New risks in M&A: EU's revised Article 22 referral policy and mitigation strategies for business (EU merger control)

The European Union has adopted a bold new approach towards the use of the referral mechanism set out in Article 22 of the European Union Merger Regulation ("EUMR"). As a result, transactions which do not qualify for review under merger control regimes in Member States can now be referred to the European Commission for assessment and approval.

On 20 April 2021 the first referral under this revised system was accepted by the European Commission in relation to the acquisition of the US-based healthcare company GRAIL by Illumina, Inc. ("Illumina/GRAIL").

This marks the beginning of a new chapter in merger control in Europe. Jurisdiction to assess mergers, whether at a national or EU-level, was formerly determined by applying bright-line tests which typically related to the turnover of merger parties in relevant jurisdictions. This provided a high degree of legal certainty, enabling businesses to identify in advance merger control clearances required for an envisaged transaction and evaluate related risks and timing implications for closing.

The revised use of the Article 22 referral system introduces considerable legal uncertainty and risk. It presents significant practical challenges for deal planning and execution. Merger parties will now need to consider the conditions for referral under Article 22 EUMR, assess referral risk and, in appropriate cases, consider means to mitigate such risks, for instance through informal consultation with competition authorities and the inclusion of appropriate conditions in transaction documents.

Completed transactions may be subject to referral and review under Article 22 EUMR, a notable departure from conventional practice under the EUMR.

These and other practical and strategic considerations are explored in this alert, as is the recent referral of Illumina/GRAIL.

Click here to read the full briefing.

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