What is a European Commission merger review?

The European Commission checks whether a large deal would significantly impede competition in the EU. If it would, the Commission can block it.

Whether a deal is reviewed depends on the companies' sales, not on where they are based. Two American companies can need its clearance.

Say Woodgrove and Litware together sell over €5 billion a year worldwide. Each sells over €250 million a year in the EU, and neither makes two-thirds of its EU sales in one country.

Woodgrove agrees to pay $50.00 a share for Litware, which traded at $38.00 before the deal and $48.00 now. The companies must notify the Commission.

The deal can't close until the Commission clears it, apart from narrow exceptions. Closing early can bring a fine of up to 10% of a company's total turnover.

One review usually covers the whole EU. EU countries usually don't apply their own competition laws to such a deal, though cases can be referred between them.

The tests use turnover, the companies' yearly sales. A deal is reviewed if it passes either test:

The main test

The companies together sell over €5 billion worldwide, and at least two of them each sell over €250 million in the EU.

A second test

Together over €2.5 billion worldwide, and over €100 million in each of at least three EU countries. Two of the companies must each sell over €25 million in each of those three countries, and over €100 million in the EU.

The exception

Neither test counts if each company makes over two-thirds of its EU sales in the same EU country.

Smaller deals may be reviewed by EU countries' own authorities instead.

The deadlines run in working days, which leave out weekends and holidays. The review moves through review phases:

Talks before filing

The companies may discuss the deal with the Commission before they notify it. These talks aren't on the clock.

Phase 1

From the working day after a complete notification, the Commission has 25 working days to decide. That rises to 35 if, for example, the companies offer commitments.

Phase 2

If it has serious doubts, it opens an in-depth review. It then has 90 working days, and extensions can add up to 35 more.

So phase 1 lasts up to about five weeks, and phase 2 up to about four months more, before extensions. The clock can also pause while the Commission waits for information it asked for.

If a phase deadline passes without the required decision, the deal counts as cleared under EU merger rules.

Cleared

The Commission clears the deal, in phase 1 or after phase 2.

Cleared with commitments

The companies agree to changes, such as selling a business, and the deal is cleared on that basis.

Withdrawn

The companies withdraw the notification, and may give the deal up.

Prohibited

The Commission blocks the deal. The companies can appeal to the EU courts.

More than 90% of cases end in phase 1, generally without commitments.

From September 21, 1990 to September 30, 2026, companies notified 10,164 cases. The Commission opened phase 2 in 310 and prohibited 33. Another 57 were withdrawn during phase 2.

In August 2022, Amazon agreed to buy iRobot for $61.00 a share in cash. Both are American companies. The price was later cut to $51.75.

The deal was notified to the Commission on June 1, 2023. It opened phase 2 on July 6, and sent Amazon its objections on November 27.

On January 28, 2024, the companies agreed to end the deal. They said it had no path to approval in the EU.

iRobot's holders never received the $51.75. Amazon paid iRobot a $94 million reverse termination fee, which went to the company, not its holders.

The Commission's competition website shows each notified case's stage and its provisional deadline. Companies often also announce when phase 2 opens.

Phase 2 often adds months. The expected close usually moves later, and the outside date may need to move too.

If the deal is prohibited or given up, it breaks, and the target's shares may fall.

Called EU on the list. It moves through review phases.