Notice on application of Article 16, paragraph 1-bis, of Law No. 287 of October 10, 1990: Mergers below the threshold, procedure, and scope of application

Thanks to Jasmin Mandola for collaborating on this article

On December 27, 2022, the Italian Competition Authority (the “AGCM” or “Authority”) published a notice (“Notice”) setting forth procedural rules for application of Article 16, paragraph 1-bis, of Law No. 287/90 (“Italian Competition Act”), which was introduced by Article 32 Law No. 118 of August 5, 2022.

In line with the provisions of article 22 of the EU merger regulation, Regulation No. 139/2004, paragraph 1-bis, the AGCM is allowed to control transactions that do not exceed national merger control thresholds, via request up to six months after the close of the transaction.

There has been an increase in the number of predatory and consolidating acquisitions that, while below the threshold, are still positioned to restrict competition, particularly in the digital economy and in the pharmaceutical sector. That led the AGCM to follow in the footsteps of several other Member States and identify new criteria for scrutiny.

 The new below-the-threshold conditions and criteria for the substantive assessment

Until now, application of merger control mechanisms was subject to only two cumulative criteria: the combined turnover at the national level of all the undertakings concerned exceeding 517 million Euros, and the turnover generated in Italy by each of at least two undertakings concerned exceeding 31 million Euros.

In addition to this main criteria, Article 16, paragraph 1-bis states that the AGCM may ask companies to notify below-the-threshold mergers, within 30 days of a request, if three cumulative conditions are met:

  • no more than six months have elapsed since completion of the transaction;
  • one of the two Italian turnover thresholds provided under Article 16 (i.e., 517 million Euros or 31 million Euros) is exceeded or total worldwide turnover generated by all the undertakings concerned exceeds the EU threshold of 5 billion Euros; and
  • on the basis of available evidence, the Authority believes there are concrete risks to competition in the national market or in a significant part thereof; harmful effects on the development of small enterprises characterized by innovative strategies are also to be considered.

The Authority also reserves the right, in exceptional cases, to extend the 30 days period upon request of the undertakings concerned. Failure to meet the deadline is subject to a fine of up to 1% of the turnover generated in the previous year, according to Article 19(2) of the Italian Competition Act.

In addition to the usual assessment criteria previously provided by the Italian Competition Act and relevant notices and case law, the Notice provides further elements used to detect and prevent “killer acquisitions,” such as whether the target is a startup or newly formed company with significant competitive potential, an important innovator conducting important research activity, a significant actual or potential competitor, or a company that has access to competitively significant assets (such as raw materials, infrastructure, data, or intellectual property rights) and/or provides products or services that are key inputs/components for other industries. In addition, the AGCM may consider the fact that the payment to the seller is particularly high in proportion to the turnover of the undertaking acquired.

The Notice also confirms that the ICA reserves the right to request notification of a concentration even if none of the concerned undertakings reports turnover in Italy. To determine whether such a transaction is nonetheless notifiable under the new provision, the AGCM will consider in particular:

(a) the level of diffusion in Italy of the services of the undertakings concerned, including if provided without monetary compensation (in which case, as e.g., for digital services, the ICA will take into consideration the daily volume of users of such services in Italy or the number of accesses of single users in Italy to a certain website);

(b) the presence in Italy of premises or assets of the undertakings concerned (e.g., production plants, R&D laboratories);

(c) the circumstance that the result of R&D activities may be commercialized in Italy (e.g., the titularity of a patent or the launch of authorisation process to distribute a certain drug in Italy);

(d) the existence of plans to enter the national market (e.g., the prospect of opening of production plants, or the imminent hiring of personnel or conclusion of sales contracts in Italy);

(e) any other significant connection with Italian market which may emerge from the specific circumstances of the transaction.

Temporal scope of application

The Authority clarifies that the rule does not apply to mergers completed before the date of entry into force of the provision. At the same time, as noted, the AGCM’s power to request notification of certain concentrations is limited to transactions completed at the latest in the last six months. Therefore, based on the established criteria, the Authority notes that when a concentration is implemented in several phases, the maximum deadline for requesting notification is six months from the date of closing or from the moment when change of control takes place.

Voluntary notification

 The Notice also allows undertakings voluntarily to file a below-the-threshold merger provided that one of the criteria is meet. The undertakings concerned may inform the AGCM by providing details on the transaction, the relevant parties, and the markets concerned, specifying the reasons why they believe the transaction may give rise to competition concerns or concrete risks to competition in the national market or in a significant part thereof. The Authority then will have 60 days from the voluntary communication to request formal notification of the transaction. This possibility might be also used for the benefit of undertakings seeking formal clearance from the Authority therefore removing the uncertainty related to a possible, future request for notification by the Commission and the complications that it could create in sharing the envisaged costs and liabilities, or timescale for closing, in the contract between the parties of the transaction.

Final Remarks

The Notice provides some useful guidance to identify the below-thresholds transactions that could potentially be subject to a request of notification by the ICA, or to voluntary notification under the new provision. However, the ICA refrained to go as far as providing further information on certain substantive and procedural issues that were flagged during the consultation phase on the content of the Notice.

For instance, the ICA did not clarify how it will approach and coordinate possible requests from Member States under Article 22 of the EU merger regulation over the same transaction, e.g., whether in such a case it will suspend its own proceedings while waiting for a determination of the Commission on requests under Article 22. Instead, it simply affirmed that the exercise of its powers under paragraph 1-bis of the Italian Competition Act will not prejudice possible referrals under Article 22. Further, it refrained to clarify whether, in case of voluntary notification, the notifying parties can already submit arguments aimed at removing concerns that the transaction may prejudice effective competition on the national market, considering that the Notice merely requires the parties to illustrate why they believe the transaction may give rise to concrete risks to competition in the national market or in a significant part thereof.

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