Briefing
Does the FCA really want to consider mergers below thresholds from an antitrust perspective?
In its widely commented decision no. 24-D-05, the French Competition Authority (FCA) ruled that mergers below the thresholds - in this case, 21 business transfers between three companies, leading to the withdrawal of two companies from two geographical areas - did not constitute an anti-competitive agreement.
In its press release, the FCA emphasizes the unprecedented nature of this decision, pointing out that this is the first review under antitrust law of mergers below the national notification thresholds, in application of the Towercast ruling of the Court of Justice of the European Union (CJEU).[1]
In Towercast, the CJEU recognized the right of national competition authorities to apply Article 102 of the Treaty on the Functioning of the European Union (TFEU), prohibiting abuses of dominant positions, to mergers below the thresholds. In this ruling, the CJEU did not hesitate to refer on several occasions to Article 101 of the TFEU, [2] prohibiting cartels, and to recall the principle of the direct applicability of primary law provisions, [3] such as Article 102 - but also Article 101.
Thus, today’s FCAdecision is half-tone: while it notes that the “direct effect” extends to the whole primary European law, including Article 101, and is obviously not limited to Article 102, and draws the logical conclusion that a non-notifiable merger can obviously be analyzed under Article 101, it is only to immediately frame, not to say reduce, the application of Article 101 to quite exceptional cases: the anti-competitive object is de facto limited to what would amount to a genuine concealment of an agreement behind the screen of an M&A operation, i.e. a form of abuse of rights. As for the anti-competitive effect, this can obviously still be analyzed... provided that contemporary data are available, which was not the case here.
The FCA’s approach is commendable, as it formally applies the law by recognizing the applicability of Article 101, while drawing clear boundaries so as not to destabilize the M&A market.
In the end, the feeling remains that Article 101 is available for analyzing mergers, but that it is not an appropriate tool, except in quite exceptional cases of circumvention. In this respect, this decision provides some interesting insights into the criteria applied by the FCA to identify, or not, a dissimulation of a cartel behind an M&A transaction.
Very restrictive conditions
By defining the conditions for examining mergers under antitrust law, the FCA is setting very restrictive conditions that will be difficult for the investigating authorities to meet in practice.
Accordingly, the FCA first ruled out the existence of an overall market sharing plan independent of the transactions. The FCA relies notably on the fact that (i) the exchanges between the three companies constitute preparatory discussions for merger operations, (ii) the three companies continued to compete with each other after the start of negotiations, and (iii) the divestiture agreements were bilateral and not tripartite.[4]
Secondly, the FCA finds that the merger agreements are not anti-competitive, notably for the following reasons[5]:
- the agreements (i) implement five separate merger transactions, the price of which is determined on the basis of the acquisition of other assets of the acquirer by the seller, and (ii) do not include provisions that are not directly related to the completion of the transaction to which they relate;
- the companies are restructuring their businesses to improve competitiveness in a context of reduced activity due to the decline in livestock farming in France, and rising costs;
- the companies continued to compete by negotiating the scope of the divestments to obtain the most advantageous deal and by carrying out reciprocal sales offensives.
A limited tool?
In the absence of an overall market sharing plan, the FCA therefore sets a very high standard of proof for demonstrating that mergers below national notification thresholds amount to anti-competitive agreements.
In fact, paragraph 160 of the decision states that the agreements under review “constitute structural measures involving a definitive transfer of the assets covered by the agreement and, consequently, of the risks associated with their operation”, and as such “differ substantially from anti-competitive agreements of a behavioral nature which replace the normal play of competition and which, generally speaking, are secret and monitored”.
Applying this paragraph strictly, the scope of this new approach seems limited, to say the least.
Firstly, the reference to “measures of a structural nature” as opposed to anti-competitive agreements of a behavioral nature is questionable. It is indeed rare to acquire control of a company without any transfer of assets. The main case that springs to mind is the acquisition of control through contractual relations, which, according to the FCA, nevertheless occurs “only in very special cases”, [6] for example when a management lease agreement induces a structural change in the market.[7]
Secondly, the mention of the “secret nature” of anti-competitive agreements and the reference to “monitoring mechanisms” further restrict the scope. Transactions that are publicized, for example by means of a press release after the share purchase agreement has been signed, therefore appear to be excluded. Furthermore, it is not clear what the purpose and form of any monitoring mechanisms between two companies involved in a merger might be.
When we add to this the other factors considered by the FCA, such as the lack of tripartite nature of the divestiture agreements and the objective of improving competitiveness in a context of reduced activity in the sector, the standard of proof established by the FCA to challenge mergers below the thresholds from an antitrust perspective appears very difficult to meet.
This restrictive approach is, moreover, in line with the statements made by the FCA’s president Benoît Coeuré following the Towercast ruling, indicating that the instrument could “now be used, bearing in mind that its conditions of use are restrictive”, [8] being aware that “an ex-post procedure presents a risk for the legal security of companies to which we will have to be vigilant”. [9]
Conclusion
In the current state of the FCA’s practice, “classic” bilateral transactions involving asset transfers, which meet strategic objectives and are publicized, do not therefore appear to be targeted by the FCA as a matter of priority, provided they are not accompanied by prohibited restrictions of competition, such as exchanges of commercially sensitive information or excessive non-competition clauses.
This decision should therefore reassure, rather than worry, companies involved in mergers, because in reality, it is not mergers below the thresholds that the FCA seems to want to apprehend, but rather very real anti-competitive agreements clumsily disguised as mergers.
It will be interesting to see whether this pragmatic approach is confirmed in the case of abuse of dominance, as the Paris Court of Appeal recently referred the Towercast case back to the FCA for further investigation, pointing out that this case raises “the delicate question of the articulation between ex ante and ex post control of mergers below the thresholds” and “another complex question relating to the ex post assessment of the effects on competition of a merger”.[10]
[1] Ruling of the Court of Justice of the European Union of 16 March 2023, C-449/21.
[2] Ibid, see in particular paragraphs 39 and 40, according to which Regulation 139/2004 on the control of concentrations between undertakings “forms part of a legislative whole intended to implement Articles 101 and 102 TFEU” and “adopted on the basis of Article 83 EC (now Article 103 TFEU), which concerns the regulations or directives that may be adopted in order to give effect to the principles set out in Articles 101 and 102 TFEU”.
[3] Ibid, para. 43.
[4] Decision no. 24-D-05 of 2 May 2024 concerning practices in the rendering sector, paras. 111 à 119.
[5] Ibid, paras. 155 à 177.
[6] FCA’s merger control guidelines, para. 45.
[7] Ibid, para. 46.
[8] Interview with Benoît Coeuré in Option Droit & Affaires, November 6, 2023.
[9] Report on Concurrences' Dinner Debate with Benoît Coeuré on March 14, 2024.
[10] Paris Court of Appeal ruling of June 27, 2024, no. 20/04300, para. 72.
