A ‘killer acquisition’ is an acquisition of a potential rival whilst they are still in the early stages of their development, whose turnover is small or zero, in order to eliminate them as a possible source of future competition. Such acquisitions often fly under the radar of EU and national merger regimes which are usually only engaged when the turn-over of a target exceeds a certain threshold. They tend to be a particular problem in digital services where companies try to expand their market share whilst charging nothing or very little to begin with and pharmaceutical companies whose new techniques or medicines may take years to develop and not yield revenue for a significant period of time.

To solve this problem, the European Commission intends to use an existing tool in its policy arsenal – Article 22 of the EU Merger Regulation. In essence, Article 22 states that a competition authority of a Member State may refer a merger to the Commission, even where it fails to meet the relevant threshold tests, either at the EU or at the national level, if it: (i) affects trade between the Member States and (ii) threatens to significantly affect competition within the territory of the Member State or States making the request.

Although such referrals had previously been discouraged, the Commission issued guidance on the application of Article 22 on 26 March 2021 changing this approach in order to ‘facilitate and clarify’ the application of Article 22. The guidance offers more detail on what constitutes affecting trade between the Member States and threatening to significantly affect competition within the territory of the Member State. Importantly, the guidance states that referral under Article 22 would be appropriate “where the turnover of at least one of the undertakings concerned does not reflect its actual or future competitive potential.” The guidance gives examples such as: (i) a start-up with significant competitive potential that has yet to develop or implement its business model generates significant revenues (or is in the initial phases of doing so); (ii) an important innovator that is still conducting potentially important research; (iii) an undertaking that has access to competitively significant assets (like raw material, infrastructure, data or intellectual property rights).

It has been reported that this new guidance has already been put into effect by the French competition authorities who are referring the acquisition of cancer start-up Grail by Illumina, a leading DNA sequencing company, to the Commission even though it does not meet the relevant national thresholds. The Dutch authorities are also reportedly joining the referral.

The emphasis on Article 22, whilst potentially good for competition in the EU, also throws up challenges for companies. The acquisition of an undertaking will now be at greater risk of a referral even if it falls below the turnover thresholds if it meets the Article 22 tests (on affecting trade between the Member States and competition), especially if it conforms to the examples in the guidance. Also, such referrals can be made even after the acquisition. Thus there will potentially be less legal certainty in the wake of this new approach. As such, acquirers may well need to consult the Commission (and national authorities) before embarking on an acquisition that risks falling foul of Article 22.