On 7 September, the Court of Justice (ECJ) issued a preliminary ruling on the interpretation of the concept of concentration set out in Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (EUMR) (case C-248/16). Therein, the ECJ notes that a concentration exists only where a joint venture (JV) is full-function, i.e. performs on a lasting basis all the functions of an autonomous economic entity, regardless of whether this jointly controlled undertaking pre-existed the transaction or is a newly created entity.
This is welcome clarification for practitioners in an area where the European Commission (Commission) has not followed a consistent interpretation.
Background
The case concerned a dispute on the merger legislation applicable to a proposed JV agreement between Austria Asphalt GmbH & Co OG (Austria Asphalt) and rival road-building operator Teerag Asdag AG (Teerag) to jointly own and operate an asphalt plant hitherto under the sole control of Teerag. Prior to the transaction, most of the plant’s production was supplied to its parent group, and the agreement provided that future production would be supplied to both parent companies.
In a comfort letter to the parties, the Commission had indicated that the transaction did not appear to constitute a concentration within the meaning of Article 3 EUMR. Therefore, in August 2015, Austria Asphalt notified the transaction in Austria. Following an application lodged by the Bundeskartellanwalt (Austrian Federal Cartel Prosecutor), the Higher Regional Court of Vienna ruled that the transaction constituted a concentration with a EU dimension, thus notifiable under the EUMR and that it could not be reviewed under Austrian law. In view of these findings, Austria Asphalt lodged an appeal before the Austrian Supreme Court (Court). The Court found that because most of the plant’s production would in the future be supplied to both parent companies the new JV could not be characterised as full-function. The Court thus made a request for a preliminary ruling to the ECJ asking, in essence, whether Article 3(1)(b) and (4) EUMR must be interpreted to the effect that a concentration is deemed to be created following a change in the form of control of an existing undertaking which, previously exclusive, becomes joint, only if the JV resulting from such a transaction performs on a lasting basis all the functions of an autonomous economic entity.
In this respect, Article 3(1)(b) EUMR states that “[a] concentration shall be deemed to arise where a change of control on a lasting basis results from: […] (b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.”
For its part, Article 3(4) EUMR states that “[t]he creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall constitute a concentration within the meaning of paragraph 1(b).”
Findings of the ECJ
The ECJ notes that Article 3 EUMR is unclear on the point referred.
First, per Article 3(1)(b) EUMR, a concentration is deemed to arise, inter alia, where there is a change of control on a lasting basis of the undertaking being subject to the transaction. However, per Article 3(4) EUMR, the creation of a JV is a concentration only where that undertaking performs as a full-function JV. Consequently, the wording of Article 3 EUMR is not sufficient to determine alone whether a concentration is deemed to arise where a transaction by which sole control of an existing undertaking becomes joint control when the JV resulting from such a transaction is not full-function (such as the one in this case).
To reconcile these provisions, the ECJ interprets Article 3 EUMR by reference to its “purpose and general structure” (and to the EUMR as a whole). It concluded, relying on various recitals, that the EUMR should apply to "significant structural changes the impact of which on the market goes beyond the national borders of any one Member State". Therefore, the concept of concentration must cover operations bringing about a lasting change in the control of the undertakings concerned and, therefore, in the market structure.
This means that a JV must be analysed under the realm of the EUMR if it performs on a lasting basis all of the functions of an autonomous economic entity (i.e. full-functionality test), regardless of whether the target pre-existed the transaction or is a newly created entity. To conclude otherwise (as the Commission had later argued during the ECJ proceedings) would lead to an unjustified difference in treatment between a newly created JV resulting from the transaction concerned (which would qualify as a concentration only if performing as a full-function entity) and an undertaking existing before said transaction (which would qualify as a concentration regardless of whether the JV resulting from the transaction would operate as a full-function entity).
The ECJ rejected the Commission’s interpretation (which was contradictory to the one expressed in its comfort letter) that the criteria of full-functionality does not need to be met in case of a change from sole to joint control of an existing undertaking for it to qualify as concentration (as opposed to newly created JVs). It considered that such an interpretation would have extended the scope of the EUMR ex ante control to transactions that are not capable of having an effect on the structure of the market.
In view of the above, the ECJ concluded that Article 3 EUMR must be interpreted as meaning that a concentration is deemed to arise upon a change in the form of control of an existing undertaking which, previously exclusive, becomes joint, only if the JV created by such a transaction is full-function.
Comment
The Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings of July 2007 (Notice) sets out the Commission’s legal position and administrative practice in relation to merger control jurisdiction and provides guidance on the application of the full-functionality test to JVs. Paragraph 91 states in particular that a transaction involving several undertakings acquiring joint control of another undertaking or parts of another undertaking (i.e. a business with a market presence to which a market turnover can be attributed) from third parties will constitute a concentration according to Article 3(1) EUMR without it being necessary to consider the full-functionality criterion. For its part, paragraph 92 of the Notice reminds that the full-functionality criterion delineates the application of the EUMR to the creation of a JV, irrespective of whether this is a newly created (greenfield) JV or whether the parties contribute assets to the JV which they previously owned individually. From now on, these paragraphs must be reinterpreted in line with the Austria Asphalt ruling, i.e. JVs must meet the full-functionality test for the EUMR to apply, regardless of whether they are newly created or arise from a pre-existing undertaking.
