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'One stop shop’ merger clearance offers regulatory certainty for companies, says expert

Companies which ask the European Commission to review takeover plans when EU laws don't force them to could be looking for regulatory certainty and simplicity, an expert has said.

Competition law specialist Alan Davis of Pinsent Masons, the law firm behind Out-Law.com, said that Facebook may be seeking such legal certainty by notifying the Commission of its plans to acquire messaging service What's App, as reported by the New York Times. Facebook first announced that it was buying What's App in February in a reported $19 billion deal.

However, Davis said it is difficult to know at this stage the basis on which Facebook has notified the Commission of its takeover plans.

Under the EU Merger Regulation, companies are obliged to seek prior clearance from the Commission of proposed takeover deals if certain EU-wide financial thresholds are met. If Facebook and What's App's EU-wide revenues each exceed €250 million and their combined global revenues are at least €5 billion then the companies would need to inform the Commission of the takeover plans.

If the EU-wide financial thresholds are not met for a notification to the Commission, companies may still be required to obtain clearance from one or several national regulators across the EU where the national thresholds for notification are met.

However, in cases where the criteria is met for a review of a takeover deal by three or more national regulators, the companies involved in the deal can ask the Commission to undertake the review instead. The individual regulators who are otherwise obliged to consider the effects of the deal on competition in their national market must agree to the Commission taking jurisdiction in such circumstances.

"It is difficult to determine whether Facebook has notified the European Commission of its takeover plans because it is obliged to or because it is hoping to obtain single clearance for its plans from the Commission rather than have to engage with a number of different national regulators on the issue," Davis said. "This is because there is uncertainty about whether the parties’ EU-wide revenues, especially for What's App, meet the relevant thresholds."

"The main advantage of a 'one stop shop' review and clearance of takeover plans by the Commission is that it provides greater control and legal certainty. In Facebook's case, it would perhaps avoid a situation where they have to engage with certain regulators that perhaps have different concerns about different aspects of the deal, for example, user privacy. If the deal is reviewed by the Commission and clearance is given on a conditional basis, a single set of conditions would apply throughout the whole of the EU. This would be preferable to having to comply with potentially different conditions set by multiple national regulators."

If a filing is made to the Commission, it will then assess whether or not the takeover would have a significant impact on effective competition in the relevant market or markets. It decides whether the deals can proceed either as planned or subject to conditions, which may include the sale of a particular division of a company to a rival in the market.

In the present case, Davis said the Commission may be interested in the impact of the transaction on the mobile communications market because of the strength of Facebook in the social media market. However, the Commission, and EU's General Court, did clear Microsoft’s acquisition of Skype in 2011.

In that case, it was noted that even though the acquisition of Skype enabled Microsoft to hold an 80% to 90% share of a market segment of consumer communications, corresponding to video communications made on Windows‑based PCs, the operating system developed by Microsoft, the high market shares and high degree of concentration on that segment of the market were not indicative of a degree of market power which would enable Microsoft to significantly harm effective competition in the EU.

The Commission and Court also concluded in that case that “the consumer communications sector is a recent and fast‑growing sector characterised by short innovation cycles in which large market shares may turn out to be ephemeral”. On that basis, it also seems unlikely that the Commission would have serious competition concerns about the What’s App transaction, Davis said.

Davis also said that takeover deals that trigger a mandatory notification under the EU Merger Regulation can, on occasion, be referred back in whole or part to national regulators for assessment instead.

"Referrals back do happen from time to time but it is relatively unusual," Davis said. "National regulators and/or the parties themselves would have to make a request to the Commission that a member state competition authority would take over the review of the whole or part of a transaction where there is likely to be a significant impact on competition in a distinct national market or the only competition issues of any significance are limited to one member state."

"However, if Facebook has mandatorily notified the Commission of its What's App takeover plans then it seems unlikely that there would be a basis for the Commission referring the case to a national regulator for assessment in this instance," he said.

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