Setting the scene
In 2016 the main operator of the Digital Terrestrial Television (DTT) platform in France, TDF, acquired Itas. As this acquisition fell below the thresholds in the EU Merger Regulation (EUMR) and the French merger control regime, it was not subject to any pre-acquisition (ex-ante) merger review.
A complaint was subsequently filed by Towercast against TDF on the basis that the acquisition enabled TDF to strengthen significantly its dominant position in the upstream and downstream wholesale markets for digital transmission of terrestrial television services in France. Towercast argued that pre-acquisition only three companies were active in the French terrestrial television broadcasting market (TDF, Itas and Towercast) and that TDF had the overwhelmingly largest share of the market. By acquiring Itas, TDF had therefore breached the prohibition of abuse of a dominant position as set out in Article 102 of the Treaty on the Functioning of the European Union (TFEU).
The French Competition Authority rejected the complaint on the basis that the EUMR applies exclusively to “concentrations”, thereby excluding the application of Article 102 TFEU. Towercast appealed to the French Court of Appeal. The Court of Appeal then made a reference to the Court for a preliminary ruling, asking whether it is possible for a national competition authority to carry out a post-acquisition (ex post) review of a transaction under Article 102 TFEU, notwithstanding that the transaction did not meet the relevant turnover thresholds set out in the EUMR or national merger control regime.
The Court’s ruling
The Court ruled that the prohibition of abuse of a dominant position in Article 102 TFEU permits an ex-post review, at national level, of a transaction that does not meet the turnover thresholds set out in the EUMR. The national competition authorities and national courts would need to apply their own procedural rules to determine whether a purchaser who is in a dominant position in a given market, and who has acquired control of another undertaking on that market, has by that conduct significantly prevented competition in that market.
What does this mean?
Competition authorities have, for some time, been concerned that merger control regimes have not been effective in capturing acquisitions of innovative start-ups by incumbent firms (so called “killer acquisitions”). This has led to the introduction of new jurisdictional tests (e.g., in Germany and Austria) to enable the review of deals that would otherwise fall beneath the relevant thresholds, or changes in policy, such as the European Commission encouraging Member States to refer deals to it which do not meet national merger control thresholds, but which may nonetheless impede competition in the internal market.
The ruling in Towercast is a continuation of this trend and adds an additional layer of complexity and unpredictability to deal planning for companies that may have a dominant market position. The ramifications of the judgment have already been seen in the decision of the Belgian Competition Authority, just one week after the Towercast ruling, to review the acquisition of Edpnet by telecommunications operator Proximus under the rules prohibiting abusive conduct by dominant companies.
Companies that may have a dominant market position and are considering an acquisition should therefore extend their risk analysis to include a review of whether a transaction may be caught by the rules prohibiting the abuse of a dominant market position, as well as whether any merger control filings may be triggered.
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