Proposed EU merger guidelines to support competitiveness and innovation

The European Commission has launched a public consultation on the long-awaited draft guidelines (98=page / 2.9MB PDF), which aim to formally modernise the Commission’s approach to merger assessment and could also help boost Europe’s global competitiveness and resilience at a time of shifting geopolitical and international trade conditions.

The new guidelines will replace the current EU guidelines for both ‘horizontal’ and ‘non-horizontal’ mergers. Traditionally, mergers between actual or potential competitors on the same market are described as horizontal; while non-horizontal mergers are those between firms that are active on different levels of the supply chain or in neighbouring markets.

The Commission had previously published separate guidelines for horizontal mergers in 2004 and non-horizontal mergers in 2008. However, as business models, digital ecosystems and the Commission’s own analytical approach have evolved over the past two decades, the distinction between these two types of mergers has narrowed, leading the Commission to rethink and adopt “a more dynamic approach” to merger assessment weighted against an expanded range of potential “theories of harm”. New “theories of benefit” have also been introduced in the draft guidelines, to help clarify how potential harms and potential benefits arising from M&A deals will be evaluated by the Commission.

The draft guidelines are strongly focused on innovation and investment. Previously, the Commission’s more conservative approach arguably leant towards a view that certain types of mergers are more likely to harm than strengthen competition. The Commission has said it wishes to provide guidance on how to assess dynamic harm and so-called “killer acquisitions”, while also introducing an “innovation shield” setting out criteria for mergers involving small innovators or research and development projects that are likely to be unproblematic from a competition perspective.

The Commission also said the new guidelines would reflect sustainability and resilience as “important competitive realities” and would provide guidance on how their positive contributions to the economy and society may be considered in merger control reviews. The Commission seeks to modernise its coordinated effects assessment to adapt to new market realities: the draft guidelines also consider how artificial intelligence (AI) and algorithmic pricing can increase market observability and transparency, even in complex markets and products.

Reforming the EU merger guidelines is also part of the European Commission’s programme of initiatives aimed at reducing regulatory burdens and catalysing private investment and economic growth across the EU. Commenting on the launch of the consultation, the Commission’s president, Ursula von der Leyen, said the new guidelines would help the Commission “better support companies to thrive, scale, and innovate”.

She added that the draft guidelines had been designed to provide predictability and certainty, including positive guidance on how scale can be pro-competitive. “This is an ambitious approach to our competition policy – so we can meet the realities of the fiercely competitive global economy and boost our competitiveness, while preserving the predictability and certainty that investors value most in Europe.”

The draft merger guidelines also significantly expand on the Commission’s guidance on merger efficiencies to cover benefits to innovation, investment, resilience and sustainability; introducing a new category of “dynamic efficiencies” that “increase the incentives of merging firms to invest or innovate, and whose benefits may materialise over a longer timeframe”.

The public consultation on the draft guidelines runs until 26 June and follows a call for evidence launched last May, which sought feedback from stakeholders on seven thematic areas and how to consider different factors relevant to the Commission’s competition assessment of notifiable transactions before they are cleared to complete.

Following this feedback, the Commission said it had updated and refined its guidance on the analysis of market power, foreclosure and coordination to ensure it is adequately “equipped to address the impact of different types of mergers on price, quality and innovation in an evolving economy”.

The draft guidelines also contain detailed guidance on how the Commission will assess merger benefits that are advanced by companies, including positive dynamic “efficiencies” related to innovation and investment which may take longer to materialise.

The new guidelines also cover situations where EU member states seek to intervene in EU-dimension mergers to protect legitimate public interests, for example on the grounds of public security, media plurality, or prudential rules; creating a clearer link between the EU merger control regime and the EU’s foreign direct investment (FDI) regime which is also undergoing change.

Although the revised guidelines, once finalised, will replace the Commission’s existing guidelines for analysing horizontal and non-horizontal mergers, they will not amend the underlying EU legislation, the EU Merger Regulation (EUMR). Instead, the updated guidelines aim to formally set out how the Commission intends to interpret and apply the EUMR in light of developments in case law before EU courts, the Commission’s decisional practice, and developments in wider EU competition policy.

The Commission says it will analyse and collate the consultation responses it receives and then publish a summary of the responses on its dedicated webpage. There are also plans to run a stakeholder workshop on 10 June and to present an economic study on the dynamic effects of mergers at a later date. The Commission said it would continue to engage with stakeholders before finalising its review of the guidelines, which is expected towards the end of 2026.

Competition law expert Alex Stratakis of Pinsent Masons said the revised draft merger guidelines marked a step in the right direction, providing helpful clarity in relation to the Commission’s approach towards both potentially applicable ‘theories of harm’ and ‘theories of benefit’. He added: “On balance, such guidance will allow all stakeholders to have a more informed engagement, but it is too early to say whether the regime will become more permissive”.

Stratakis said the draft guidelines largely crystalised the existing merger review approach that the Commission had adopted over the past two decades. In that respect, he said the updated guidelines marked “more of an evolution than a revolution”. He added: “The draft guidelines do provide a valuable consolidation of the Commission’s decisional practice, capture recent EU case law developments, and consider relatively new issues that competition agencies are grappling with in areas such as AI and tech, labour markets, and sustainability, and also recognise the wider geopolitical context that surrounds dealmaking.”

Giles Warrington, a competition law expert at Pinsent Masons, said: “The proposed new guidelines do not represent a policy overhaul that would spur unfettered pan-European consolidation and lead to the creation of ‘European Champion’ companies, as some stakeholders may have hoped for following the Draghi Report recommendations that were a catalyst for the guidelines review. That said, the revisions allow more scope for merger efficiencies to be considered and acknowledge the pro-competitive benefits that may flow from scaling-up through M&A activity. Whilst already emerging themes in the Commission’s case law, the sections on non-price efficiencies, such as sustainability and resilience, open up the scope for the clearance of deals which contribute to wider EC policy objectives.”

Warrington said that businesses that can “compellingly evidence” a deal rationale aimed at achieving pro-competitive efficiencies will be better placed to have their merger assessed positively by the Commission. “This should be a clear consideration for the transaction parties from the outset and should be articulated in relevant deal documentation,” he said.

Tadeusz Gielas, a competition law expert at Pinsent Masons, said the UK’s Competition and Markets Authority (CMA) had also been reviewing its approach to merger efficiencies, having completed an initial public consultation earlier this year. “It will be interesting to see whether and how the CMA takes account of the revised EU merger guidelines when updating its own merger assessment guidelines, given the Commission and the CMA continue to closely cooperate post-Brexit on merger control and other antitrust cases,” he said.