European Competition Law Newsletter – May 2020

May 4, 2020

Table of Contents

  • EU, UK Competition, State Aid and Public Procurement Law During COVID-19
  • UK Clears Merger on Failing Firm Grounds Due to COVID-19, Publishes Guidance
  • Germany Provides Roadmap for Approval of Sensitive Acquisition by a Foreign Entity
  • ABA Antitrust Law Section Spring Meeting Goes Virtual and Free

EU, UK Competition, State Aid and Public Procurement Law During COVID-19

While not the most important concern, it should be appreciated that EU and national antitrust/competition law, plus the state aid and public procurement rules, continue to apply in the EU and UK during the crisis. So far as the UK is concerned, it is subject to EU law until at least 31 December 2020 while the post-Brexit transition period is running. In any event, the UK has its own national competition law which remains in force.

McGuireWoods has distributed seven separate client alerts on these topics:

  • EU, UK Governments and Antitrust Regulators Permit Limited Competitor Cooperation Due to COVID-19
  • EU, UK Antitrust Regulators Monitor Price Increases Resulting From COVID-19 Demand
  • Don’t Overlook EU, UK Antitrust Issues With Vertical Arrangements During the COVID-19 Pandemic
  • Government Funding or State Aid in the EU, UK During the COVID-19 Pandemic
  • UK Guidance on Application of Competition Law to Business Cooperation in Response to COVID-19
  • New EU Guidance: Applying Competition Law to Business Cooperation During COVID-19
  • EU, UK Guidance on Public Procurement Rules During COVID-19

Here are the most recent major COVID-19-related developments in the UK and EU:

  • One month in, the UK Competition and Markets Authority (CMA) published an update on the work of its COVID-19 Taskforce.
  • The UK government has now adopted formal exemptions from UK competition law in four different sectors: groceries, healthcare, Isle of Wight ferries and dairy.
  • In merger control, the CMA published guidance on substance and procedure and cleared an investment on failing-firm grounds brought about by the pandemic. These topics are considered further in another article in this newsletter.
  • For its part, the European Commission continues its merger control procedures broadly as normal, but has requested that, where possible, filings be delayed due to difficulties in collecting information from third parties.
  • The Commission continues to approve a wide range of government financial support for businesses (both general schemes and individual company measures) under the state aid rules in very short time frames, including under its (amended) State Aid Temporary Framework.
  • The Commission will adopt a formal exemption from EU competition law which covers the milk, flowers and potatoes
  • The Commission published the text of a “comfort letter” provided to pharmaceutical manufacturers, exempting certain necessary cooperation between them from EU competition law.
  • As reported in McGuireWoods’ April 2020 European Competition Law Newsletter, the Commission has published emergency guidance encouraging EU member states and the UK to be particularly vigilant in relation to foreign direct investment (FDI).

Please contact us if you would like to discuss these topics or any other legal issues arising out of COVID-19 in the EU, UK or United States. McGuireWoods has established a COVID-19 Response Team.

UK Clears Merger on Failing Firm Grounds Due to COVID-19, Publishes Guidance

On 17 April 2020, the UK CMA cleared a merger under the UK merger control rules on the basis of a deterioration in the target’s financial position as a result of the COVID-19 pandemic. This is an example of applying the “failing firm” defence and is unlikely to be the last such case arising out of the crisis. The argument is likely to find particular traction in the current circumstances, although the particular conditions to apply the defence will still need to be met.

The transaction was Amazon’s completed minority investment in food delivery company Deliveroo. The CMA had been concerned that the deal could damage competition in the UK by discouraging Amazon from re-entering the online restaurant food market and further developing its presence within the online convenience grocery delivery market.

However, the impact of the pandemic caused the CMA to conclude that, without additional investment, which it decided was only realistically available from Amazon, Deliveroo would not have been able to meet its financial commitments and would have exited the market. The exit of Deliveroo would be worse for competition than allowing the Amazon investment to proceed; therefore, the transaction was cleared.

The ongoing “lockdown” in the UK has resulted in the closure of a large number of the key restaurants available through Deliveroo, and a significant decline in its revenues. While Deliveroo had sought to expand its supply of convenience groceries during the crisis, those sales were limited and had not made up for losses in its restaurants business. The CMA found that while securing additional funding from other sources may have been possible before the coronavirus outbreak, the pandemic had severely limited the availability of finance for early-stage businesses such as Deliveroo.

Separately, the CMA published guidance on its substantive merger control analysis and procedures during the pandemic. This also included a “refresher” on how the CMA analyses the failing firm defence.

On the substance, the main message is that COVID-19 impacts will, where appropriate, be taken into account, but “[e]ven significant short-term industry-wide economic shocks may not be sufficient, in themselves, to override competition concerns that a permanent structural change in the market brought about by a merger could raise.” However, it’s clear that the pandemic will be relevant in all merger control reviews now and in the future. One senior official at the U.S. Federal Trade Commission recently commented that the pandemic has shown that resilience must be a key feature of markets and therefore that supply chains and market structures will come into particular focus.

Germany Provides Roadmap for Approval of Sensitive Acquisition by a Foreign Entity

On 27 April 2020, the German Federal Cartel Office (FCO) cleared under the German merger control rules the acquisition of Vossloh Locomotives (Germany) by competitor CRRC Zhuzhou Locomotives (China). This was a controversial case in particular as CRRC is a Chinese state-owned company.

The ruling marks the first time that the FCO provided a detailed roadmap for the merger control assessment of an acquisition by such a company. As such, it is likely to be an important precedent for these acquisitions in Germany and the EU as a whole. It will also be relevant to controversial acquisitions by similar non-state-owned purchasers, for example, where the purchaser is supported by government contracts, funding or other protection.

By acquiring Vossloh, CRRC took over a key manufacturer of railway locomotive shunters in Europe. Possible state subsidies to CRRC, the availability of technical and financial means and strategic advantages from other shareholdings were considered in the competitive assessment of the merger. The FCO also looked into the threat of low-price and dumping strategies and the cost advantages resulting from CRRC’s state-subsidised activities in many other markets. It was also relevant that in complex vehicle approval procedures for shunters CRRC would in the future benefit from Vossloh’s expertise as an established manufacturer.

However, ultimately the FCO cleared the transaction since Vossloh’s competitiveness has considerably decreased over the last few years and new competitors offering innovative traction technologies have entered the market, while CRRC is currently a small player on the European market.

The head of the FCO commented:

“Based on our investigations, we were able to exclude a considerable impairment of competition on the European shunter market as a result of the merger. Although the Chinese state strongly protects CRRC, which plays a key role in as many as two of its strategic plans, namely “Made in China 2025” and the “Belt and Road Initiative”, this case shows that while Chinese state-owned companies enter markets with substantial economic power, this does not necessarily pose a threat to effective competition.”

By clearing the transaction, the FCO made it clear that a merger control analysis must be distinguished from trade policy and foreign direct investment (FDI) control considerations, at least in Germany; in some countries these are mixed. However, in cases where sensitive assets are being purchased, the separate FDI regimes in the EU and UK may still be relevant and need to be considered. Those are often highly politicised and need careful navigation.

ABA Antitrust Law Section Spring Meeting Goes Virtual and Free

This year, due to pandemic-related travel and other restrictions, the American Bar Association Antitrust Law Section’s spring meeting went virtual. The annual spring meeting is generally considered the world’s foremost antitrust/competition, consumer protection and data protection law conference, normally attracting more than 3,000 delegates to Washington, D.C.

Many of the scheduled 2020 sessions are now available for free as podcasts, video releases and live streams (see the agenda). The Antitrust Law Section took advantage of its existing “Our Curious Amalgam” podcast’s website to promote and publish the sessions.

Our Curious Amalgam is a weekly podcast which covers a range of antitrust/competition, consumer protection and data protection law topics relevant to audiences in the United States, EU, UK and worldwide. McGuireWoods’ Matthew Hall is a co-host of the podcast and has hosted a number of episodes on various EU and UK competition law topics, most recently on pharmaceutical pricing in the EU.

Additional European competition law news coverage can be found in our news section.

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