EU regulator's ‘killer acquisition’ strategy in doubt as legal opinion savages Article 22 stance

The European Commission’s ingenious solution to reviewing certain deals by tech giants and big drugmakers might be blown to pieces if judges follow a legal opinion today that sided with Illumina over its Grail acquisition. The methodical takedown of a 2022 court ruling that endorsed the approach of EU merger investigators to catching "killer acquisitions" will have dealmakers rejoicing, but it leaves EU Court of Justice judges with a tough decision of constitutional importance and a huge commercial impact.

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21 March 2024
By Natalie McNelis and Lewis Crofts

The EU merger regulator’s ingenious solution to reviewing certain deals by tech giants and big drugmakers might be blown to pieces if judges follow a legal opinion today that sided with Illumina over its Grail acquisition, controversially blocked by the European Commission. 

In today’s opinion for the EU Court of Justice, Advocate General Nicholas Emiliou methodically took down a 2022 lower-court judgment endorsing the approach of the EU's merger investigators.

This will have dealmakers rejoicing at the potential crimping of an expansive power, but it leaves the court with a tough decision of constitutional importance and a huge commercial impact.

Emiliou has thrown into doubt a key component of the commission’s strategy to tackle “killer acquisitions” — that is, deals that may slip through enforcers’ fingers because the target is too small to attract formal review. 

The advocate general's opinion has also highlighted for judges, who must still issue a final ruling, the magnitude of the case. They will have to decide on the scope of the EU’s powerful merger-review tools and thereby the risks to a huge swath of M&A activity. What’s more, the dispute poses complex questions of the supremacy of EU laws. 

Today’s opinion will have bolstered the hopes of Illumina and other companies that had bemoaned the demise of the EU’s predictable “one-stop shop” system of merger control. The change in regime meant any transaction in any country could end up being reviewed in Brussels, they complained, obliterating a previously predictable system.

But the advocate general’s opinion is non-binding, and the commission will be hoping the judges take a different view on a matter of systemic importance, both to the practical power of enforcers and the political strategy for taking on sensitive transactions that may involve the likes of Microsoft, Google, Apple and Amazon. 

New Article 22

The case stems from a U-turn in commission policy in 2020 on how national enforcers can send mergers to Brussels for review, under Article 22 of the EU Merger Regulation. The commission issued new guidance, saying national watchdogs could refer transactions even if they are too small to be notified in their country.

Rather than discourage such referrals, the new policy was to welcome and even invite them. It was touted as a targeted solution to the problem of “killer acquisitions”. 

llumina’s Grail acquisition was the first to get caught, and the US biosciences giant vehemently opposed the policy choice after the deal was blocked in 2021. It was not alone, with other companies calling it an attempt to rewrite history and illegally extend EU jurisdiction.

The take down

Advocate General Emiliou, for one, agrees. 

His opinion criticizes virtually every aspect of the commission’s reinterpretation of Article 22 and the lower court’s reliance on it, saying that the “history, context and objective” of the provision as well as its “broader systemic significance” make it “quite clear” that the General Court got it wrong.

First, he says the wording of the provision “did not allow a definitive conclusion,” and could not be read in “clinical isolation.” Rather, the text points to “cases that are actually or potentially before the national authorities” and are then referred to Brussels. That interpretation follows the legal maxim that “no one can give what they do not have,” he says.

Looking into the history of merger law, Emiliou disagrees with the lower court and its analysis. Look at the whole picture, he suggests, and don’t just focus on a narrow “contextual interpretation.” He said judges “wrongly downplayed” other elements of context.

Emiliou disagrees with the “teleological” interpretation that Article 22 is a “corrective mechanism” giving the commission the “flexibility” to allow a referral request “irrespective of the scope of national merger control rules.” 

While he says the “very raison d’être" of the EU's merger regulation is to ensure effective control of concentrations, “that cannot be the only objective or, put differently, that objective does not exist in a vacuum.” 

Rather, that objective goes “hand-in-hand” with others, such as the “heated” issue of the division of competences between the EU and countries of the bloc, the “one-stop shop” principle and establishing an “efficient and predictable system capable of offering legal certainty to the undertakings concerned.” 

Not just gap-filling

Article 22 was designed to ensure that transactions got reviewed, even those in countries that had no national mechanism to do so. That was the case for the Netherlands, when the law was drafted. Today, only Luxembourg remains without its own domestic regime. 

Emiliou notes that reinterpreting that article might upset the balance of powers between Brussels and the member states. It would also be a “very significant extension” of the scope of EU merger law and the powers of Brussels officials. 

“In one fell swoop, by means of an original interpretation of Article 22, the commission gains the power to review almost any concentration, occurring anywhere in the world, regardless of undertakings’ turnover and presence in the European Union and the value of the transaction, and at any moment in time, including well after the completion of the merger,” he says.

Emiliou doesn’t let up. He says the interpretation risks companies with limited or non-existent sales in the EU ending up in a situation considerably worse than that of companies with more significant activities in the EU. They would conceivably have to notify all the national competition authorities, while the latter could benefit from the “one-stop shop.”

For the advocate general, a separate court judgment offers the solution to the commission’s killer-acquisition problem. The Towercast ruling 12 months ago confirms that antitrust provisions apply to mergers that fall below notification thresholds, in the EU and at national level. That’s how to get at these deals, he suggests. 

Supremacy

Beyond the dents in the commission’s approach, Emiliou’s opinion makes one thing clear: this is a huge legal conundrum raising existential questions about merger enforcement and the balance of power between Brussels and national capitals. Such questions will be decided by the court’s “grand chamber,” its highest judicial configuration. 

EU merger law says that member states without national merger control can refer transactions to Brussels — as is the case for Luxembourg. 

Thus, under the vision presented by today’s opinion, the lack of a national power in Luxembourg means it can use the Article 22 avenue, but France, which has a national regime, can't make use of it. 

That would mean that a national French law affects — or even overrides — rights under an EU law. It is that kind of knotty issue of supremacy — which Emiliou doesn’t really dig in to — that will be on the judges' desk.  

What now?

If the judges do agree with Emiliou, it could trigger a more formal review of the merger regulation under a new commission that will take office toward the end of this year. Re-opening the merger regulation is fraught with risk, but it could lead to a more legally solid path to capturing such transactions. 

That’s what Emiliou said would be more appropriate. 

“I am certainly not excluding that, in a world which is increasingly based on an ‘Economy 2.0’, it may be desirable, and perhaps even necessary, to change the current thresholds for a merger review,” he said, referring to other authorities that introduced deal-value or share-of-supply thresholds.

“But that is the task of the EU legislature, not of the commission,” he said.

The case references are C-611/22 P and C-625/22 P, Illumina v. Commission and Grail v. Commission.

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