EU: Towercast casts its shadow on merger control

Towercast judgment

On 16 March 2023, the Court of Justice rendered its judgment in Case C-449/21, Towercast. The judgment quickly gained wide attention because of its important implications for mergers which fall below the notification thresholds. The judgment itself however came as no surprise, as its largely confirms the Opinion of Advocate General Kokott of 13 October 2022.

It was long disputed in EU competition law whether the Court’s 1973 judgment in Continental Can v Commission was still good law following the adoption of the EU Merger Regulation. In Continental Can, the Court confirmed that concentrations could constitute an abuse of an undertaking’s dominant position.

However, since then, the EU legislator has set up a regime to assess intended transactions. This regime requires companies to notify transactions to the Commission for approval when certain turnover thresholds are reached. It was long debated whether this new regime prevented competition authorities from applying the general competition law rules, including the rules on abuse of dominance, to non-notifiable transactions.

In Towercast, the Court answers this question: transactions that are not notifiable under the merger control regime may nevertheless be appraised on the basis of the abuse of dominance rules, following the completion of the transaction.

Killer acquisitions v legal certainty

Some, including AG Kokott, have advocated for this outcome, arguing the abuse of dominance rules have a role to fulfil in addressing the enforcement gap left by so-called “killer acquisitions”. This concept, which is often criticised as a misnomer, refers to acquisitions of innovative start-ups by larger undertakings. Since start-ups often do not generate sufficient turnover to meet the notification threshold, the acquisitions are typically not notifiable. Proponents argue that authorities should still be able to assess such an acquisition under the rules on abuse of dominance to avoid larger undertakings which use the acquisition to terminate development of the target's innovations to pre empt possible future competition.

However, others have warned that this outcome is liable to increase legal uncertainty in M&A deals due to the persisting threat of objections and investigations by competition authorities. Critics have also pointed out that reviewing transactions after their completion could have a chilling effect on innovation. Start-ups and innovators, which typically do not generate much profit in the initial phases, invest heavily in new ideas because they hope that their company will be bought by a bigger player at some point in the future. Opponents argue that ex post enforcement is likely to make those bigger players wary of buying out the innovators, which in turn could reduce incentives for start-up businesses who may find it more difficult to monetise their investments.

The Towercast judgment also follows the July 2022 judgment in Illumina v Commission, in which the General Court confirmed that Member States can refer a transaction to the European Commission for review on the basis of the EU Merger Regulation, even if the transaction in question does not meet the national or EU thresholds. Based on a strict interpretation of Article 22 of the EU Merger Regulation, the General Court considered that the Commission can review transactions upon referral from Member States if the proposed transaction: (i) will affect trade between Member States; and (ii) threatens to have a significant impact on competition in the Member States that seek the Commission’s intervention. It is not required that Member States have themselves the power to review the concentration under their own national merger control rules. The judgment is currently under appeal.

Towercast already casts its shadow in Member States

The Towercast judgment has already resulted in investigations. Less than a week after the judgment, on 22 March 2023, the Belgian Competition Authority (“BCA”) announced in a press release that it would investigate possible abuse of a dominant position by Proximus, the telecom operator, in light of its EUR 20.5 million acquisition of edpnet, a supplier of broadband communications services. The BCA referred to the “serious indications of significant impediments to competition” as a justification for the investigation.

The Belgian case is interesting as it is unique and does not concern a typical “killer acquisition”. Edpnet had been subject to judicial reorganisation proceedings due to financial difficulties. On 21 March 2023, a national court had ordered that the activities of edpnet be transferred to Proximus, which had been one of the companies who had made an offer for acquisition during the proceedings. The acquisition was not notifiable under the Belgian merger control rules.

One cannot predict what conclusions the BCA will draw from its investigation. Indeed, in 2016, the BCA showed restraint in a similar scenario to the present case. Brewery Alken-Maes had requested interim measures to suspend the acquisition of Brouwerij Bosteels by AB Inbev. Alken-Maes argued that even though the acquisition was not notifiable under merger control rules, it amounted to an abuse of AB Inbev’s dominant position. The BCA rejected the request, a decision which was confirmed by the Markets Court on appeal. However, already at the time, the Markets Court had specified that below-threshold mergers can constitute an abuse of a dominant position but only in instances where the transaction was accompanied by "different and additional" behaviour which leads to "an infringement which is different from the effects of the transaction.”

It will be interesting to see whether the BCA (and the courts) view the Towercast judgment as a confirmation of the existing national position in Alken-Maes, or whether the test is somehow different.

For more information, please contact Hein Hobbelen, Baptist Vleeshouwers or Ruben Verdoodt

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