On 23 August 2023, Luxembourg’s Ministry of the Economy (Ministry) introduced Bill of law no. 8296 setting up a merger control regime in Luxembourg (Bill). Luxembourg is the last country in the European Union to adopt a merger control regime.
The regime will mark a significant legislative change as companies must factor in the need to notify their concentrations to the Luxembourg Competition Authority (Authority) before implementing them.
The Bill provides for rather low notification thresholds
The Bill targets concentrations which are deemed to occur when there is a change of control on a lasting basis. This includes (i) mergers, (ii) acquisitions and (iii) the creation of full-functioning joint ventures (i.e., autonomous economic entity on a lasting basis).
Concentrations that do not fall within the scope of Regulation (EC) 139/2004 on the control of concentrations between undertakings will have to be notified to the Authority if they trigger both of the following thresholds for turnover in Luxembourg:
- the combined annual turnover – i.e. the sum of products sold and/or services provided to undertakings or consumers in Luxembourg – of all the parties involved in the transaction exceeds EUR 60 million; and
- at least two of the parties involved have an individual annual turnover generated in Luxembourg that exceeds EUR 15 million.
The Luxembourg regime is expected to follow EU merger control with regard to the notion of undertakings concerned/parties involved in the transaction, meaning that generally it will take into account the turnover of the company group, not just the turnover of the specific entity involved in the transaction.
The Bill takes some peculiarities of Luxembourg’s financial, banking and insurance sectors into consideration
Notably, the Bill completely excludes from its scope of application:
- acquisition transactions carried out by investment funds, securitisation funds, securitisation vehicles or pension funds, except for private equity transactions.
- transactions involving captive insurance/reinsurance undertakings.
The Bill provides a derogation procedure for transactions involving at least (i) one credit institution, large investment firm or entity related to either of them, or (ii) one insurance or reinsurance company. In this context, if the implementation of a concentration is necessary (i) as part of early intervention or recovery or resolution measures concerning the entity or (ii) due to an emergency (e.g. to protect depositors’/investors’ interests, to maintain financial stability in Luxembourg or to avoid a serious threat to it if the concentration does not take place), the Commission de Surveillance du Secteur Financier (CSSF) or Commissariat aux assurances (CAA) – respectively – must inform the Authority, which will then be divested of its review power.
Possible ex officio review of concentrations falling below concentration thresholds
The Authority will be able to examine a concentration that falls below the aforementioned thresholds if it deems that the concentration is likely to hinder competition in the Luxembourg market(s). However, the Bill's commentary stresses that this power will only be exercised in exceptional circumstances.
A standstill obligation to preemptively analyse the effects of the transaction on the market
Merging parties must (i) notify their transaction if it qualifies as a concentration and triggers the aforementioned thresholds, and (ii) wait for the Authority’s green light before closing. As with the EU merger control approach, violating these rules will be considered gun-jumping and may lead to sanctions, including fines and/or annulment of the deal.
However, the Bill provides for exceptional cases to be exempt from the standstill obligation. Parties need to make a reasoned request to the Authority and, if the latter agrees, they can proceed with the actual implementation prior to the Authority’s decision on the concentration.
The aim of the Authority’s review is to preemptively assess whether the transaction is likely to significantly impede effective competition, in particular by creating or strengthening a dominant position.
For this review, the Authority will take a case-by-case approach to define the relevant markets in line with the facts of the transaction. Cross-border activities should be taken into consideration.
It should also be noted that certain details of a notified transaction under review by the Authority will be disclosed on the Authority’s website, allowing third parties to share their opinions during the review process.
The notification procedure may require one or two phases (three in exceptional cases)
The procedure proposed in the Bill will be closely aligned with the EU merger control procedure:
- Notified concentrations will have to go through a first review phase (Phase I):
- the Authority has 25 business days to review the notification.
- at the end of Phase I, the Authority can (i) give authorisation to move forward with the transaction or (ii) decide to initiate Phase II, in the event of doubts.
- the Bill does not provide for a decision with commitment in Phase I, contrary to the EU merger control regime.
- More complicated concentrations will proceed to a second review phase (Phase II):
- following an inconclusive Phase I, the Authority will have an additional 90 business days to review the notification.
- Phase II should only apply to a minority of transactions.
- at the end of Phase II, the Authority can (i) give authorisation to move forward with the transaction (with or without commitments) or (ii) issue a prohibition to proceed with the transaction, effectively blocking the deal.
Similar to some of its EU neighbours (e.g. France and Germany), the Bill provides the Luxembourg Government with a power of evocation but only following a Phase II decision (Phase III)
- Any concerned minister who is part of the Government must issue such a decision no later than 35 business days after the adoption of the Authority’s Phase II decision.
- The minister’s decision must be based on grounds of national public interest, such as industrial, economic or financial development, competitiveness of companies worldwide, or job creation or maintenance.
- Considering other examples of Phase III in other Member States, this power will rarely be put into practice.
Transactions that are not likely to have restrictive effects on competition in Luxembourg markets could be notified by means of a simple routine check, which would require less information and result in faster decision-making. The eligibility criteria for the fast-track procedure have not yet been decided.
Sanctions/penalties in cases of non-compliance
The Authority can issue fines of up to 10% of global turnover if the parties failed to notify the transaction or if it has been concluded without proper authorisation.
The Bill also permits the Authority to impose fines of up to 1% of global turnover in other circumstances, including the provision of misleading or incomplete information (whether intentional or negligent).
The Authority will also be able to impose a daily penalty of up to 5% of the average worldwide daily turnover as a coercion measure to force companies into complying with its decision, such as providing complete information or complying with an inspection.
Actions against decisions
Phase I and Phase II decisions can be challenged by the parties by filing an action for annulment before the Lower administrative court (tribunal administratif) within three months, starting from the date of the publication of the decision or, in the absence of publication, from the date of the notification or the day on which it came to the knowledge of the applicant.
The regime is not expected to be fully effective before 2024 or to have retroactive effect
The new law will not be applicable to transactions that were agreed upon, made public, or concluded before the entry into force of the law.
Although the law is expected to be adopted in Q4 2023, the Bill states that it will enter into force on the first day of the fourth month following its publication in the Luxembourg Official Journal.
It is recommended that companies include Luxembourg merger control aspects in their transaction timetables from the end of 2023.
These aspects are to be considered in addition to any notification relating to Luxembourg foreign direct investment (FDI) screening and Regulation (EU) 2022/2569 on foreign subsidies distorting the internal market which includes a mandatory notification regime for concentrations involving companies that receive foreign subsidies (FSR). There is currently no plan for a gateway system between the FDI and the future Luxembourg merger control filing (nor between the FSR and EU Merger control filings).