Small mergers face scrutiny as EU Commission takes tougher stance

The European Commission announced it would use a novel competition tool to assess two mergers that do not have an EU dimension under the EU’s competition regulation, but nevertheless threaten competition in the single market.

On Monday (21 August), the Commission announced it would look into the acquisition of Nasdaq Power, a Swedish and Norwegian regulated marketplace offering trading and clearing services of futures contracts for electricity, by German energy exchange leading competitor EEX.

Days earlier, on Friday (18 August), the Commission said it had been notified by 15 member states – including France, Italy, Belgium, Poland and Spain – to look into the acquisition of Autotalks, an Israeli semiconductor manufacturer specialised in connected vehicles, by US semiconductor giant Qualcomm.

In both cases, the merger did not meet the necessary notifications thresholds – determined in law by the size of merging firms’ EU turnovers – such that neither instances have an ‘EU dimension’ as outlined in the EU Merger Regulation (EUMR).

However, a new policy guidance put forward in March 2021 – now known as ‘Article 22 EUMR’ – and only used once until now, looks to grant the Commission assessment power over mergers deemed too small to be of EU relevance, yet large enough to significantly thwart competition between, and within, member states.

Both Nasdaq power/EEX and Qualcomm/Autotalks cases were raised by member states under the Article 22 procedure, in an unprecedented use of the new guidance in the two years since it was first introduced.

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A “helpful” tool

Unlike the Nasdaq Power/EEX case, which speaks to the Nordics’ concerns over the monopolisation of energy exchanges, the Qualcomm/Autotalks referral goes at the heart of Article 22’s purpose, where the Commission can look at acquisitions of “start-ups, or innovative companies with high-growth potential” which would have otherwise flown under its radar, Cristina Caffarra, a competition expert, told EURACTIV.

This then has the potential to call out – and prevent – “potential killer acquisitions”, Caffarra said, in which an incumbent company buys an innovative start-up to prevent it from becoming future competition.

Killer acquisitions also mean that the buyer does not have to invest in innovation, an effect the scholar called “reverse killer acquisition” as such acquisitions kill off innovation not only in the bought firm but also in the buyer. As a result, the market is prevented from receiving two competing goods rather than one.

This is particularly relevant to the case of Qualcomm, perceived by the EU anti-trust community as a long-lasting price predator, and has been under heavy regulatory scrutiny in the second half of the 2010s. The company was fined €242 million in 2019 for engaging in predatory pricing, selling 3G baseband chipsets below costs to force competitor Icera out of the market.

In these ways, Article 22, in spite of its so far limited application, is ultimately “helpful”, Caffarra added, and a necessary addition to the EU’s competition toolbox.

Michelle Meagher, competition expert and senior policy fellow at the UCL Centre for Law, Economics and Society, held a similar view in a conversation with EURACTIV in 2021 over the first-ever use of Article 22, for the Illumina/GRAIL case: the guidance “indicates a real change in paradigm: no longer can firms assume that they have a ‘right’ to merge and to get on with their deal-making as they wish”.

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Competition, industrial policy and trade

Assessing smaller mergers isn’t just some new technicality: it speaks to a broader change of approach in what EU competition policy is for.

There is strong political pressure globally for regulators including the Commission to “do away with the idea that competition policy functions only as a silo, as an esoteric subject matter practiced by a narrow-learned caste of technocrats”, Caffarra told EURACTIV.

“In today’s poly-crisis world, we must think about competition policy as an economic policy tool alongside industrial policy and trade, not just to pursue efficiency but also broader EU values such as resilience and sovereignty,” she added.

This fits within the EU’s larger efforts to reach some form of strategic independence on key industrial matters, including the development and production of semiconductors on EU soil under the newly-adopted EU Chips Act.

In this sense, giving competition a ‘real-world’ spin, rooted in the policy and politics reality of contemporary Europe is badly needed, Caffarra said.

And, so far, this approach “has much support among policymakers in Brussels” she concluded.

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[Edited by János Allenbach-Ammann/Nathalie Weatherald]

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