EU merger investigations see sharp decline

Every quarter, we produce Dechert’s Antitrust Merger Investigation Timing Tracker (DAMITT), utilising data that goes back to 2011.

Our second report of the year shows that, while there is a significant increase in merger investigations in the U.S., the same is not true in Europe.

Quarter two at a glance

In quarter two of 2024, the European Commission formally concluded only one significant merger investigation, a Phase I decision with remedies (conditional clearance). This figure contrasts with the second quarter of 2023, when the European Commission concluded four Phase II cases and no Phase I remedies cases.

Phase I is the initial investigation phase, which typically lasts up to 25 working days. During this period, the Commission examines whether a proposed merger could significantly reduce competition in the EU. If the merger raises no competition concerns or if the parties involved offer remedies (commitments) to address any concerns, the merger can be approved at this stage.

If the Commission believes that the merger could raise significant competition concerns and these concerns are not resolved in Phase I, the investigation proceeds to Phase II. This is a more detailed and in-depth analysis, which can last up to 90 working days (and can be extended significantly if necessary). Phase II typically involves complex cases that require further scrutiny.

The latest figure marks an almost 80 percent decrease from the average of 4.74 significant investigations concluded quarterly during the period 2011-2023 and is the first time since 2011 that no Phase II decision has been issued in second quarter.

These figures do not take into account the EX/Nasdaq Power case, though, which does not fully meet the DAMITT definition of a significant investigation because it was neither cleared in Phase I with remedies nor did it officially go to Phase II.

However, it is nonetheless noteworthy, as the parties withdrew their notification on the very day an in-depth investigation (Phase II) would have been officially opened.

Even if this case were to be included as a significant EU merger investigation, the total number of cases concluded thus far in 2024 would remain 33 percent below the average number of cases concluded in the first half of the year over the last five years.

Preliminary data for the third quarter shows an increase in activity, with three significant merger investigations already concluded so far this summer. However, with only one Phase II pending at the time our report was produced, the overall European Commission pipeline is close to being empty.

The curious disappearance of Phase I remedies cases

While the addition of another Phase I remedy case to the scoreboard could indicate a degree of normalisation, the total number of Phase I remedy cases is still a remarkably low figure compared to previous years. Only two have concluded in 2024 so far.

As repeatedly observed in past DAMITT reports, the number and proportion of cases cleared in Phase I with remedies has been steadily dropping since 2016, showing an increasing reluctance of the European Commission to clear potentially problematic deals in the short timeframe available for Phase I investigations, with two additional weeks added in case remedies are offered.

In 2016, 19 cases were cleared in Phase I with remedies whereas the average number of Phase I remedy cases nearly halved to just 8.8 cases over the 2019-2023 period.

Last year, the European Commission cleared only four cases with remedies in Phase I in total. The data available for 2024 thus far shows that this downward trend is not likely to reverse soon, with just two Phase I remedies cases recorded in the first half of the year, representing 1.1 percent of all Phase I cases concluded over the same period. This is the lowest proportion of cases cleared with remedies in Phase I since DAMITT started tracking.

First half of 2024 sees further increase in EU merger abandonments

Meanwhile, the abandonment rate for significant EU merger investigations continues to rise. In the first half of the year, it reached 20 percent, representing a nearly 12-point increase from the 7.7 percent recorded in 2023.

This confirms the trend highlighted in our DAMITT 2023 report towards an increased number of abandoned deals. Even with the low number of significant investigations concluded in the first half of 2024, the number of abandoned deals is still in line with, if not above, patterns observed in 2021 and 2022, where the abandonment rates were 21.4 percent and 22.2 percent, respectively.

By comparison, over the 2011-2023 period the average abandonment rate was approximately 7.7 percent, with several years, such as 2013, 2014, and 2019, seeing no abandonments at all.

This rise in abandonment rates suggests companies are increasingly hesitant to proceed with mergers that receive in-depth regulatory scrutiny, preferring to withdraw rather than face formal rejection.

Instead of having their deals formally blocked, with a public decision that may include unhelpful findings which will weigh on the merging parties’ ability to conclude future deals, some companies now seek to withdraw their notification when it becomes clear that the European Commission will not clear a deal.

Average duration of EU Phase II investigations likely to remain lengthy

With no Phase II investigations concluding in second quarter 2024, the record-high average duration of EU Phase II investigations of more than two years and three months reported in our first DAMITT report of the year remains unchanged – which further exemplifies the heightened scrutiny exerted by the European Commission of cases that are deemed to raise competition concerns.

But there is reason for some cautious optimism for parties to deals likely to go to Phase II. Looking at preliminary data for the third quarter of 2024, the European Commission cleared the Deutsche Lufthansa and MEF/ITA deal with remedies three-and-a-half months after the opening of a Phase II was announced – a duration that is closer to the formal timeline provided for by the EU Merger Regulation (EUMR). This shows that, despite a record-high average, a 13-month clearance is still possible in the EU depending on the deal.

Moving on to Phase I remedy cases, the first half of 2024 saw an average duration of 9.3 months, reflecting a retreat from the 13.1-month peak observed last year. Both Phase I remedy cases concluded in the first half of the year had durations of 8.9 months and 9.7 months, respectively. This is in line with the average durations of 9.3 months recorded over the past five years.

After years of clearing more and more complex cases in Phase I with remedies, the European Commission appears increasingly reluctant to issue conditional Phase I clearances in those situations which means that more of those cases will likely end up in Phase II.

The interesting example of the EEX and Nasdaq Power merger

While this case is not included in the DAMMITT figures, it is worth a closer look, as it exemplifies the hurdles that companies may face in EU merger control.

The parties offered remedies in Phase I, but those were not accepted by the European Commission – in line with its increased reluctance to clear deals that raise competition concerns in Phase I. The parties then withdrew their notification on the day a Phase II would have been officially opened, presumably to avoid being drawn into a long and complex process, with uncertain outcome.

Conclusion

The DAMITT data point to the European Commission increasingly focusing its limited resources on the most problematic cases. Cases that raise substantive issues now appear less likely to be cleared in Phase I with remedies than in the past. Parties to transactions should take this into account, including in deal documentation.

If the deal might proceed to Phase II, the long-stop date should allow for at least 23 months from announcement to clearance and the parties should not rely on the formal deadlines provided for in the EU Merger Regulation, even after the deal has been formally notified.

If the parties still plan on obtaining a Phase I clearance with commitments, they should factor in around 10 months from announcement to a decision, with significant time set aside for pre-notification talks with the Commission and the potential need to pull and refile their filing – and be prepared to go to Phase II even if they have taken all possible precautions.