Merger Control rules in France

The French Competition Authority (Autorité de la concurrence) (the “FCA”) is the independent competition regulator in France. Although the FCA acts on the French state’s behalf, it is not subject to the government’s authority in the carrying out of its functions. Cases are investigated in complete independence by its “Investigation Services” (led by the General Rapporteur). At the end of inter partes proceedings, cases are reviewed by the FCA’s Board (Collège), which has seventeen members (who are members or former members of the French Administrative Supreme Court (Conseil d’État), Supreme Court (Cour de cassation), Court of Auditors (Cour des comptes) or other administrative or ordinary courts, or who are chosen for their economic expertise).

As the “market competition watchdog”, the FCA reviews all proposed mergers and acquisitions above a certain size. It can either clear the transaction (unconditionally or subject to conditions) or block it. It ensures in advance that these deals will not restrict competition and, if there is any risk to competition, only clears them on condition that appropriate remedies are implemented.

The FCA only reviews transactions above a certain size. This is the case where the following cumulative three conditions are met:

• the total global pre-tax turnover of all the companies or groups of legal persons or individuals who are parties to the transaction is greater than 150 million euros,
• the total pre-tax turnover generated in France by at least two of the companies or groups of legal persons or individuals concerned is greater than 50 million euros,
• the transaction does not fall within the European Commission’s jurisdiction.

Where the transaction concerns several EU Member States and the turnover of the companies concerned is very important (e.g. if the global turnover exceeds 5 billion euros for all parties to the transaction and 250 million euros is generated by at least two of the companies within the EU), the European Commission has jurisdiction. However, it can choose to transfer the file to the FCA if it believes the latter is best placed to review the case (e.g. if the transaction will mainly have an effect in France).

For transactions in the retail sector or in French overseas territories, there are specific lower thresholds for the FCA to examine concentrations.

The French merger control regime applies to “concentrations” where:

• two (or more) previously independent companies are merging, or
  
• a joint venture performing all the functions of an autonomous economic entity is being created between independent entities, or
• a company is acquiring, directly or indirectly, control of another (by acquisition of shares or assets, by contract or otherwise).

However, a purely temporary acquisition of shares by a financial institution with a view of reselling them within a period of less than a year post-acquisition would not constitute a “concentration” if certain conditions are met.

As per the EU Merger Control Regulation (EC Regulation No. 139/2004 - “EUMR”), “control” is defined as the possibility to exercise decisive influence over the conduct of an “undertaking” (i.e., any entity engaged in an economic activity, regardless of the legal status of the entity and the way it is financed). “Decisive influence” concerns decisions on the strategic plan, investment decisions, those relating to the budget or decisions on the appointment and dismissal of key executives.

Control may be held by one (“sole control”) or several (“joint control”) persons or undertakings.

In most cases, control is established on the basis of shareholders’ rights, such as:

• the holding of a majority of voting rights by the majority shareholder, or
• the holding by one or more minority shareholders of veto rights over strategic decisions (business plans, annual budgets, appointment of key executives, etc.), or
• a joint voting agreement between minority shareholders, enabling them to jointly exercise a majority of voting rights or to block strategic commercial decisions.

Control may also result, in specific cases, from long-term agreements conferring control over the co-contracting party (e.g., in agreements for the leased management of a business or agreements giving the right to use the assets of the co-contracting party).

The FCA examines whether the contemplated concentration significantly lessens competition by creating or strengthening an individual or collective dominant position, or by creating or strengthening a situation of buying power which places suppliers in a situation of economic dependency. The market shares of the parties (and their competitors) play a major role in the competitive assessment of the concentration; however, the FCA also takes into consideration other indicators, such as the importance of the barriers to entry, the market structure and evolution (both of supply and demand), the closeness of competing products/services, etc. The FCA also considers the specificities of the sectors concerned.

In most cases, if the transaction does not trigger major competition issues, the FCA may clear the transaction unconditionally or subject to conditions at the end of a rapid review period called “Phase 1” (25 working days maximum). 70% of cases take approx. 3 weeks, and most of the other ones are dealt with in less than 5 weeks. This period of 25 working days may be extended during Phase 1 for an additional 15 working days if the notifying parties submit commitments to remedy potential competition issues.

If doubts remain regarding the risk to competition, the FCA opens an in-depth examination, known as “Phase 2” (an additional 65 working day). Within five working days of the end of Phase 1, the French Ministry of Economy can also request the opening of a Phase 2 investigation; said Ministry then has twenty-five working days to exert its power to review the case and issue a decision on the contemplated concentration.

The FCA may then either authorize the concentration, with or without remedies; or prohibit the concentration. Phase 2 can also be extended by 20 working days by the FCA if the parties submit or modify commitments within 20 working days from the expiry of the 65-working-day deadline.

The FCA has introduced a “simplified procedure”, which allows the notifying parties to obtain clearance within a shorter period (in average, after 15 working days). The 2020 Guidelines of the FCA have significantly broadened the scope of application of this simplified procedure (e.g., all concentrations where the combined market share of the undertakings concerned is less than 25% of the relevant markets (or 30% for vertically related markets or connected markets) are now eligible, as well as where the transaction concerns the creation of a full-function joint venture exclusively active outside the national territory).

Filing a concentration with the FCA has a suspensive effect since it must not be completed before approval has been obtained from the FCA.

At the end of its review of the transaction, the FCA can take three decisions:

• option 1: clear the transaction unconditionally (approx. 96% of cases),
• option 2: clear the transaction subject to conditions, such as commitments or measures ordered,
• option 3: block the transaction.
  

The notifying parties may propose two types of remedies:

• structural remedies, which include the divestiture of assets or business activities, the transfer of equity holdings, the transfer of contracts, etc.;
• behavioral remedies, such as transparent and non-discriminatory access to infrastructures, the termination or amendment of an exclusivity agreement, the modification of the terms and conditions of supply or distribution of a product, etc.

The FCA tends to favour structural remedies over behavioural remedies.

The notifying parties may submit remedies both during Phase 1 and Phase 2 of the merger control investigation. This triggers specific extensions of the time limits governing the FCA’s review allowing the latter to review and assess whether such remedies are appropriate and submit them to a market test if needed.

Pursuant to a Phase 2 investigation, if the notifying parties do not propose remedies or such remedies are deemed insufficient, the FCA may impose in its clearance decision “injunctions” requiring the parties to take all appropriate measures to maintain competition or guarantee adequate efficiencies.

The sanctions for not filing a concentration are as follows:

• the parties may be ordered by the FCA, subject to a daily penalty payment, to notify the concentration or to demerge;
• the FCA may fine corporate entities up to 5% of pre-tax turnover in France from the last tax year (plus, if applicable, the turnover achieved in France by the target over the same period), and individuals up to €1.5 million.

The same sanctions apply if notifying parties omit information or provide inaccurate or misleading information. In addition, the FCA may also withdraw the clearance decision.

Gun-jumping is considered as equivalent to an absence of filing and triggers the same sanctions as above.

The FCA is required to publish on its website a summary of the notification within five working days after the formal notification is filed by the notifying parties (the announcement includes the identity of the parties, the nature of the concentration, the economic sector concerned, the deadline within which third parties are invited to submit observations, and a non-confidential summary of the operation provided by the parties). The notification form and supporting documents remain strictly confidential.

The FCA then releases the outcome of the merger review on its website, but the decision itself is published only in a non-confidential version once the notifying parties have been given the occasion to request that any confidential information be redacted.