It is crucial that the parties to a proposed corporate real estate transaction (involving the acquisition of a corporate structure, the creation of a new joint venture or the acquisition of interests in an existing joint venture) consider the scope and application of the EU Merger Regulation (EUMR).
Failure to consider it in this context could delay the completion of an otherwise successful transaction as the notification preparation, notification process itself and formal clearance can take two to three months to deal with, even in simple cases. Such failure can also be costly, as fines of up to 10% of worldwide group turnover can be levied by the European Commission for failure to disclose a notifiable transaction or for completing a notifiable transaction before receiving clearance from the Commission.
Transactions will require mandatory notification to, and clearance by, the Commission if two tests are met. The first test is whether the transaction constitutes a ‘concentration’ for the purposes of the EUMR; that is, a transaction of a particular type that, broadly speaking, is defined as the change of control on a lasting basis over an undertaking. In a corporate real estate context, this could involve the acquisition of a corporate structure, the creation of a new joint venture or the acquisition of interests in an existing joint venture.
The second test looks at the financial size of the parties to determine whether they meet certain turnover thresholds. The tests must both be satisfied for a transaction to require notification. Getting lawyers involved early on a proposed transaction can help to navigate the EUMR-related pitfalls and to clarify grey areas associated with its analysis.
One way of effectively seeking clarity on a transaction is to confidentially give the Commission a briefing paper covering the proposed deal and request it consider whether a filing is necessary. Any response will only be indicative but the relevant parties can take comfort from the Commission’s position.
If the EUMR does not apply to the transaction, consider whether the national merger control regimes of any EU member state may apply. In some, notification is voluntary, so in the absence of an EUMR filing obligation, there may be no need to notify anywhere if the deal will not effect competition.
Paul Chases is a senior associate and head of corporate real estate at Herbert Smith Freehills; André Pretorius is a partner in the firm’s competition, regulation and trade department