Advocate General Juliane Kokott has delivered a significant opinion on the first ever reference to the Court of Justice of the European Union (“CJEU”) on the EU merger control regime.
AG Kokott has brought clarity to an area which is advised on regularly by competition practitioners, advising that the creation of a joint venture through a change from sole control to joint control is not notifiable under the EU merger control regime unless the joint venture being created is “full-function”.
A proposed 50/50 joint venture came before the Austrian Supreme Court and it issued a reference to the CJEU on the question of whether the joint venture was notifiable to the European Commission under the EU Merger Regulation.
The joint venture relates to an asphalt plant which currently belongs exclusively to Teerag Asdag (“TA”), but following the merger will be operated jointly by TA and Austria Asphalt (“AA”). Its business is confined to supplying its parent and in future to its two parent companies (TA and AA) such that it has no market presence or market-facing activities.
AG Kokott, in her opinion, stated that if the joint venture is not “full-function” (because it does not have an autonomous presence on a market), it follows that any change in its control structure cannot have the effect of changing the structure of that market and cannot fall within the scope of the EU merger control regime.
The European Commission came in for criticism from AG Kokott for its failure to take a consistent position on the issue. The Commission had argued that the deal fell within its jurisdiction during the companies’ oral hearing in March 2017 despite initially taking the “diametrically opposed view” in a non-binding comfort letter to the companies two years previously.
As AG Kokott stated in her opinion, this case has a “practical significance which cannot be underestimated”. It means that the transfer of an existing joint venture from sole control to joint control only constitutes a notifiable merger within the meaning of Article 3 of the EU Merger Regulation where the resulting joint venture is “full-function”.
The opinion thereby provides clarity by confirming that the EU merger control regime only captures transactions involving a change of control to an autonomous entity which therefore changes the structure of a competitive market.