In brief
Luxembourg is preparing to implement in its national law an ex ante merger control regime which includes a mandatory notification requirement with turnover thresholds and a standstill obligation.
The purpose of Draft Bill No. 8296 (“Bill“), recently submitted to the Luxembourg parliament, is to give the Luxembourg Competition Authority the power to assess in advance whether a corporate concentration significantly hampers competition in Luxembourg.
The new law is expected to be adopted in the coming weeks. However, the Bill currently provides that the law will only enter into force four months after its publication in the Luxembourg official journal. This should give businesses time to adapt to the new obligations.
The current Bill further states that the law will not have retroactive effect. Consequently, it will not apply to mergers or joint ventures that have already been agreed, announced or completed before the law enters into force.
This alert outlines the key features of the Bill in its current version, noting that the Bill may still be amended during the legislative process.
For further information on what these developments mean for your organization, please get in touch with your usual Baker McKenzie contact.
Key takeaways
The Luxembourg Competition Authority can scrutinize mergers, acquisitions or joint enterprises that meet specified turnover thresholds in Luxembourg. The definition of “control” mirrors EU Regulation No. 139/2004 on the control of concentrations between undertakings (“EU Merger Regulation“), allowing the national authority to act if the EU thresholds are not met.
Exclusions and special cases
Transactions that fall within the scope of the EU Merger Regulation are excluded from the scope of the Bill, except for European Commission referrals to the Luxembourg Competition Authority.
The Bill exempts certain activities such as internal restructurings and acquisitions by specific financial entities, aiming to preserve competition while acknowledging diverse scenarios. The following activities will be out of scope:
- Internal restructuring of a group of companies if it does not lead to a change in the control structure
- Internal group insurance or re-insurance schemes
- Acquisitions by investment funds, securitization vehicles or funds, or pension funds, unless such acquisitions are risk-capital investments
- Temporary holdings by banks, investment firms, or insurance companies, trading and negotiating financial instruments, for resale within a year, without exercising voting rights for determining competitive positions but only in connection with resale
In cases of urgent rescue or reorganization of a credit institution or specific investment firms to prevent a serious threat to Luxembourg’s financial stability or safeguard deposit holders or investors, the Commission de Surveillance du Secteur Financier takes over the competences from the Luxembourg Competition Authority. This also applies to the insurance and re-insurance sector, potentially transferring responsibility to the Commissariat aux Assurances in similar scenarios. Generally, the Luxembourg Competition Authority must consult with other Luxembourg authorities when entities in financial and insurance markets are subject to concentration.
In-scope transactions
The Bill targets concentrations where there is a lasting change in control, i.e., merger-type operations between companies, the acquisition of control of another company (entirely or partially) by taking a stake in the capital or even by purchasing assets, and the creation of a joint venture that performs all the functions of an autonomous economic entity on a lasting basis.
Under the current Bill, concentrations that do not fall within the remit of the EU Merger Regulation will have to be notified in advance to the Luxembourg Competition Authority if two cumulative thresholds are met:
- The undertakings involved in the concentration have a combined total turnover (before tax) generated in Luxembourg of more than EUR 60 million
- At least two of the companies involved in the concentration each have an individual turnover (before tax) generated in Luxembourg of more than EUR 15 million.
The Bill also provides for specific threshold determination methods applicable for credit and financial institutions and insurance/reinsurance entities.
With respect to the calculation of the turnover, the current Bill expressly refers to the methods set out in Article 5 of the EU Merger Regulation. The Luxembourg regime is further anticipated to adhere to EU merger control guidelines when determining which entities are involved in a transaction. This implies that, in most cases, it will consider the overall turnover of the entire corporate group, rather than solely the turnover of the individual entity participating in the transaction.
The current Bill foresees that these thresholds will be reevaluated three years after the law enters into force.
As per the current Bill, the Luxembourg Competition Authority may also examine on its own initiative a concentration that does not meet the above thresholds if the transaction is likely to have a restrictive effect on competition in Luxembourg. However, even if the existence of such powers might raise uncertainty on the outcome of a transaction, commentaries on the Bill already mention that the Luxembourg Competition Authority is expected to rarely make use of this power.
Last but not least, the Luxembourg Competition Authority can also be requested to analyze a concentration referred to it (in full or in part) by the European Commission, in light of its powers under EU Merger Regulation.
Notification obligations
Entities gaining control or involved in mergers or joint ventures must notify the Luxembourg Competition Authority once they are able to present a sufficiently accomplished project to allow the file to be examined and in particular when they have concluded a memorandum of understanding (accord de principe), signed a letter of intent or announced a public offer.
Pre-notification discussions are encouraged for clarity.
The current Bill provides as follows:
- Notification will in principle lead to a mandatory standstill of the transaction, which can only be resumed and completed once the Luxembourg Competition Authority has authorized the transaction.
- If the need is duly justified, the parties may, however, request an exemption from the Luxembourg Competition Authority allowing them to proceed to complete all or part of the concentration without waiting for the clearance decision.
Procedure overview
The Luxembourg Competition Authority publishes the fact that it has received a notification, and opens a phase I review process that starts on the day that the notification is deemed complete. Phase I has a duration of 25 business days.
At the end of phase I, the Luxembourg Competition Authority may either (i) declare, by reasoned decision, that the notified transaction does not fall within the scope of this law, (ii) authorize the merger or (iii) if it considers that there are serious doubts of harm to competition, initiate a detailed examination (the so-called phase II).
If the Luxembourg Competition Authority does not take any of the three decisions within the 25 business days mentioned above, the concentration shall be deemed to have been authorized on the working day on which the 25 business days period expires.
If the Luxembourg Competition Authority decides to carry out a detailed phase II examination, it will need to do so within 90 business days. Phase II will exclusively address transactions with a potential substantial hindrance to effective competition. It might include potential hearings of the interested parties. At the end of phase II, decisions may authorize, impose conditions or prohibit transactions based on competition considerations.
In both such phases, the Luxembourg Competition Authority has a certain discretion over determining the information and level of detail it requires for the purposes of its assessment.
A separate regulation will be passed in order to establish the content of the notification and the submission process. The same applies for determining the fees to be applied by the Luxembourg Competition Authority for the assessment.
Market analysis and authority’s powers
The Luxembourg Competition Authority will determine the relevant markets on a case-by-case basis, without limiting its assessment to the national effects of the concentration. The Luxembourg Competition Authority will be entitled to employ wide-ranging investigative powers under Luxembourg competition law, including inspecting premises, gathering information and imposing penalties for non-compliance, which are reinforced on this occasion by the Bill.
Potential sanctions
If the obligation to notify has not been, complied with (intentionally or negligently) or the transaction has been completed without authorization, a fine of up to 10% of the total worldwide turnover of the companies in the last completed financial year can be imposed.
Where a concentration has already been implemented and is declared incompatible or where a concentration has been implemented in breach of a condition attached to a decision, the Luxembourg Competition Authority may order the undertakings to dissolve the concentration to restore the pre-merger situation.
The Luxembourg Competition Authority may take any other appropriate measure to restore, to the extent possible, the situation prior to the implementation of the concentration.
Appeals and reversals
Decisions can be appealed within three months of the date of the decision before the competent administrative court. The Luxembourg government may overturn phase II decisions within 35 business days, emphasizing public interest and economic progress.
Practical impact
Due to the significant impact of the Bill on the M&A market, parties that are currently engaging in transactions should consider whether the new merger control regime could apply so that they can properly consider the potential impact on deal strategy and timing.
