EU court’s merger ruling signals increased gun-jumping risk for firms

Robert Vidal of Pinsent Masons said: “Companies that ‘jump-the-gun’ and implement acquisitions that are subject to Commission review risk serious fines of up to 10% of each party’s global annual turnover.” It comes after the EU General Court backed the Commission’s decision to review US-based Illumina’s purchase of biotech company GRAIL.

The court found that the Commission has the power to review any merger that may raise significant competition concerns within the EU, even if the companies involved do not have activities in Europe – or the merger falls below the EU’s turnover threshold. The dispute arose after the life sciences firm completed the $7.1 billion acquisition of GRAIL last year, before Illumina’s purchase bid for GRAIL expired, while EU officials were still investigating the deal.

Vidal said: “The General Court has validated the Commission’s new policy, adopted in March 2021, of using Article 22 of the EU Merger Regulation to catch below-threshold mergers. It means that a member state may refer a transaction to the Commission for merger review as long as the transaction threatens to significantly affect competition within its territory and affects trade between member states. This approach is intended to scrutinise so-called ‘killer acquisitions’ in dynamic and innovation-focused markets such as digital, pharmaceutical and life sciences.”

The General Court’s ruling found that Illumina had failed to show that the Commission lacks the competence to review the deal. It also held that the evidence did not support Illumina’s defence that the Commission’s referral request was not submitted within the permitted timeframe nor that the authority breached the principles of legitimate expectation and legal certainty.

Under Article 22, one or more member states can request the Commission to review a transaction that falls below EU merger notification thresholds and is not notifiable under national laws, but affects intra-EU trade and may significantly affect competition within the referring member state, provided the referral request is made within 15 working days of the transaction being “made known” to the referring member state. Illumina argued in its application to the court that the Commission was made aware of the transaction almost two months before sending out its invitation letters to national competition authorities inviting them to refer the transaction, using the Article 22 mechanism, to the Commission for merger review.

But the Commission argued that the 15-working day timeframe only began to run the day it sent the invitation letters to member states. Several member states then made the Article 22 referral request to the Commission, and the Commission in turn promptly informed Illumina and GRAIL of this. The Commission therefore argued that the Article 22 referral procedure was completed within the time limit. The court agreed.

The ruling did, however, stress that the Commission is required to issue requests within a reasonable time period. The court held that the Commission took an “unreasonable” length of time to notify national competition authorities about the merger – via the invitation letters – after first becoming aware of the deal in December 2020.  However, the court found that in this particular case the delay did not affect the companies’ ability to defend themselves effectively and therefore did not justify annulment of the Commission’s actions.

Vidal said: “The probe into Illumina’s acquisition of GRAIL is the first time the Commission has used its Article 22 procedure to formally review a deal that falls below national and EU merger thresholds. This was also the first time that the Commission’s approach has been challenged before EU courts. Although unsuccessful so far, Illumina could still appeal the General Court’s judgment to the CJEU.”

Just days after the General Court’s judgment, the Commission announced that it has sent a statement of objections alleging that Illumina and GRAIL breached EU merger rules against gun-jumping.  Last October, the Commission also imposed interim measures on Illumina and GRAIL to prevent implementation of the transaction pending the outcome of the Commission’s in-depth review of the deal. The Commission’s interim measures are subject to a separate appeal to the General Court. 

Meanwhile, the Commission’s in-depth substantive assessment of the merger’s competitive impact – which runs parallel to the gun-jumping investigation – has resumed after being suspended pending the General Court’s judgment. The Commission now has a provisional deadline of 12 September 2022 to clear or block the merger. If the Commission finds the merger incompatible with EU rules it could require the transaction to be unwound.

Vidal said: “The final outcome of the European Commission’s gun-jumping investigation, and any potential further appeals, will shape how the Article 22 procedure is applied going forward in screening transactions that fall below EU and member states’ merger control jurisdictional thresholds.”