Following its statement issued on 29 April 2021 signaling willingness to refer M&As to the EU Commission, the Luxembourg Competition Authority has taken a first substantial step towards a more effective merger control.
On 6 March 2023, the Luxembourg Competition Authority published a statement about its first referral request under article 22(1) of Council Regulation 139/2004 (“EUMR”), which it made on 30 January 2023. The request, which was accepted, was submitted by a total of 16 European authorities and concerns the potential competition issues likely to emerge from Adobe’s acquisition of Figma.
This referral not only sets a precedent for the Luxembourg Competition Authority, it also marks a significant milestone in its merger control practice by demonstrating the regulator’s commitment to referring transactions to the Commission when it believes that there is at least a threat of a significant effect on competition in the country brought about by an operation without any EU dimension.
This decision also illustrates the Luxembourg Competition Authority’s desire to implement a national merger control regime (the draft bill of law is currently under debate) and its vigilance about potentially harmful transactions while the future law is not yet promulgated.
On 15 September 2022, Adobe announced that it had entered into a definitive merger agreement with Figma. Figma is a leading collaborative design platform and direct competitor of Adobe, the giant of the multimedia and creativity software products market, whose products include applications such as Adobe XD, Acrobat and Photoshop. The deal struck has an estimated total value of USD 20 billion.
Despite the significant value of the transaction, it does not reach the turnover thresholds set by the EU Merger Regulation (‘EUMR') and, therefore, was not submitted for EU Commission assessment. It did, however, meet the national notification thresholds of Austria and Germany.
The consequences of the transaction could have a significant impact on competition in the market for interactive product design and whiteboarding software. Ergo, a major competitor will be taken off the market, Abobe’s market shares will increase significantly, and Figma’s design platform will be incorporated into Adobe products.
Referral requests in accordance with newly interpreted article 22(1) EUMR
On 15 February 2023, the Commission accepted the referral requests originally submitted by Austria and Germany, to which 14 additional Member States subsequently joined, including Luxembourg. Article 22 EUMR allows Member States to submit a request for the EU Commission to examine a concentration even when national or EU-wide notification thresholds are not met. The request can be made whenever a transaction affects trade between Member States and threatens to significantly affect competition within the territory of the notifying Member State, without necessarily having an EU-wide dimension.
The revised referral mechanism is discussed in more detail in our earlier newsflash: The revised Commission merger control referral mechanism – Practical considerations for Luxembourg M&A transactions_
To be continued
Based on the information provided by the referring authorities, the Commission concluded that the “transaction threatens to significantly affect competition in the market for interactive product design and whiteboarding software, which is likely at least EEA-wide, and, therefore, in the referring countries”.
As a first step, Adobe will have to notify the transaction to the Commission which is “best placed to examine [its] potential cross-border effects”.
While the potential cross-border effects of the acquisition are being assessed, Adobe will have to adhere to a standstill obligation, i.e. it cannot implement the transaction before securing the Commission’s clearance.
Practical consequences of this “crossing the Rubicon” decision of the Luxembourg Competition Authority for economic operators active in Luxembourg
Three immediate consequences arise from the Luxembourg Competition Authority’s newfound activism, requiring caution, vigilance and case by case analysis when completing transactions, beyond the simple assessment of thresholds:
- M&A documentation. Conditions precedent should account for the possibility and potential consequences of a referral request under Art. 22 EUMR. Where competition law questions arise, it should also be agreed which party is obliged and bears responsibility for merger control clearance (by means of “best effort” or even “hell or high water” clauses).
- Substantive competition law assessments. Transactions should be analysed as to their potential local impact in EU Member States – regardless of their size and whether they meet notification thresholds. In addition to multi-jurisdictional filing assessments, substantive analyses may be needed.
- Proactive engagement with authorities. Where questions arise as to the impact of a transaction on competition in an EU Member State, it may be necessary to proactively inform the competent authorities in order to exclude, or at least minimise, the risk of a referral. This is especially advisable where there is potential for a “tip-off” or complaint by a third party.
Expertise of Arendt & Medernach
The EU & Competition Law practice of Arendt & Medernach has extensive experience in advising on merger control matters, and has represented clients in numerous investigations by the EU Commission and the Luxembourg Competition Authority. We are at our clients’ disposal to provide advice on the new challenges posed by the EU Commission guidance, including all necessary M&A strategy concerns, substantive competition law assessments, proactive submissions and other contact with the authorities, and any other questions that may arise in this context.
To read the Luxembourg Competition Authority’s statement (EN), click here_