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Written by Thédoor Melchers and Esra Koopman
The M&A landscape in the Netherlands is facing a significant change. As of a recent amendment to the Mededingingswet (Competition Act), the Authority for Consumers and Markets (ACM) will soon be able to retrospectively investigate non-notifiable mergers and acquisitions for potential abuse of a dominant position. This means that M&A transactions that fall below the notification thresholds may be investigated and possibly sanctioned if the buyer has a dominant position. The sanctions may have significant implications for the parties involved: reputational damage, fines and even the reversal of the transaction.
Risks for buyers with a dominant position
The legislative amendment was prompted by the Towercast judgment of the Court of Justice of the European Union. In this judgment, it was ruled that national competition authorities may apply the prohibition on abuse of a dominant position (Article 102 TFEU) to concentrations that fall outside the scope of merger control. Accordingly, the legislative amendment in the Netherlands will remove Article 24(2) of the Competition Act, which previously explicitly stated that a concentration could not constitute abuse. This legislative amendment gives the ACM additional powers to intervene in transactions where the buyer may have a dominant position after the transaction has been completed
A company is considered to hold a dominant position if it can act independently of competitors, customers, and end users to a significant extent. A market share above 50% is generally regarded as a considered rebuttable presumption of market power. For market shares between 40% and 50%, additional evidence is required to establish the dominant position. A market share below 40% typically indicates that a dominant position is unlikely.
Not every acquisition by a party with a dominant position immediately qualifies as abuse. The Towercast judgment shows that merely strengthening a dominant position is insufficient. Abuse only occurs if the acquisition restricts competition to such an extent that other market parties become dependent on the dominant player.
Finally, this means that buyers with a dominant position may not only have to deal with the ACM, but may also face civil proceedings from competitors or customers. Although only the ACM assesses transactions subject to notification, any party can allege abuse of a dominant position. This increases uncertainty about the legality of acquisitions, even though a large market share does not automatically lead to abuse.
Consequences for the SPA
Consequences for the SPA Given the legal uncertainty that this legislative change entails, it is advisable to include a specific provision in the SPA that addresses the risks of an ACM investigation. Such a provision can serve several purposes:
- Risk allocation between buyer and seller
- Provision for termination or modification of the transaction
- Behavioural remedies or carve-outs
- Cooperation in the event of an ACM investigation
A contractual provision provides parties with clarity and certainty in an increasingly complex and evolving legal landscape. It prevents parties from being surprised by an ACM investigation after the fact and provides a framework for cooperation and risk management. Moreover, this can strengthen the negotiating position, particularly for sellers who prefer not to assume risks that predominantly fall on the buyer.
Conclusion
The amended Competition Act and the Towercast judgment will fundamentally change the rules for M&A transactions. Transactions that are not subject to the notification requirements are no longer free from supervision. For buyers with a dominant market position, it is crucial to conduct a thorough assessment of their market power and the potential implications of an ACM investigation in advance. Sellers intending to transfer their company to buyers with a position of market power must also carefully consider the associated legal and commercial risks. By including a specific provision in the SPA, parties can better safeguard themselves against legal uncertainty and potential financial risks.
Upon request, we would be pleased to provide a sample model clause for your agreement, in which the risks are further elaborated and allocated. Please send your request to Esra.Koopman@Wintertaling.com or Thedoor.Melchers@Wintertaling.com.
