10 October 2018
France | Competition | The Legal 500: 3rd Edition Merger Control Comparative Guide
The Legal 500 and The In-House Lawyer have published the third edition of their Comparative Legal Guide on Merger Control. This country-specific Q&A written by Gide competition partner Emmanuel Reille and counsel Laura Castex provides an overview to merger control laws and regulations that may occur in France. It covers jurisdictional thresholds, the substantive test, process, remedies, penalties, appeals as well as the authors' view on planned future reforms of the merger control regime.
Transactions which meet the applicable turnover thresholds in France, while remaining below the thresholds triggering the European Commission's jurisdiction, are subject to mandatory notification and cannot be closed until clearance is granted.
The independent administrative authority in charge of merger control in France is the Competition Authority ("FCA"). It has jurisdiction to receive and review the notifications and then to issue a decision in order to clear (with or without remedies) or prohibit the proposed concentration.
However, the French Minister of Economy holds residual powers in specific circumstances to overturn the decisions rendered by the FCA.
Pursuant to Article L.430-3 of the Code, notification is compulsory if the conditions for a notification to the FCA are met i.e. if the relevant turnover thresholds are met.
Filing is mandatory and no exceptions are provided for by the law.
Completion or closing of a transaction subject to French merger control requirements prior to the issuance of a clearance decision by the FCA is prohibited (the notification is mandatory and entails a stand-still obligation pending the merger control review).
French legislation provides that a derogation may be requested before the FCA (either before or after the submission of the notification form) by the notifying parties in order to proceed with the completion of all or part of the transaction before clearance (Article L.430-4 §2 and 3 of the Code). However, such derogations, which have to be necessary and duly justified, are generally granted by the FCA only in exceptional and limited circumstances, essentially in cases where the target is subject to insolvency proceedings or financial distress.
This exemption from the stand-still obligation may be granted subject to conditions and is void if a complete notification form has not been filled with the FCA within three months from the date of the transaction's closing or completion. The granting of a derogation is without prejudice to the power of the FCA to adopt a prohibition decision or a clearance decision with commitments. In 2018, the Authority notably granted a derogation in the Financière Cofigeo/groupe Agripole case, before ultimately imposing divestments after a Phase II investigation.
The possibility of a carve out (local completion of a merger to avoid delaying global completion of a transaction) is not provided for by the French legislation.
Pursuant to Article L.430-1 of the Code, the French merger control regime applies to "concentrations", i.e. situations where either:
Joint ventures are also subject to French merger control (see question 9).
The concept of "control" under French legislation is consistent with the definition set out in the EU Merger Regulation (“EUMR”): control arises from rights, contracts or any other means that grant one (sole control) or several persons or undertakings (joint control) the ability to exert a decisive influence over the conduct of another undertaking on a lasting basis.
An acquisition of a minority interest is notifiable as long as it qualifies as a "merger", i.e. if it leads to a change of control (see question 4 above) over the considered undertaking, provided that the French thresholds are met.
Acquisitions of non-controlling minority interests are not subject to merger control.
The French merger control regime provides three alternative sets of turnover based thresholds: in addition to general turnover thresholds, lower thresholds apply specifically (i) to transactions in the retail sector in France and (ii) to transactions in the French overseas territories.
General thresholds (Article L.430-2 I of the Code) applying to all transactions
Firstly, a concentration must be notified to the FCA if the following cumulative thresholds are met:
Specific thresholds for transactions in the retail sector (Article L.430-2 II of the Code)
Secondly, a concentration involving at least two undertakings operating retail premises in France must be notified to the FCA if the following cumulative
thresholds are met:
Article L.430-2 III of the Code provides specific (lower) thresholds for transactions in the French overseas territories (Mayotte, Wallis-et-Futuna, Saint-Pierre-et-Miquelon, Saint-Martin and Saint-Barthélemy).
Turnover calculations under French law are fully consistent with the principles set forth in the EUMR. The Code expressly refers to Article 5 of the EUMR for the determination of the relevant turnover, which corresponds to the pre-tax turnover generated through the sale of goods or provision of services to third parties (intra-group sales are not taken into account) during the last audited financial year.
As far as acquisitions are considered, the relevant parties whose turnovers are to be taken into consideration are the acquirer(s) of exclusive / joint control and the target. Regarding mergers, the turnovers of the merging entities are relevant.
The turnover of the acquiring or merging entity(ies) is calculated by taking into account the whole group which the entity(ies) respectively belongs to, i.e. without being limited to the legal entity(ies) directly involved in the transaction or the economic sector(s) relevant to the transaction. With respect to the target, only the turnover generated by the acquired scope is taken into account (the turnover generated by the group divesting the target is thus not relevant).
The geographic allocation of the turnover is determined, as a matter of principle, by the location of the customers of products sold and services provided by the undertakings concerned, irrespective of said entities nationality or location, and whether or not they have assets or a structure in France, provided that they generate a turnover therein.
French merger control rules do not provide for a specific exchange rate.
In practice, it is usually referred to the average rate for the year concerned, published in the Monthly Bulletin of the European Central Bank (ECB).
Both new joint ventures and acquisitions of joint control over an existing business are notifiable if they result in a change of control over a “full-function” joint venture, i.e. an entity that performs all the functions of an autonomous economic entity on a lasting basis, provided that the thresholds are met.
Indeed, the French Guidelines specify that the “creation” of a joint-venture may result from:
The concept of full-functionality is in general consistent with the EU merger control rules and depends on whether the resources of the joint-venture (in staff, budget, tangible or intangible assets, etc.) are sufficient to perform all the functions generally performed by the other companies operating on the market. It is notably crucial in this respect to assess whether the joint-venture may have access to the market (i.e. if it can achieve sales to third parties).
Where an overall transaction is carried out in stages through a series of subsequent transactions, the FCA considers, as under Article 5.2 of the EUMR, that two or more transactions taking place within a two-year period between the same parties is to be treated as one and the same concentration.
More generally, the Guidelines provide that multiple transactions constitute a single concentration as long as they are interdependent, in the sense that one transaction would not have been carried out without the other. These “interdependent transactions” must be treated as a single concentration if (i) they are subject to a conditional relationship (i.e. they are linked by a de jure or de facto condition) and (ii) control is acquired ultimately by the same undertakings.
Should the above mentioned conditions not be met, each transaction must be filed with the FCA separately (if the French merger control thresholds are met).
No, any “foreign-to-foreign” merger which meets the applicable turnover thresholds has to be notified to the FCA, even if the transaction has no impact on the French territory, and it can only be completed after a clearance decision is issued.
The FCA examines whether the contemplated transaction significantly lessens competition. In this respect, Article L.430-6 of the Code provides that the FCA assesses if a transaction may harm competition, notably
The market shares of the parties (and their competitors) play a predominant role in the competitive assessment of the transaction, but the FCA also takes into consideration other indicators, such as the importance of barriers to entry, market structure and evolution (both of supply and demand), closeness of competing products/services, etc. The FCA also takes into account the results of the market tests launched as the case may be.
Both unilateral and coordinated effects (horizontal, vertical and/or conglomerate) on the various markets impacted by the transaction are assessed by the FCA, as well as the efficiency gains expected thereon.
There are no tests specific to given sectors, but the FCA takes into consideration the specificities of the sectors concerned, especially for regulated sectors such as telecoms, medias or energy, if needed after having consulted other independent administrative authorities.
In principle, factors unrelated to competition are not relevant to the FCA's merger control assessment.
This being said, following a Phase II (in depth-review) decision of the FCA, the Ministry of Economy has a right of higher authority to review the case and issue a decision on the contemplated transaction in consideration of reasons of general interest other than protecting competition, which as the case may be can offset the anticompetitive effects resulting from the transaction (e.g. safeguarding employment in France, supporting industrial development or strategic interests, supporting or safeguarding competitiveness of a business in a context of international competition).
In the Financière Cofigeo/groupe Agripole 2018 case previously mentioned, the Minister of Economy used its review power for the first time and overturned the decision initially rendered by the FCA (clearance subject to divestment commitments) by clearing the transaction without any commitment.
The FCA’s clearance decision will cover ancillary restraints provided that the restrictions are both necessary and directly related to the completion of the concentration. In this respect, while the notifying parties are not required to disclose such ancillary restraints to the FCA, they may bring them to the FCA's attention if they have concerns as to the compliance of such restraints with competition law.
There is no statutory deadline for the notification of a transaction.
Pursuant to Article L.430-3 of the Code, the formal notification may be made at any time once the parties can evidence a sufficiently mature project.
The parties generally proceed to the formal filing after transactional agreements (e.g. share purchase agreement) are signed but they may file the notification even before, as long as they are able to evidence that the transaction is at a sufficiently advanced stage, for instance on the basis of an executed letter of intent, term sheet or put option.
It is customary in France to engage in pre-notification discussions with the FCA, generally on the basis of a draft notification form. Such pre-filings allow the appointed case-handler to ensure that the file is complete, and if needed, to request further information or clarifications from the parties. Such process is recommended to troubleshoot issues that may arise during the formal review process.
Such informal phase, which is strictly confidential, has no binding timetable but in practice it often lasts 2/3 weeks for "simple" cases (i.e. which do not raise any competition issues) and up to several months for more complex cases.
The basic clearance timetable for the FCA’s review is as follows:
Phase I (Article L.430-5 of the Code)
Within 25 working days from the date of receipt of a notification form considered complete (as assessed by the FCA ), the FCA may:
This period of 25 business days may be extended during Phase I for an additional 15 working days if the notifying parties submit commitments to remedy potential competition issues.
The FCA can also suspend the time limits of the phase I review, in two different cases:
At the end of Phase I, the French Ministry has five business days to request the opening of a Phase II investigation (in-depth review).
A simplified procedure allows the parties to obtain clearance within a shorter time period if no competition issues are anticipated (see question 21).
Phase II (Articles L.430-6 and L.430-7 of the Code)
If, further to the Phase I review, the transaction still raises serious doubts as to potential anticompetitive effects, the FCA can initiate an in-depth review of the concentration.
Within 65 working days from the opening of the Phase II, the FCA may:
Phase II can also be extended by 20 working days by the FCA if the parties submit or modify commitments fewer than 20 working days from the expiry of the 65-working-day deadline.
As is the case in Phase I, the FCA can also suspend the time limits of the Phase II review, in the same two cases. However, the maximum suspension period at the parties' request is then 20 working days.
Once a Phase II decision is issued, the Ministry of Economy has twenty-five working days to exert his power to review the case and issue a decision on the contemplated transaction.
See question 19.
The French merger control regime does not provide for any “shorter” review timetable.
However, the Guidelines provide that the benefit of the "simplified" procedure allows the parties to obtain the transaction’s clearance within a shorter time period (in average, after 15 working days).
While such "simplified" procedure is only available to this day in limited cases (no overlaps on either the same market or upstream, downstream or related markets), the FCA has indicated that it was considering extending this proceeding to other transactions on the basis of market share thresholds.
The party(ies) acquiring or retaining control of all or part of an undertaking is(are) responsible for submitting the notification form.
In the case of a joint venture, each parent company is a notifying party.
The list of the information required in the notification form is provided by Article R.430-2 of the Code . The content of this notification form notably includes:
In addition to the filing form, the FCA requires the notifying parties to provide the contractual documentation which materialize the change of control (such as the SPA, the shareholders agreement, etc.) and the minutes of board meetings pertaining to the transaction, a power of attorney, copies of the most recent annual reports and accounts, as well as a summary table of financial figures for the last three audited financial years.
Supporting documents must be provided in French, or along with their French translation. The FCA may nevertheless accept, upon request, that only the translation of relevant excerpts of supporting documents be provided.
There is no filing fee required.
Pursuant to Article L.430-4 of the Code, the FCA is required to publish a public summary of the notification within five working days after the formal notification is filed.
This public announcement is published on the FCA’s website and includes the identity of the parties, the nature of the merger, 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.
Yes, the FCA invites third parties to intervene in the review process in several ways:
Except for the public announcement made after the receipt of the formal notification (see question 26), the FCA does not publish the notification form nor its supporting documents, which remain strictly confidential.
Market tests (on the transaction or remedies submitted by the parties) are performed on the basis of non-confidential information of documents.
The FCA releases the outcome of the merger review on its website, but the decision itself is published only in a non-confidential version after the notifying party(ies) has been given the opportunity to identify and request that confidential information therein be redacted.
The FCA is a member of the International Competition Network (ICN), the European Competition Network (ECN) and the European Competition Authorities Association (ECA).
Within this framework, there is a regular flow of information between competition authorities concerning pending merger cases.
The notifying parties may propose two types of remedies:
The FCA tends to favor structural remedies over behavioral remedies (such tendency is expected to increase in the near future).
The notifying party(ies) may submit remedies both during Phase I and Phase II of the merger control investigation (see question 19), which trigger 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 as the case may be.
Pursuant to a Phase II investigation, if the notifying party(ies) does not propose remedies or such remedies are deemed insufficient, the FCA may impose in its clearance decision "injunctions" requiring the parties concerned to take all appropriate measures to maintain competition or guarantee adequate efficiencies (Article l.430-7 III of the Code). There are only a few cases where the FCA has ordered injunctions.
The Code provides several sanctions for failure to notify (Article L.430-8-I of the Code) or breaches of the standstill obligation (Article 430-8-II of the Code).
Penalties for failure to notify
If a notifiable concentration is completed or closed without having been notified, the FCA may:
There are various examples of sanctions by the FCA for failure to notify a transaction. As an example, the FCA imposed a fine of €4 million to Castel Group for default of notification (the fine was then reduced by the French supreme administrative court (Conseil d’Etat) in 2016 to €3 million).
Penalties for anticipated implementation (gun-jumping)
The implementation of a concentration, not benefiting from a derogation, prior to its clearance triggers the same sanctions and fines as those incurred in cases of failure to notify (see above).
As an example, in its decision dated 8 November 2016 (case n°16-D-24), the FCA imposed a fine of €80 million on Altice Group for having prematurely completed two transactions under on-going merger control review.
Pursuant to Article L.430-8 III of the Code, the penalties incurred by the notifying party(ies) for omitting information or providing inaccurate or misleading information are the same as those incurred in case of a failure to notify (see question 32). In addition to this fine, the FCA may also withdraw the clearance decision, in which case the parties are required to re-file a notification form within one month from the withdrawal of the clearance decision, unless they revert to the state which existed prior to the concentration.
Yes, decisions of the FCA may be appealed by the notifying parties (or by interested third parties) before the French supreme administrative court (Conseil d’Etat) on grounds of misuse of authority or for breach of a procedural rule.
Appeals do not suspend the enforcement of the decisions. However, the notifying parties (or by interested third parties) may request, pursuant to a specific interim proceeding before the Conseil d'Etat, the suspension of the decision (the "référé suspension"). Such request can be granted subject to the claimant being able to evidence an urgent situation and a serious doubt as to the legality of the decision.
If a clearance decision issued by the FCA is reversed by the Conseil d'Etat, the parties concerned have to re-notify an updated version of the proposed concentration to the FCA.
In terms of enforcement, the FCA has publicly announced that it will pay an even greater attention in the coming years to breaches of the obligation to notify reportable transaction and of the stand-still obligation. The decision rendered recently in the Altice case mentioned above (€80 million of fine) confirms this trend.
In terms of substantive assessment and remedies, it is observed that the FCA is increasingly reluctant towards behavioral remedies.
In October 2017, the FCA launched a reflective process aimed at modernizing and simplifying French merger control law and review processes. On 7 June 2018, following a public consultation, the FCA presented its preliminary conclusions, including:
You can also read the France chapter on The In-House Lawyer website.