i Merger control authority
Since a major overhaul of the French merger control regime (the 2008 Law on Modernisation of the Economy), the Competition Authority (FCA) has exclusive jurisdiction in merger control cases.
The Minister for the Economy, previously in charge of merger control in France, still holds residual powers: in theory, he or she may request the opening of an in-depth investigation and may reverse the FCA's decisions on grounds of general interest.
ii Statutes, regulations and guidelines
Rules on French merger control procedure are set out in the French Commercial Code (FCC) under Article L430-1 et seq and Article R430-1 et seq (as last amended by Decree No. 2019-339 of 20 April 2019, which slightly amended the model notification form).
The Authority adopted guidelines on merger control on 10 July 2013.2 These guidelines take into account the experience acquired by the FCA and refer to the practice of the Minister for the Economy, as well as of the European Commission (EU Commission) and to the case law of the Court of Justice of the European Union and the French Administrative Supreme Court. Answers to questions concerning both procedure and substantive issues can be found in these guidelines. Even though these guidelines are not binding, the FCA is committed to applying them in each case unless specific circumstances or general interest considerations justify a derogation.
iii Transactions that require prior approval
Notification to the FCA is required when the envisaged transaction qualifies as a concentration and, provided the EU Commission does not have jurisdiction, when turnover thresholds are met.
Definition of a concentration
The French definition of 'concentration' is similar to that set out in the EU Merger Regulation (EUMR) (i.e., it applies whenever there is a lasting change of control over an undertaking).
Accordingly, there is a concentration where:
- two or more formerly independent undertakings merge;
- one or several persons who already control at least one undertaking, or one or several undertakings, directly or indirectly acquire control of the whole or parts of one or more other undertakings; or
- a joint venture that performs, on a lasting basis, all the functions of an autonomous economic entity (a full-function joint venture) is created.
In essence, the notion of 'control' under French law is the same as that set out in the EUMR: it is the ability to exercise decisive influence over the activity of an undertaking (the EU Commission's consolidated jurisdictional notice is therefore relevant in this regard). Legally speaking, Article L430-1 of the FCC defines 'control' as all rights, contracts or any other means that, either separately or in combination, and having regard to the factual or legal circumstances, enable a party to exercise a decisive influence on an undertaking, be it on a sole or joint basis, and in particular:
- ownership rights or possession of all or part of the assets of an undertaking; or
- the rights or contracts that confer a decisive influence on the composition, voting or decisions of an undertaking's decision-making bodies. Minority interests can be caught by this definition of control provided that other legal or factual elements are taken into account (e.g., veto rights).
Transactions leading to changes in the quality of control (change from sole to joint control, and conversely, entry of an additional shareholder, replacement of an existing shareholder, etc.) fall within the scope of French merger control.
French merger control applies where the following cumulative conditions are met:
- all the undertakings that are party to the concentration have a worldwide aggregate pre-tax turnover in excess of €150 million;
- at least two of the parties concerned each have a pre-tax turnover in France exceeding €50 million; and
- the transaction does not fall within the scope of the EUMR.
Specific thresholds for the retail sector
If two or more parties involved in the transaction operate one or more retail stores, the FCA's prior approval is required where:
- the combined worldwide pre-tax turnover of the parties exceeds €75 million;
- at least two of the parties concerned each have a pre-tax turnover in France exceeding €15 million in the retail sector; and
- the transaction does not fall within the scope of the EUMR.
Specific thresholds for the overseas territories
When one party to the merger carries out part or all of its activity in one or several French overseas territories, the transaction has to be submitted to the FCA if:
- the combined worldwide pre-tax turnover of the parties exceeds €75 million;
- each of at least two of the parties concerned achieved a pre-tax turnover exceeding €15 million (or €5 million if the retail sector is concerned) in at least one of the French overseas territories concerned. This threshold does not have to be reached by all the parties concerned in one and the same territory; and
- the transaction does not fall within the scope of the EUMR.
The undertakings whose turnover is to be considered depend on the type of transaction. For instance, the following will be considered: the merging entities in the case of a merger, the acquirer and the target (excluding the seller) in the case of an acquisition of sole control, and the controlling parent companies in the case of a newly created joint venture.
'Turnover' is the amount derived from the sale of products or the provision of services in the preceding financial year. Calculation of the relevant turnover may involve adjustments pursuant to Article L430-2 V of the FCC, which sets out rules similar to those of Article 5 of the EUMR. In essence, the aim is to reflect the underlying economic reality of the market, by ensuring that (1) the turnover corresponds to the entire group of companies; (2) it is properly allocated geographically speaking; (3) internal turnover is excluded; and (4) the specificities of certain sectors are taken into account (e.g., in the financial services sector).
When jurisdictional thresholds are met, pre-merger filing is mandatory and suspensive (i.e., there is a stand-still clause). This applies to all concentrations, including foreign-to-foreign transactions, even in the absence of overlap between the parties' activities.
Individuals and companies acquiring control of all or part of an undertaking are responsible for notifying. In the case of a merger, this obligation is incumbent upon the merging entities. In the case of a joint venture, the parent companies can file a joint notification.
If the parties fail to file a concentration or implement a concentration before the FCA clears it, the FCA may (1) order the parties to file and impose a periodic penalty payment until they do so; or (2) impose a fine of up to 5 per cent of the French turnover during the previous financial year (plus, where applicable, that of the acquired undertaking) for companies and up to €1.5 million for individuals. Transactions that have been completed without clearance are illegal and not enforceable. There are no criminal sanctions for not filing.
For instance, on 26 December 2013, the FCA imposed a fine of €4 million on Castel Frères, a company active in the wine sector, for failing to notify its acquisition of six companies that were part of the Patriarche group prior to closing the transaction on 6 May 2011. The Authority was informed of the acquisition by a third party, and found evidence that Castel Frères engaged in such 'gun-jumping' on purpose, to close the transaction rapidly. Even though the transaction was finally notified and authorised by the FCA, the FCA specified that this did not make the breach less serious. On appeal, the Administrative Supreme Court reduced the amount of the fine to €3 million, taking into account that (1) the transaction was notified shortly after the FCA's request; and (2) Castel Frères did not intend to bypass competition rules.3 This last reason appears somewhat inconsistent with the finding that Castel had deliberately failed to file.
On 8 November 2016, the FCA issued a particularly significant decision relating to Altice's practices when it notified (as two separate cases) the acquisitions of, respectively, exclusive control over SFR and OTL. Various competitors had complained to the FCA that Altice had begun implementing both transactions before the FCA had approved them in, respectively, June and September 2014. The FCA then carried out dawn raids at Altice, SFR and OTL's premises. At the end of its investigation, the FCA concluded that Altice had indeed begun to interfere in the respective commercial policies of SFR and OTL before it had approved of the transactions, in particular by (1) approving the conditions by which SFR answered to a call for tender; (2) approving the conditions of a significant contract between SFR and a third party; (3) influencing SFR's pricing policy for its commercial offers; and (4) coordinating with SFR for the acquisition of OTL. Altice and SFR also exchanged various commercially sensitive information, and coordinated on the launch of a new commercial offer that marked a departure from SFR's previous commercial strategy, so that such offer could launch as of the FCA's clearance decision. Also, Altice and OTL similarly exchanged various sensitive information and Altice approved various operational decisions taken by OTL and it appointed OTL's CEO before the FCA's authorisation. The FCA therefore imposed a fine of €80 million on Altice for gun-jumping. In parallel, Altice was recently fined €124.5 million by the EU Commission for implementing its acquisition of PT Portugal before notification or approval by the Commission.4 Those two fines are among the highest ever enforced for such infringement in the EU.
ii YEAR IN REVIEW
In 2019, 270 concentrations were reviewed and cleared by the FCA, nine of which were cleared conditionally (with remedies). So far in 2020, the FCA has adopted 72 decisions to clear concentrations, including one following a Phase II investigation.
These figures include a number of simplified decisions, in particular concerning the retail distribution sector, due to the particularly low thresholds for notifying such concentrations (in practice, many decisions may concern a change of control over a single retail store).
Below are some of the significant FCA decisions in 2019 and early 2020.
On 24 July 2019, the FCA adopted a decision authorising the merger between two major agricultural cooperatives, both active in the Brittany region. The FCA reviewed in detail the horizontal overlaps in various sectors of the two cooperatives (procurement of raw vegetables and production of canned vegetables, procurement and marketing of cereals, retail distribution of gardening and home improvement tools, production and marketing of eggs and egg products, etc.). It also analysed in detail the consequences of the merger on the relationships between the farmers that collectively own each cooperative and the new merged cooperative. The FCA cleared the transaction in Phase I but only after a long pre-notification period of almost 18 months, and subject to various commitments. These commitments relate to the divestiture of stores in the retail sector and silos for the procurement of cereals. The parties also committed to modify their contractual relationships with the farmers, to ensure farmers would remain free to sell their cereals to third parties and would not have to rely exclusively on the new cooperative to procure products necessary for their farming activities (seeds, tools, agro-services, etc.).
On 16 January 2020, the FCA refused to apply the rules prohibiting abuses of dominant positions to a transaction that did not meet the thresholds for merger control review in France. In this case, Towercast lodged a complaint against TDF to challenge TDF's takeover of its competitor Itas in October 2016. Whereas Itas was too small for the turnover thresholds to be met, Towercast complained that this acquisition reinforced TDF's dominant position in the market as Itas was one of its last competitors (in addition to Towercast). According to the FCA, such a merger could not constitute an abuse of a dominant position, as the adoption of a European system of compulsory prior control of mergers leads to the non-applicability of Article 102 of the Treaty on the Functioning of the European Union to operations corresponding to the definition of concentration. Regulation (EEC) No. 4064/89 of 21 December 1989 provides that 'for pressing reasons of legal certainty, this new Regulation will apply solely and exclusively to concentrations'. Regulation (EC) No. 139/2004, currently in force, also specifies that antitrust regulations are not applicable to 'concentrations' as defined in its Article 3. This decision thus enhances legal certainty in the field of merger control. However, the FCA specified that, according to its views, national competition authorities would be allowed to refer transactions to the EU Commission pursuant to Article 22 of Regulation (EC) No. 139/2004, even when they are below the national thresholds for mandatory notification.
iii THE MERGER CONTROL REGIME
i Waiting periods and time frames
Filing has a suspensive effect, which means that, in principle, the parties cannot implement the merger before clearance is granted by the FCA. Timetable management is, therefore, of the utmost importance.
Pre-notification contacts with the FCA are, in theory, optional but are very strongly advisable (except perhaps in some extremely simplified cases). Pre-notification is particularly recommended when there are uncertainties as to whether the transaction must be notified, or in the event of complex concentrations, or when the parties would like to have an initial idea, on a confidential basis, of the FCA's opinion on their project. To start this phase, parties can send a briefing memorandum on the transaction (describing, in particular, the parties, the envisaged transaction, the markets concerned, the competitors and the parties' market shares) or, more generally, a draft notification form. Informal meetings can also be arranged between the FCA and the parties if necessary. The FCA may also take the initiative to contact the parties when it sees in the press that a transaction is announced or being negotiated.
In practice, the parties can end pre-notification talks and formally notify a concentration when the FCA gives its go-ahead.
Filing is possible when the parties can prove their firm intention to carry out the concentration. In practice, notification usually occurs after the parties have entered into a binding agreement. However, notification may also occur before a binding agreement is signed on the basis of, for instance, a signed letter of intent or a memorandum of understanding. In the case of a public offer, parties can file once the purchase or exchange offer is announced publicly.
In practice, notification must be made in a specific format prescribed by the FCC. The content of the notification form and the documents to be provided to the FCA are also explained in the guidelines. The information requested is overall similar to the information requested in EU merger control proceedings (with some small specificities).
Information communicated to the FCA in the notification form and during the review process may be disclosed when the FCA's decision is issued or in the course of its investigation (e.g., in the course of the market test). However, business secrets may be protected upon request.
The Authority shall issue its decision within 25 working days of the day on which complete notification was received. To this end, the FCA may request further information from the parties. In practice, the FCA sends a letter declaring a file to be complete as from the day it received the formal notification. Where the FCA considers that the file is incomplete it may send a letter stating that certain information is missing, therefore preventing the clock from running.
The Authority will also usually conduct market tests to check information provided by the parties. Market tests are usually conducted through information requests sent to other market players (competitors, suppliers, customers).
When remedies are proposed to the FCA, the review period is automatically extended by 15 working days. Additionally, parties may ask, when necessary, for the review period to be suspended ('stop the clock') for a period of up to 15 working days. Such possibility may be used to finalise commitments, for example. The Authority may also stop the clock in Phase I either when parties failed to inform of new relevant facts that occurred before the submission of the filing or failed to provide all or part of the information requested within the deadline. To our knowledge, the FCA tends to rely more often on this possibility, in particular when it needs time to finalise its market investigation or the drafting of the decision.
At the end of this period, if no competition concern remains unsolved, the FCA will clear the concentration. Otherwise, the process moves to Phase II.
Within five working days of the notification of the FCA's clearance decision to the Minister for the Economy, the latter can ask the FCA to open a Phase II review of the concentration.
If the concentration raises serious doubts as to competition issues, the FCA will initiate an in-depth examination. The opening of Phase II usually leads to additional information requests. State-of-play meetings and hearings are generally also held. The Authority has to issue its decision within 65 working days of the opening of Phase II. If commitments, or amendments to commitments previously submitted, are submitted less than 20 working days from the expiry of the 65-day period, the review period is extended by 20 working days from receipt of these commitments or amendments (i.e., it cannot exceed 85 working days as from the opening of Phase II). Here again, parties may ask, when necessary, to stop the clock for a period of up to 20 working days (to finalise the commitments, for example). The Authority may also stop the clock if parties failed to inform it of new relevant facts when they occurred or failed to provide all or part of the information requested within the deadline, or third parties failed to communicate information requested because of the notifying parties.
Within 25 working days of the notification of the final decision of the FCA, the Minister for the Economy can, on the basis of public interest grounds (industrial development, companies' competitiveness in an international context, social welfare, etc.), review the case himself or herself and issue a decision based on the aforementioned grounds.
On 14 June 2018, for the first time, the Minister for the Economy decided to use his power to re-examine an operation cleared by the FCA. On that day, the FCA had authorised the acquisition of certain securities and assets of Agripole (William Saurin) by Cofigeo. In that case, Cofigeo had obtained a derogation to the suspensive effect so that it could acquire William Saurin, which was undergoing insolvency proceedings. The FCA finally approved this acquisition but ordered the parties to divest a brand and an industrial plant (when the parties do not offer remedies that are acceptable to the FCA, the FCA has the power to order divestitures). The Minister for the Economy adopted a decision on 19 July 2018, approving the concentration and waiving the orders that the FCA had imposed on the parties. According to the Minister for the Economy, the divestitures imposed by the FCA would have jeopardised the parties' restructuring plan and their viability on a short-term basis, and would have increased unemployment in a region where unemployment was already high. Accordingly, the Minister for the Economy merely imposed on the parties an order to maintain their level of employment for two years.
ii Parties' ability to accelerate the review procedure
French law does not provide for an accelerated procedure. However, as provided in the FCA guidelines, parties to a concentration may request to benefit from an anticipated decision, particularly in cases where a simplified notification form may be used (absence of overlap, for instance).
Also, in two cases, the parties can proceed without having to wait for the FCA to issue its decision.
First, the parties may request an individual derogation to the duty to stand still. The parties must show that this derogation is strictly necessary. When the FCA grants this derogation (which may be subject to conditions), the parties have to file a complete notification within three months. Should they fail to do so, the derogation becomes void. Obtaining such a derogation is exceptional. It applies mostly in the case of an offer to buy an undertaking subject to insolvency proceedings. It may also apply in some cases of acquisitions by investment funds, in the absence of overlap.
Second, there is an automatic derogation in the case of the exchange of securities on a regulated market. The rule is that takeover bids may always be implemented, provided that the acquirer does not exercise the rights attached to the securities at issue (this is thus similar to the rules of Article 7, Paragraph 2 of the EUMR).
iii Third-party access to the file and rights to challenge mergers
Third parties are not directly involved in the merger control proceedings. They do not have access to the notification file. However, first, notifications are announced on the FCA's website with a summary of the concentration. This opens a right for them to submit observations. Works councils of the companies involved in the concentration must be informed within three days of publication of the notification of the concentration on the FCA's website. Second, the FCA has the power, during both phases, to interview any third party when reviewing a concentration (clients, competitors, suppliers, etc.), which it generally does by sending out detailed questionnaires and, in the course of Phase II proceedings, by organising hearings and inviting them to defend their case before the decision-making body of the FCA.
iv Resolution of authorities' competition concerns, appeals and judicial review
Resolution of authorities' competition concerns
Where competition problems are identified, parties to the concentration may submit remedies. Remedies can only be proposed by the parties in the course of Phase I (the FCA considers in its guidelines that it may 'invite' the parties to offer remedies). However, at the end of Phase II, the FCA may impose remedies to clear a transaction (to avoid this, parties can withdraw their notification before the end of Phase II).
In its guidelines, the FCA details and provides illustrative examples of its decision-making practice, which is characterised by a preference for structural remedies, including transfers of minority share holdings where necessary. However, particularly in the case of transactions leading to vertical integration or to conglomerate effects, the FCA indicates that it will pragmatically accept behavioural remedies (for which it provides several examples). A review of mergers over past years suggests that the FCA is much more willing to accept behavioural commitments than the EU Commission might be.
For instance, in 2016, in five cases out of six, the FCA conditioned its approval only on behavioural remedies,5 whereas in the remaining case, structural and behavioural remedies were accepted.6 In 2017, out of eight cases, the FCA accepted behavioural commitments four times,7 and a mixture of behavioural and structural remedies for the other four.8 In 2018, in four cases out of five, the FCA conditioned its approval only on structural remedies,9 whereas in the remaining case, behavioural remedies were accepted.10
It is also interesting to note that the FCA used to have a well-established practice of requesting alternative or crown-jewel remedies (with some exceptions). Such commitments remained confidential in the published decision. However, in the UGI/Totalgaz case, competitors of the merging parties lodged an appeal before the Administrative Supreme Court asking, inter alia, for the publication of the two alternative commitments. In an interim judgment, the Administrative Supreme Court ruled that the confidentiality of alternative commitments prevented it from controlling the legality of the decision, and thus ordered the FCA to disclose them.11 The disclosure of such commitments was in the end without effects on the legality of the decision. However, the disclosure of the existence of the crown-jewel commitments hinders the implementation of the by-default commitments, as competitors may refuse to buy the assets to be divested by default and get their hands on the crown jewels. Accordingly, the FCA has now stopped requesting crown-jewel commitments. It may nevertheless request the parties submit alternative remedies, particularly where it has doubts as to the possibility of the parties divesting the by-default assets. Such alternative remedies are published but leave it up to the parties to decide which assets to divest.
Whatever the type of remedy, the appointment of an independent trustee responsible for monitoring the implementation of the remedies is almost systematically required by the FCA. The trustee's role, the provisions guaranteeing his or her independence with regard to the parties and the details of how he or she is to report on his or her assignment to the FCA are specified in the model text for commitments.
Taking its inspiration from models developed by the Commission and other competition authorities, in its guidelines the FCA presents two models: one for divestiture commitments and the other for trustee mandates. These models can be adapted on a case-by-case basis although the FCA will try to stick to its model to the greatest extent possible and thus does not offer much flexibility in practice.
The Authority carefully monitors the implementation of remedies and may withdraw an authorisation in the case of non-compliance. In such a case, the parties must either restore the situation to what it was before the transaction (i.e., 'unwind' the operation) or re-notify the transaction to the FCA within a month (the duty to re-notify the transaction was challenged before the Constitutional Council, which affirmed its constitutionality).
If such failure to comply with the remedies is confirmed, the FCA has the power to impose financial penalties on the notifying parties of up to 5 per cent of their net turnover achieved in France. The FCA has not shied away from using this fining power. It began in 2011 when the FCA fined Canal Plus €30 million for failing to implement the behavioural commitments it had taken to obtain the green light to buy its rival TPS.
Since then, the FCA has shown its willingness to scrutinise the full range of commitments. In particular, the FCA fined Altice twice for failing to respect the commitments adopted to obtain the green light for its acquisition of SFR in 2014. First, in April 2016, the FCA imposed a €15 million fine for non-compliance with the duty to preserve the business's competitiveness pending its divestment. (Altice had committed to divest Outremer Telecom's mobile telephony business and, pending such divestiture, it increased Outremer Telecom's prices, which the FCA considered would impede its competitiveness.)12 Second, in March 2017, the FCA imposed a €40 million fine on Altice for failing to respect a behavioural commitment relating to the proper performance of a contract for the creation of a fibre optic network.13 In July 2018, the FCA imposed a €20 million fine on Fnac Darty for failure to divest three out of six stores in the required time frame.
Appeals and judicial review
The Authority's decisions can be appealed before the Administrative Supreme Court within two months of the date of the notification of the FCA's decision (for the parties) or of the publication of this decision on the FCA's website (for third parties). Third parties will need to show they have an interest in challenging the decision.
The applicant will generally seek an annulment of the FCA decision (rendering it null and void) on procedural and substantive arguments. The appeal is not suspensive but the applicant can also bring summary proceedings requesting a stay of execution of the challenged decision (be it of the authorisation in itself as long as the transaction as not been implemented or of the remedies attached thereto as long as they have not been fully implemented). Such a stay of execution may be requested when it is urgent and there is a prima facie doubt as to the legality of the FCA's decision.
In the event that the FCA's decision is declared null and void (partially or totally), the FCA will have to reassess the case and an updated notification will have to be filed within a period of two months of the date of notification of the Administrative Supreme Court's decision.
The following case is noteworthy.
On 7 November 2019, the Administrative Supreme Court confirmed the decision by which the FCA fined Fnac Darty €20 million for failing in the divestiture of three stores, which was a precondition for the clearance of the acquisition of Darty by Fnac in 2016. Fnac Darty was unable to divest the three remaining stores within the time frame imposed by the FCA. The FCA considered that the buyer found by Fnac Darty was not an adequate buyer and Fnac Darty was, therefore, left without a buyer a few days before the deadline for divesting the stores. The FCA opened infringement proceedings for failure to fully implement the commitments and, for the first time, fined an undertaking on these grounds, even though Fnac Darty spontaneously offered to divest two stores in lieu of the three stores it had failed to divest in time (these two alternative divestitures being able to remedy the concerns the FCA had set out in its authorising decision). In addition to the fine, the FCA decision requested that Fnac Darty divest the two alternative stores that it had offered to divest. The Administrative Supreme Court confirmed this decision and ruled, in a nutshell, that the FCA is not subject to the obligation to state reasons for the amount of fine imposed on the grounds of non-compliance with commitments, even if the fine must comply with the proportionality principle.
v Regulatory review
There are some specific areas in which specific merger rules apply, such as:
- the audiovisual sector, in which, unless otherwise agreed in international conventions to which France is a party, a foreign legal entity may not hold more than 20 per cent of the capital or voting rights of a company operating an audiovisual communications system in French. There are also specific rules on cross-media ownership; and
- the press sector, in which a single individual or legal entity may not control daily publications that represent more than 30 per cent of the total circulation of similar publications on the national market; for publications in French, the above 20 per cent rule applies.
In addition, in the course of Phase II, the FCA may request non-binding opinions from the relevant regulatory authorities. This particularly applies in the audiovisual sector (the Audiovisual Council), the banking sector (the Credit Institutions and Investment Firms Committee, the Banking Commission and the Financial Markets Authority), the insurance sector (the Insurance Companies Committee), the energy sector (the Energy Regulation Commission) and the telecommunications sector (the Regulatory Authority for Electronic Communications and Post).
iv OTHER STRATEGIC CONSIDERATIONS
i Coordinating with other jurisdictions
When dealing with concentrations, the FCA and competition authorities of other states (including EU Member States) may have concurrent jurisdiction. The Authority cooperates with competition authorities of other Member States through the European Competition Network. In parallel, the European Competition Authorities (ECA), which groups together the competition authorities in the European Economic Area,14 has been considering ways in which the processing of mergers subject to investigation in more than one country can be made easier both for the parties to the merger and the authorities, while ensuring that cooperation between members takes place as far as national legislation allows. According to the arrangements agreed upon by the ECA, when an ECA authority is informed by the notifying parties that they have also notified or will be notifying the concentration to other authorities within the ECA, the relevant officials will contact their counterparts in the other ECA authorities informing them of the notification. The relevant officials of the notified ECA authorities will then exchange views on the case without exchanging confidential information (unless national legislation makes this possible), and keep each other informed of the development of the case as appropriate. On 9 November 2011, the ECA adopted a set of best practices to handle cross-border mergers that do not benefit from EU 'one-stop shop' review (i.e., mergers reviewed by two or several ECAs simultaneously that are not subject to notification before the Commission). This document envisages cooperation in multi-jurisdictional cases where the exchange of information between ECAs could be valuable. The success of such cooperation depends to a great extent on the goodwill of the notifying parties, since ECAs will in most cases depend on them for permission to exchange confidential information.
In addition to this, national competition authorities from the European Union published a report containing a complete overview of the state of play of information requirements for merger notification in the EU (May 2016). This document intends to provide guidance to companies that must notify a transaction in several Member States.
However, the FCA and the EU Commission do not have concurrent jurisdiction. Concentrations with a Community dimension fall within the exclusive jurisdiction of the Commission, and, reciprocally, the Commission has no jurisdiction to deal with a concentration falling within the competence of the Member States.
In spite of this clear division of competence, some cases can, upon request and provided certain criteria are met, be re-attributed by the Commission to the FCA and vice versa (Article 4, Sections 4 and 5, and Articles 9 and 22 of the EUMR). Then, as a derogation from the general rules that determine jurisdiction based upon objectively determined turnover thresholds, various referral procedures may lead the FCA to review a concentration with an EU dimension.
Referrals from the Commission may give rise to a complicated Phase II investigation. Recently, the Commission referred the de facto merger between Auchan and Système U. The Authority opened a Phase II review, at the end of which the parties withdrew their notification and abandoned the transaction in view of the risk of prohibition or onerous commitments.
ii Dealing with special situations
Agreements entered into by parties to a concentration may restrict the parties' freedom of action in the market and thus contain restrictions of competition. Commonly encountered restrictions in this context include, in particular, non-compete clauses imposed on the vendor, restrictions in licence agreements and purchase and supply obligations.
Contrary to EU law, which has long provided that such restraints are covered by the decision clearing the concentration if they are directly related and necessary to the implementation of the concentration (ancillary restraints), the French merger control regulation does not have specific provisions dealing with ancillary restraints.
The Authority has clearly stated that it will scrutinise such restrictions, and to that end will use the Commission Notice on restrictions directly related to and necessary for concentration as guidelines.
The Authority considers that even though there is no obligation for the parties to a concentration to advise the FCA of the existence of such restrictions, it is in their interest to do so when they have doubts as to their ancillary nature. In this review, it is obviously not bound by the parties' assessment. The guidelines also specify that the FCA could initiate antitrust proceedings against such restrictions that would not be ancillary to the transaction and that the parties would implement.
In March 2016, the FCA cleared the creation of a full-function joint venture (JV) and examined, in particular, three ancillary restraints. It considered two of them to be ancillary restraints on the basis of the EU Commission's notice (non-compete obligation for the parents in relation to the JV for the JV's lifetime and an exclusive distribution agreement for a period of five years). A commercial contract, the nature of which was kept confidential in the Authority's public decision, was, however, declared not to be directly related and necessary to the transaction.15
The new thresholds specific to the retail sector have led to an increase in the number of notifications that involve distribution agreements (e.g., franchise contracts, contracts for car dealerships). In particular, several large distribution networks, whether large food or other specialised distribution networks, have opted for an organisation that contractually binds 'network members' (dealers, franchise holders, etc.) to a 'network leader' (which can be a licensor or a franchisor, for example). The application of merger control to relationships within such a distribution network involves examining various questions (nature of the control, calculation of turnover, evaluation of market power, etc.).
Distribution contracts are indeed likely, when considered together with other elements of law or of fact, to give the network leader a decisive influence on the business activities of the network members. The Authority will examine all clauses that allow the network leader to limit the members' autonomy, both in implementing their sales policy (e.g., through contractual mechanisms that transfer all or part of the members' commercial risk to the network leader) and in having the possibility to change network, and will determine whether they are sufficient to give the network leader a decisive influence on its members' business, namely, control, as defined by merger regulations.
In the same way, if the distribution network leader acquires a stake in the share capital of a member that enables it to exercise control alone or jointly over the member, the transaction will easily be qualified as a concentration.
The situation is less clear-cut if only a minority stake is acquired. Such an acquisition can have, as its main objective, the protection of minority shareholders' financial interests as investors and is not sufficient a priori, as such, to grant a decisive influence on the franchise holder (the dealer or the cooperative member). In this case, the FCA will assess what extent other elements could give the minority shareholder a decisive influence on the member. In one case, the FCA considered that a minority shareholder, together with the distribution agreement, granted the network leader a decisive influence since the articles of association could only be amended with the consent of the minority shareholder, provided that the member should carry on its business under a specific name.16 The same applies when the articles of association provide for a very long period of time before the members can leave the network or de facto prevents members from leaving the network for a very long time. Such provisions in the articles can be in consideration for stakes equal to a blocking minority or even for holding one preference share. In another case17 where the network leader owned only one preference share in a company operating a store but where the articles of association granted the network leader, for a period of more than 10 years, the possibility of preventing any change of trade name, opposing any transfer of shares and obliging majority shareholders to sell the business if they operated a similar business with a competing trade name, the FCA considered that the network leader controlled the network member. In addition, the network leader had a right of first refusal in the event of sale of the business.
Depending on other prerogatives that may have been granted to the minority shareholder pursuant to the articles of association as regards the management of the business and depending on the provisions of the trade name agreement, the control exercised by the network leader on the members can be joint, with both parties necessarily having to agree on the stores' sales policy, or exclusive, with the network leader alone being able to determine this policy. When the network leader already exercises joint control on the members, the transaction by which the network leader acquires exclusive control of the member also constitutes a concentration.
Financial distress and insolvency
The fact that a concentration takes place within the context of an insolvency proceeding does not preclude the FCA from reviewing it.
Therefore, filing remains mandatory upon purchasers acquiring all or part of a company subject to insolvency proceedings. The purchasers can, however, request derogation from the suspensive effect. Application for such derogation is examined briefly and is generally viewed favourably by the FCA, but does not prejudice the outcome of the substantive review.
In the case of a concentration involving the acquisition of an undertaking that would soon disappear without the transaction, the FCA can clear the case if, in essence, the disappearance of that undertaking would yield more negative effects for competition than the transaction would (following EU case law on the 'failing firm defence').
The FCA may also strive to adopt a decision ahead of the Phase I deadline, to ensure that its decision comes at a time that is fully compatible with the insolvency proceedings. For instance, on 23 May 2017, it authorised a concentration on the 17th day of Phase I.18
Concentrations involving investment funds
Merger control applies to concentrations involving investment funds. However, the FCA acknowledges that specific issues may arise in the case of acquisitions of control by investment funds. An annex to the guidelines is dedicated to the general features of merger control applied to such structures, including questions such as the notion of control and turnover calculation.
The Authority recalls that investors participating in investment funds do not usually exercise control. Control is normally exercised by the investment company that has set up the fund.
Allocation of turnover may also raise specific issues in the case of concentrations involving investment funds. Turnover of all portfolio companies held by the different funds over which the investment company exercises control will have to be taken into account.
Substantive assessment of a concentration involving an investment company raises specific issues as to the extent to which the investment company can be considered autonomous from the investors. In the case of a sufficiently autonomous investment company, the competitive assessment will take into account all undertakings over which it exercises decisive influence through its funds. When it appears that the investment company does not control any undertaking active in the same market in which the target is active or in an upstream, downstream or connected market, the case will not require further analysis. On the contrary, when an overlap would result from the transaction, the effects of the concentration on the market must be assessed.
In cases where the investment company cannot be considered sufficiently autonomous in relation to investors of the funds, the assessment shall take into account all undertakings controlled by said investors.
v OUTLOOK and CONCLUSIONS
Since the transfer of merger control from the Minister for the Economy to the FCA in 2009, the FCA has created a robust and efficient merger control process. The FCA has the ability and the resources to tackle complex cases and it has clearly shown during its first decade of enforcement that it will not hesitate to explore its own methods of reviewing mergers. It has also shown that it does not shy away from strictly enforcing the rules on gun-jumping. It has recently also demonstrated a greater willingness to ensure that remedies are correctly implemented and that they are designed in a manner that allows full implementation. For instance, in 2018, the FCA imposed a €20 million fine on Fnac Darty for failing to implement a divestment remedy. In parallel, the FCA seems to more frequently request that the notifying party commits to fix-it-first remedies, whereby the buyer of the divestiture business must be identified and approved by the FCA in its decision approving the transaction. The FCA imposed such a fix-it-first remedy for the first time since 2015 in a decision in 201919 and imposed a similar remedy in May 2020.20
Despite this efficient implementation of the merger control proceedings, there has been, as in other countries, some debate as to whether and how to modernise the French merger control proceedings.
On 7 June 2018, the FCA announced several measures to modernise its merger control procedures. First, the FCA widened the scope of its simplified procedure, so that more cases are eligible for this procedure, and simplified the procedure. In this context, in 2019, the FCA created an online platform to allow notifying parties to electronically notify transactions falling under the simplified procedure (amid the covid-19 pandemic, the FCA extended this possibility to the notification of all transactions, which may bring it to consider further digitising its merger review proceedings in the long term). Second, the FCA also came to the conclusion that (1) the notification thresholds applicable to mergers were adequate, and (2) taking into account the local competition issues that can arise, the existence of a specific threshold for the retail sector was still justified. Third, the FCA considered that the establishment of a threshold based on the value of transactions was not justified for the French economy. Finally, the FCA is currently reviewing its guidelines relating to merger control proceedings, and had announced, before the covid-19 crisis, that it would adopt new guidelines in 2020.
In parallel, the French Parliament is currently assessing a draft law that would, in a nutshell, create an ad hoc merger control system for acquisitions below the current notification thresholds. This draft legislation would apply to all 'systemic undertakings' and would impose that such undertakings declare any planned acquisition to the FCA. Should the FCA consider that such an acquisition risks negatively affecting the French market, it could request the systemic undertaking to notify the transaction so that it can be reviewed in relation to the French market. It appears that such a review would be suspensive. Also, should the FCA decide to open a Phase II investigation, it would be up to the systemic undertaking to show that its planned acquisition would not negatively affect competition on the market. At the time of writing, the draft legislation is being assessed by Parliament, and could be changed before being formally adopted (if it is so adopted).
1 Hugues Calvet and Olivier Billard are partners, and Guillaume Fabre is a counsel, at Bredin Prat.
3 Judgment of the Supreme Administrative Court dated 15 April 2016, Appeal No. 375658.
4 Commission press release available at http://europa.eu/rapid/press-release_IP-18-3522_en.htm.
5 Acquisition of Société Groupe Aqualande by Société Labeyrie Fine Foods and Les Aquaculteurs Landais, decision dated 22 April 2016, Case No. 16-DCC-55; acquisition of Agri-Négoce by Axéréal Participations, decision dated 21 September 2016, Case No. 16-DCC-147; acquisition of Société Geimex by the Casino group, decision dated 14 October 2016, Case No. 16-DCC-155; merger of Sicavyl with Sicarev, decision dated 9 December 2016, Case No. 16-DCC-208; and acquisition of Société Aéroports de Lyon by Société Vinci Airports, decision dated 31 October 2016, Case No. 16-DCC-167.
6 Acquisition of Darty by the Fnac Group, decision dated 27 July 2011, Case No. 16-DCC-111.
7 Merger by absorption of Ecofolio by Eco-emballages, decision dated 3 April 2017, Case No. 17-DCC-42; acquisition of Totalgaz SAS by UGI Bordeaux Holding SAS, decision dated 3 July 217, Case No. 17-DCC-103; merger by absorption of Coopérative agricole des Agriculteurs de la Mayenne by Terrena, decision dated 14 December 2017, Case No. 17-DCC-210; and creation of a full-function joint venture between La Poste and Suez, decision dated 21 December 2017, Case No. 17-DCC-209.
8 Acquisition of Anios by Ecolab, decision dated 31 January 2017, Case No. 17-DCC-12; acquisition of MédiPôle-Partenaires by Elsan, decision dated 23 June 2017, Case No. 17-DCC-95; acquisition of the Bricorama group by ITM Equipement de la Maison, decision dated 18 December 2017, Case No. 17-DCC-215; and acquisition of stores owned by the Tati group (Tati, Fabio Lucci, Giga Store) by Gifi (GPG group), decision dated 18 December 2017, Case No. 17-DCC-216.
9 Acquisition of sole control of Zormat, Les Chênes and Puech Eco by Carrefour Supermarchés France, decision dated 27 April 2018, Case No. 18-DCC-65; acquisition of sole control of SDRO and Robert II by Groupe Bernard Hayot, decision dated 23 August 2018, Case No. 18-DCC-142; acquisition of sole control of Jardiland by InVivo Retail, decision dated 24 August 2018, Case No. 18-DCC-148; and acquisition of sole control of the prepared foods division of group Agripole by Cofigeo, decision dated 14 June 2018, Case No. 18-DCC-95.
10 Joint venture creation by Global Blue and Planet Payment, decision dated 28 December 2018, Case No. 18-DCC-235.
11 Judgment of the Administrative Supreme Court dated 15 April 2016, Appeal No. 390457.
12 Case No. 16-D-07.
13 Case No. 17-D-04.
14 EU Member States and the Commission, Norway, Iceland, Liechtenstein and the European Free Trade Association Surveillance Authority.
15 Case No. 16-DCC-34.
16 Case No. 09-DCC-06.
17 Case No. 09-DCC-064.
18 Press release dated 23 May 2017.
19 Acquisition of Alsa by Dr Oetker, decision dated 29 January 2019, Case No. 19-DCC-15.
20 Acquisition of Vindémia by Groupe Bernard Hayot, decision dated 26 May 2020, Case No. 20-DCC-072.