowledgment of receipt (see paragraph 207).
Dematerialized procedure: Implemented by the FCA in October 2019, the Guidelines endorse the dematerialized procedure for specific transactions, in particular those in the retail sector and which do not involve any overlapping activities (see paragraphs 234-240).
Examination phase 2: In order to increase the visibility of the notifying party over the progress of the phase 2 review process, the Guidelines now specify that the FCA’s merger control unit shall, at the beginning of the phase 2 investigation phase, address to the notifying party an indicative timeline, together with the main stages of the forthcoming procedure (see paragraph 300).
The Guidelines’ specific section dedicated to the competitive analysis has been revised and is now enriched with numerous examples illustrating the FCA decision-making practice, consequently making it clearer and more intuitive. This new architecture also highlights the main analysis criteria considered by the FCA, when analysing a transaction and the market power of the new entity, regardless of its horizontal, vertical and/or conglomerate nature.
Certain aspects are also clarified, in particular regarding the prospective analysis of the FCA (i) to define the relevant markets (the FCA specifies that it “takes into account the anticipated or ongoing evolutions within a reasonable timeframe, which depends on specific features of the sector” – see paragraph 518) and (ii) to assess the effects of a transaction on the market. Thus, “the FCA includes in its analysis anticipated changes in the structure of the market, when these changes are of a sufficiently assured nature” (see paragraph 504).
With regards to the “failing company” defence, which allows the notifying party to avoid any competitive assessment of the transaction by the FCA when specific conditions are met (see paragraph 786), the Guidelines confirm the very strict approach adopted by the FCA, in particular in its Cofigeo decision[2]. Thereby, it does not integrate the so-called “counterfactual” or causal approach adopted by the European Commission, which goes beyond the strict application of the “failing company” doctrine, and states that a “problematic” transaction can be approved unconditionally, if the parties establish that this transaction does not restrict competition (see paragraph 785 et seq.).
Reorganization of the specific section dedicated to remedies: The Guidelines now bring together all principles applicable to remedies (both procedural and structural) in a single section containing the FCA’s decision-making practice since 2013. Such reorganization clarifies the FCA’s approach in this area.
Articulation between behavioural and structural remedies: The Guidelines maintain a minimum duration for behavioural remedies (five years) and confirm the FCA’s preference for structural remedies. They also introduce the possibility for the notifying party to propose alternative structural measures (in case the intended result through the initial behavioural measure is not achieved) and behavioural remedies as a precondition for structural remedies, in particular where a divestment may not be possible in the short term after completion of the transaction (see paragraphs 417 and 418).
Divestment remedies: The Guidelines remain regrettably too general and do not further specify the conditions under which the implementation of “fix-it-first” remedies (identification of the purchaser before the clearance decision) and “up-front-buyer” remedies (identification of the purchaser after the clearance decision but before the completion of the transaction) will be considered necessary and proportionate. Similarly, the degree of motivation required by the FCA to impose on parties to adopt such divestment remedies remains undefined (see paragraphs 390 to 394).
Remedies reassessment process: The Guidelines also address the conditions of the intervention of third parties, the monitoring trustee and the parties in the context of the reassessment of remedies. They expressly provide that the parties are informed of the conclusions of the monitoring trustee, as well as the analysis adopted by the FCA, in order to be able to be heard in return (see paragraphs 448 to 450).
The FCA does not however further detail the reassessment process itself. It only provides that the parties must send “a substantiated request” to the president of the FCA, without further detailing the procedure subsequently followed by the FCA (see paragraph 442) and the guarantees offered to all stakeholders. Yet, some guarantees would have deserved more clarification from the FCA (such as the possibility for interested third parties to be heard, etc.).
The “rendez-vous clause”: The Guidelines now expressly mention the possibility to use “rendez-vous” or revision clauses. However, the FCA does not specify the situations where such a clause may be considered appropriate, nor the criteria considered to approve renewable remedies (see paragraph 443). Finally, when reassessing remedies, the Guidelines now expressly mention the necessity to update the competitive analysis in this context (see paragraph 448).
Monitoring trustees: The Guidelines consider the possibility of appointing a monitoring trustee to monitor the implementation of remedies. The Guidelines therefore appear flexible in this respect, in the sense that the use of a monitoring trustee is not mandatory (see paragraph 424). While such flexibility is welcome, the FCA does not however set out the criteria to be considered when assessing whether a monitoring trustee may be necessary or not.
Furthermore, the FCA strengthens the appointment process of the monitoring trustee, in order to ensure his independence (see paragraph 426 and following). Decisions relating to the appointment of monitoring trustees (refusal of approval), as well as the names and contact details of the appointed trustees are now published on the FCA’s website (see paragraph 429). Consequently, third parties can fully contribute to the monitoring of the correct implementation of remedies.
Penalty for non-compliance with remedies: The Guidelines contain a new section related to the determination of fines for non-compliance with remedies. In this respect, the FCA takes into account in particular “the nature of the corrective measures taken, their importance in the general economy of the clearance decision, or the time elapsed since the transaction and the duration of the corrective measures remaining to run on the date of its ruling”. The FCA also stresses that it “takes into account, if established, any potential particular difficulties that the parties claim to have encountered in fulfilling their obligations”.
With regards to the financial penalty, the Guidelines only stress that it must be “proportionate to the circumstances of the case” and that “the particular nature of the breach” must be considered (see paragraphs 466 and 467).
The Guidelines recall the constraints the companies must bear when filing a contemplated concentration and the behaviour they should adopt during the preparation period of the transaction. The specific section of the Guidelines devoted to procedural infringements (failure to notify, anticipated implementation of a concentration) has been completed and now incorporates the most recent decision-making practice and case law in this area.
Failure to notify: The Guidelines list the various criteria considered by the FCA when setting the amount of the fine imposed on the notifying party for failure to notify (see paragraph 163 and following). One of the mitigating circumstances listed is “the fact that the undertaking spontaneously brought to the FCA’s attention that it failed to notify”.
Anticipated implementation of a concentration or “gun jumping”: Unlike the FCA’s previous 2013 merger control guidelines, the Guidelines specifically address the issue of gun jumping (see paragraph 173 and following), by incorporating the recent decision-making practice of the FCA in this respect. The Guidelines recall in particular the objective of Article L. 430-8 II of the French Commercial code (see paragraph 175), the criteria used by the FCA to assess the existence of such an infringement (see paragraph 176) and the behaviours requiring particular vigilance from the undertakings prior to any clearance (conclusion of SPA, commercial behaviour to be adopted, etc.) (see paragraphs 177-180).
Yet, these developments appear rather general, given the issues the companies and practitioners usually encounter, especially between signing and closing. In addition, the FCA remains unclear as regards the relationship between articles L. 430-8 II (sanction of gun jumping practices) and L. 420-1 of the French Commercial Code (sanction of anticompetitive practices). It only indicates that “the early implementation of a concentration can also lead to the sanctioning of companies for the prohibition of anti-competitive practices” (see paragraph 183). In addition, the Guidelines remain fairly general on the issue of sanctions applied by the FCA, which contrasts with the approach adopted regarding the applicable penalties for failure to notify (see above).
Finally, the issue of the exchange of information between the parties to the transaction and its practical arrangements is discussed in a very synthetic way (see paragraph 178). The “clean team” procedures are not explicitly addressed; the FCA only refers to its decision-making practice in relation to such exchange of information.
Omission or incorrect declaration: Even though the Guidelines contain useful developments in this area (see paragraphs 184-186), they do not sufficiently develop the criteria used by the FCA to determine the amount of fine imposed in case of an omission or inaccurate declaration; nor do they incorporate the recent decision-making practice of the European Commission resulting from the Facebook[3] and General Electric[4] cases (which have clarified the criteria that should be taken into account – nature, seriousness and duration of the infringement – when fixing penalties).
The appendixes to the Guidelines have been enriched in order to lay out the analysis of the FCA with respect to certain recurring issues in the retail sector (new appendix C), the assessment of the competitive impact of transactions on local markets and the competitive pressure exerted by online sales (new appendix D).
As regards the new appendix D, the FCA identifies several factors to be considered when assessing the potential substitutability between online sales and sales in brick and mortar stores, including the penetration rate of online sales, the integration of online operators’ behaviour in the commercial and pricing strategy adopted by traditional operators, etc…
Deleted in the draft submitted for public consultation, the Guidelines fortunately reintroduce the appendixes relating to the model form for divestment remedies (new appendix F) and to the model form for monitoring trustee’s contract of mandate (new appendix G). These appendixes have been updated and include the FCA’s recent decision-making practice, as well as clarifications regarding internal documents the FCA may request during an investigation.
Regrettably, the Guidelines permanently removed the former appendix C relating to investment funds and the former appendix D relating to agricultural cooperatives. These two appendixes used to provide useful guidelines on the FCA’s criteria of analysis in such sectors where mergers are numerous.
The full text of the Guidelines can be viewed here (only available in French).
We are at your entire disposal to answer any question your company may have in the area of French merger control.
[1] Court of Justice of the European Union, 7 September 2017, Austria Asphalt, Case C-248/16.
[2] Decision of the FCA No.°18-DCC-95 of 14 June 2018 regarding the acquisition of sole control of certain securities and assets of the ready meals arm of Agripole group by Financière Cofigeo
[3] European Commission, August 30th, 2017, Facebook / WhatsApp, Case COMP/M.8228.
[4] European Commission, April 8th, 2019, General Electric Company / LM Wind Power Holding, Case. COMP/M. 8436.