EU Targets 'Killer Acquisitions' with Planned Merger Control Reforms

In October 2024, the European Commission (EC) announced plans to reform its merger control regulations to address concerns over "killer acquisitions," where larger companies acquire smaller, innovative rivals to eliminate potential competition. This initiative aims to revise the existing turnover-based thresholds by introducing a deal value-based criterion for scrutinizing mergers. The proposal follows a significant legal setback in the Illumina-Grail acquisition case, where the European Court of Justice (ECJ) ruled that the EC lacked jurisdiction, underscoring the need for regulatory reform.

In September 2020, Illumina, a U.S.-based genetic sequencing company, announced its intention to acquire Grail, a startup specializing in early cancer detection tests, for $7.1 billion. The transaction did not meet the turnover thresholds required for notification to the EC or any EU Member State. However, in March 2021, the French competition authority, along with authorities from Belgium, Greece, Iceland, the Netherlands, and Norway, requested the EC to examine the merger under Article 22 of the EU Merger Regulation (EUMR), citing potential significant anticompetitive impacts. The EC accepted the referral and, in September 2022, blocked the merger, concluding that it would significantly impede effective competition in the markets for early cancer detection tests.

Illumina challenged the EC's jurisdiction, and on September 3, 2024, the ECJ ruled in favor of Illumina, stating that the EC exceeded its authority by asserting jurisdiction over the merger. The court emphasized that the turnover-based thresholds are crucial for providing companies with legal certainty regarding merger notifications. As a result, the EC's decision to block the merger was annulled, and the €432 million fine imposed on Illumina was rendered void.

The ECJ's decision has significant implications for the EC's merger control regime. It limits the EC's ability to review below-threshold mergers based on Article 22 EUMR, unless the referring Member State has jurisdiction under its national merger rules. This ruling underscores the need for the EC to revise its merger control framework to effectively address potentially anticompetitive transactions that do not meet current notification thresholds.

In response to the ECJ ruling and growing concerns over "killer acquisitions," the EC proposed reforms to its merger control regulations in October 2024. The key aspects of the proposed reforms include:

• Introduction of Deal Value-Based Thresholds: The EC plans to implement thresholds based on the value of the transaction, in addition to the existing turnover-based criteria. This approach aims to capture significant mergers involving companies with low current revenues but high potential competitive impact, particularly in sectors like technology and pharmaceuticals.

• Enhanced Scrutiny of Strategic Acquisitions: The reforms seek to provide the EC with the tools to assess mergers that may not meet traditional thresholds but could substantially affect competition within the EU. This includes acquisitions of startups with innovative technologies or significant data assets.

The legislative process for these changes is expected to take several years, involving consultations with Member States, stakeholders, and the European Parliament.

The proposed reforms aim to prevent larger companies from stifling innovation by acquiring emerging competitors, thereby promoting a more competitive and dynamic market environment. By addressing gaps in the current merger control framework, the EC seeks to protect consumer interests and ensure fair competition, particularly in rapidly evolving industries.

The EC's proposed reforms represent a significant shift in European merger control policy, aiming to address the challenges posed by "killer acquisitions" and ensure that regulatory frameworks keep pace with evolving market dynamics. As the legislative process unfolds, stakeholders will closely monitor the balance between fostering innovation and maintaining fair competition within the EU.