Yesterday (29 August 2017), a long-awaited reform of the Italian turnover thresholds for merger control has entered into force following publication of law N. 124 of 4 August 2017 on the Official Journal (occurred on August 14th). The new turnover thresholds are immediately applicable to all concentrations between undertakings, irrespectively of the industrial sector in which they operate. The revised thresholds will make notification required for more mergers/concentrations than before. They most likely will apply to all transactions which are set to be closed after yesterday (see below for further details on this).
More specifically, the new law introduces a new set of turnover thresholds triggering mandatory notification of mergers/concentrations to the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato) prior to closing.
As of yesterday, pursuant to the revised Article 16 of the Italian Competition Act (law N. 287 of 10 October 1990), a concentration/merger is subject to mandatory prior notification with the AGCM if:
– The aggregated annual turnover achieved in Italy by all undertakings concerned by the transaction exceeds EUR 492 million; and
– The individual annual turnover achieved in Italy by each of at least two of the undertakings concerned by the transaction exceeds EUR 30 million.
Both thresholds will be increased annually by an amount equal to the national GDP price deflator index.
PRIOR TURNOVER THRESHOLDS AND RATIONALE OF THE REFORM
Originally (and until December 2012) Article 16 of law 287/90 set two alternative turnover thresholds. A concentration was subject to prior notification obligation if either one of the thresholds was exceeded – and namely if: the aggregate Italian turnover of all undertaking concerned exceeded the higher threshold (i.e. EUR 474 million in the last year of application of the initial regime, i.e. 2012); OR the Italian turnover of the target company alone exceeded the lower threshold (i.e. EUR 47 million in 2012).
As a result, an undertaking whose Italian turnover exceeded – by itself or in aggregate with a joint bidder – the higher threshold was under an obligation to notify with the AGCM any acquisition of undertakings active in Italy, irrespective of the amount and significance of the target’s turnover (which could even be null and merely potential). This system lead to an overload of work for undertakings with medium-large turnovers as well as for the AGCM because a large number of acquisitions and joint ventures completely unproblematic for competition were nonetheless subject to a prior notification obligation.
In an attempt to reduce the number of notifiable transactions, in 2012 the emergency government lead by Mario Monti amended Article 16 to make the thresholds cumulative by simply replacing the conjunction “or” with the conjunction “and”, but without re-calibrating the thresholds. Consequently, as of January 2013 (when the amendment entered into force) both the aggregate AND the target thresholds (lately adjusted at, respectively, EUR 499 million and EUR 50 million) had to be exceeded for a concentration to be subject to prior mandatory notification with the AGCM. Unsurprisingly, that system – which was in force until yesterday – lead to a dramatic drop (roughly 90%!) in the number of notified transactions compared to the previous regime.
Soon, commentators and competition experts realized that even concentrations that could pose serious substantive competition concerns might have escaped scrutiny under the new cumulative thresholds, with a net harm for market and competition. Indeed, it has been reported that a number of concentrations that underwent in-depth (or Phase II) scrutiny under the alternative thresholds regime would not have been notifiable under the cumulative thresholds regime. Consequently, in 2014 the AGCM announced a consultation on a new reform of the thresholds that lead to the system which has now entered into force.
WHAT IS THE PREDICTABLE IMPACT OF THE NEW SYSTEM ON M&A ACTIVITY AFFECTING ITALY?
The new set of thresholds in force as of yesterday bring the Italian merger control system in line with the EU system. Both now require that each of at least two of the undertakings involved in the transaction exceed a minimum domestic turnover threshold (in addition to the requirement that all the undertakings concerned exceed an aggregate turnover threshold, though in the EU system such aggregate threshold refers to the worldwide turnover whilst in the Italian system it refers to the domestic turnover).
By lowering one of the threshold from EUR 50 million to EUR 30 million and referring it to each of at least two of the undertakings concerned, irrespective of their role as buyer or target, this amendment will certainly increase the number of notifiable transactions in Italy and reduce the risk that certain problematic concentrations escape scrutiny. However, this effect will be moderate in case of a straight acquisition of an undertaking by a single company, whilst will be considerable in case of joint ventures, where at least two undertakings combine their activities or jointly purchase an existing company.
Indeed, the aggregate threshold of EUR 492 million (domestic turnover) is not so easily exceeded in Italy by a single undertaking, even in combination with a target with a significant turnover, since the majority of Italian undertakings are smaller business. Conversely, in case of joint ventures either the revised thresholds are easier to be exceeded even in case of greenfield transactions, where no existing undertaking is acquired and the parties merely combine part of their assets or decide to develop a common undertaking from nil. Before the amendment, such “naked” joint ventures were never or hardly notifiable in Italy because the EUR 50 million “target” threshold (which in case of naked joint ventures was referred to the turnover attributable to the combined assets) was never or hardly exceeded.
Notably, the Italian thresholds system for merger control is focused solely on the turnover achieved within the country and there is no requirement that the undertakings concerned own any assets in Italy: similarly to the EU model, if the companies’ sales within the territory exceed the thresholds, the prior notification obligation will be triggered and therefore even foreign-to-foreign transactions may have to be notified with the AGCM.
WHAT IS THE RELEVANT DATE TO DETERMINE WHAT THRESHOLDS APPLY?
As said, the revised thresholds are immediately applicable as of yesterday. Nonetheless, in a situation in which a transaction has been agreed before the entrance into force of the new regime whilst it is set for closing later on, the parties may query whether the previous thresholds still apply rather than the revised ones. The answer to such a query is disputed by some commentators.
Upon introduction of the previous reform in 2012, the AGCM clarified that the relevant date to establish what thresholds apply to a transaction is the date of closing, since under the Italian merger control regime the relevant date prior to which the notification must be filed with the AGCM is that of completion of the transaction, i.e. when the acquisition of control over the target is effective and can be exerted (indeed, the Italian merger control system does not contemplate an automatic standstill obligation pending clearance and the transaction can be completed just after filing). However, considering that this latest reform has lowered the thresholds that trigger the notification obligation, one may argue that the date of signing of the agreement rather that the date of closing is relevant because otherwise there might be a breach of legitimate expectations of the undertakings concerned. Hence a new clarification from the AGCM would be welcome on this regard.
However, given that this reform was announced in 2014 and has since then been subject to public consultation from stakeholders, the AGCM may argue that there cannot be a legitimate expectation on that the thresholds would not lower; and might thus stick to the traditional approach that the date of closing is the one relevant to determine the applicable thresholds.