Recently, the European Commission (EC) published its long-awaited new Remedies Notice, explaining its current policies and procedures on merger remedies. The guidance contains no major surprises for experienced EU merger practitioners, who will already be familiar with the recent more rigorous approach adopted by the EC, but it does signal publicly that the EC does not intend to be a "soft touch" on remedies.

The EC's own Remedies Study in 2005 was salutary reading. Most "access" remedies, for example, the release of airport slots, the making available of infrastructure, or the grant of IP licenses, justified on the basis of their effect in lowering entry barriers, had proved generally ineffective in practice, while even many business divestitures were found to have failed to recreate effective competition for a number of reasons: delays in implementation; the approval of inappropriate purchasers; and the loss of essential ingredients to ensure a viable, competitive business, such as key management or R+D support. In many cases, the Study shows, effective competition and consumer welfare were not being adequately protected. Indeed, in 18 years of EC merger control, there have been only 20 outright prohibitions, and only two of these have occurred since 2001. But admittedly the full picture must take account of some 120 further transactions which have been abandoned by the companies involved − usually a sure sign that they are unwilling to pay the EC's price for a clearance decision, or are facing an outright prohibition.

The Remedies Notice emphasizes the EC's strong preference for clear-cut divestitures of a company or business to remedy competition concerns. While the EC does not, and cannot reject "access" remedies out of hand it has recognized that, in the past, there has been a mismatch between the level of comfort and certainty achieved by divestitures as compared with that achieved by "access" remedies. In easyJet v. Commission, the European Court of First Instance (CFI) upheld the EC's clearance decision of the Air France/KLM merger but pointed out the importance of the EC having good evidence that airlines actually planned to enter routes monopolized by merging airlines before accepting the release of airport slots as a sufficient remedy. Remedies should eliminate all competition concerns, not merely offer a chance of elimination. The CFI's concern applies generally to "access" remedies. Lowering barriers to entry in theory is not sufficient in itself unless there is also a strong prospect of new entry in the near future on a scale which is sufficient to guarantee effective competition and which is viable in the longer term.

The Remedies Notice also continues the EC's crusade against behavioral remedies, where its stance has not always been supported by the Community Courts. The essential message is that behavioral remedies are to be avoided, particularly because difficulties of monitoring and enforcement reduce their effectiveness in resolving structural issues. They may be more acceptable if ancillary to structural remedies, but if stand-alone, at least need to be self-policing and provide rapid, effective arbitration or mediation mechanisms to safeguard the rival firms who rely on them. An exception recognized by the EC is in relation to conglomerate mergers: here, since the concern invariably arises from the potential for the merged firm to indulge in anti-competitive tying and bundling practices, the EC would be hard put to reject commitments not to indulge in such behavior, particularly given the judgments in Tetra Leval and GE v. Commission. One has sympathy with the EC's position: the EC merger control regime is directed at structural changes to markets which cause permanent detriment to competition. Logically, therefore, remedies should themselves be structural and permanent in effect, as is the case with a business divestiture, provided it creates a properly resourced competitor with sufficient market presence and potential.

The Remedies Notice gives very clear messages to advisers and the business community as to the EC's current expectations where remedies are required. Failure to read those messages, whether in the design of the remedy, the timing and manner of its presentation, or in the process of implementation will expose a proposed merger to an (avoidable) risk of being prohibited outright, or having to be abandoned. The lessons are clear:

  • Identify early any likely serious competition concern, on a worst case scenario

  • Design a clear-cut, preferably structural, remedy, with a gold-plated backup, in case it fails on "market-testing"

  • Explain the proposal to the EC at the earliest opportunity – even before notification (better the merging parties outline its merits first than third party complainants its weaknesses!)

  • Select a monitoring trustee that is pragmatic, experienced in the role and well-known to the EC, and does not regard its remit as a license to print money – the EC will not accept fee caps

  • Adopt the EC's standard texts for the offer of commitments – there is no sense in wasting valuable time on unnecessary formalities

  • Avoid horse trading – offering a remedy is not like a commercial negotiation: the merging parties are already in the "last chance" saloon.


The EC also makes clear that not every kind of purchaser will be suitable for every divestiture. It is skeptical about the incentives of financial investors (private equity houses, investment funds and the like) to develop divested businesses as competitive forces and detailed strategic plans may be needed to overcome this prejudice.

The EC's recent merger case work demonstrates the efficiency and pragmatism which can be achieved with the right approach. Most remedies, some of them rather complex, are accepted in the Phase I stage, despite its enormously tight deadlines, while many Phase II inquiries do not today run their full course once the EC is satisfied either its concerns are unfounded or are resolved effectively by remedies. Nor does the EC accept a remedy just because it is on offer: several decisions confirm this, and there are other cases where the offer of a remedy has remained confidential to the EC and the notifying parties. But, as the Ryanair/Aer Lingus case demonstrates, ignore the EC's requirements and processes at your peril – a prohibition decision may be the result. And the CFI is very reluctant to overturn the EC on the issue of the appropriate remedy.
The new Remedies Notice also shows that the EC too has learned the lessons of experience: the test will be whether it maintains its strict approach when another market-dominating merger comes before it which contributes to achieving the Lisbon agenda and brings significant benefits to the EU economy.

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