Merger, she wrote (Part 3): Pleading your case – Efficiencies, balancing and Article 21

The architecture of the Commission's efficiencies framework has been redrawn in the draft Guidelines, but the underlying test is unchanged. The threefold cumulative requirement familiar from merger control practice remains in place: efficiencies must be verifiable, merger-specific, and benefit consumers (para. 294).

What changes is the architecture above it. The draft now distinguishes between direct efficiencies – cost savings, quality improvements, and pricing benefits flowing from the integration of the parties' assets – and dynamic efficiencies, which confer the ability or incentive to invest or innovate in new or improved products, distribution, or production (paras. 295, 296).

This dynamic category is new. The draft acknowledges that disruptive innovation typically requires large, sustained investments with uncertain returns, and that those returns may be improved by the ability to pursue several R&D workstreams in parallel (para. 296). The time horizons referenced in the draft track the substance of the benefits in question: dynamic efficiencies are timely if the underlying investment in principle materializes shortly after closing, but the consumer benefit may land on a longer horizon, scaled to the market and the theory of harm in play (para. 328). The Commission also signals that it will engage with dynamic counterfactuals – likely entry, expansion, or technological change – where these can be predicted with sufficient certainty, broadening the lens through which prospective benefits are tested. The further out the benefit, however, the more carefully it must be substantiated. Forward-looking benefits are therefore not automatically discounted, but neither are they waved through.

Proponents of a more (politically) open merger control will welcome para. 298, which expressly recognizes that, in addition to scale, resilience and sustainability may also “in some situations” deliver verifiable, merger-specific consumer benefits. Resilience efficiencies cover security of supply, broader infrastructure, and reduced exposure to external disruptions, including through greater purchasing power over critical inputs; sustainability efficiencies cover reductions in environmental pollution from production, improved access to sustainable inputs, and the creation of new or improved sustainable products (paras. 298, 299). This has the potential to open up entirely new avenues for defending a merger, but these aspects remain firmly tethered to the “verifiable / merger-specific / consumer-benefit” test. Put bluntly: throwing buzzwords around will carry no weight in merger control reviews.

Where demonstrated efficiencies at least offset the identified harm to competition on a lasting basis, the merger is compatible with the internal market (paras. 339, 341). In this balancing exercise, the Commission considers the parameter of competition affected by the harm and the benefit, the timeframe and likelihood that each will materialize, and their respective magnitude. Harm and benefits expected to accrue directly from the merger are inherently more certain than dynamic harm and efficiencies (para. 341). It is also worth highlighting that the Commission stresses its margin of discretion with regard to economic matters in weighing demonstrated efficiencies (para. 300) – a refinement of the leaked draft's wording. Within that frame, the burden scales: the greater, more certain, and more immediate the harm, the larger and more likely the benefits must be to offset it (para. 350).

Three balancing scenarios are then mapped out.

• Symmetric balancing – where harm and benefit accrue on the same parameter and over the same timeframe – allows the use of quantification tools and direct comparison (para. 343).
• Asymmetric balancing applies where harm and benefit concern different parameters or different time periods; the Commission may then resort to consumer surveys, willingness-to-pay measures, and net-present-value computations (paras. 347, 350).
• Cross-market balancing is the most carefully bounded: out-of-market and collective benefits may be taken into account, but only where the harmed consumers substantially overlap with the beneficiaries (para. 355). A merger that harms consumers in market A and benefits consumers in unrelated market B does not pass the balancing test on the strength of B alone. For this type of balancing in particular, merger parties are called upon to build their theory of benefit with the same evidentiary care that the Commission applies to its theory of harm – and they must show how the benefits actually reach the consumers harmed (para. 357).

All of these mechanics ultimately rest on a familiar normative claim: competition itself is the long-term driver of efficiency and innovation. The lower the effective competitive constraint on the merging parties post-merger, the less incentive they have to maintain or build on the efficiencies, and the more likely consumers will suffer in the long run (para. 346). That is why, even for highly beneficial mergers, the Guidelines stop short of providing any kind of straight clearance pathway.

Following the efficiencies section, the Guidelines turn to a topic that, at first glance, seems unrelated to the merger control analysis: Part III addresses Member States’ intervention powers in relation to deals that fall under the Commission’s merger control purview – that is, the interpretation of Article 21 EUMR. It would not, however, be entirely accurate to say this has no place in the draft. Although technically distinct, these provisions, like the substantiation of theories of harm and efficiencies, can have a decisive impact on the ultimate fate of a merger.

In recent years, Member State intervention powers have repeatedly caused friction with the Commission’s merger control reviews. UniCredit/Banco BPM, where Italy invoked golden-power conditions on a transaction the Commission had cleared; BBVA/Sabadell, where the Commission opened infringement proceedings against Spain; and the older VIG/AEGON CEE Hungarian intervention all sit visibly behind the draft’s language. Executive Vice-President Ribera, presenting the draft to the College of Commissioners, said that Member State interventions had in some cases "unnecessarily hindered the expansion of European businesses".

The draft responds to this and opens the relevant section by emphasizing the one-stop-shop principle. The Commission stresses that Article 21 EUMR primarily enshrines its exclusive competence over EU-dimension mergers, and that it is not a backdoor for Member State interference in merger control (paras. 358 et seq.). The Member State competence that Article 21 preserves is narrower – the protection of specific legitimate interests other than competition – and paragraph 361 places the evidentiary burden on the Member State invoking it. Public security, media plurality, and prudential rules are the only three interests that may be asserted without prior Commission approval (para. 366).

Each of these recognized interests carries its own constraints. Public security must be interpreted strictly and may not be misapplied to serve purely economic ends, such as the promotion of the national economy (para. 369). Para. 370 adds a solidarity principle: other Member States and their nationals are prima facie not a public-security threat. Third-country acquirers, however, fall outside the solidarity principle and remain subject to national FDI screening on its own terms. Para. 372 gives media plurality its first free-standing definition – access to a variety of media services and content carrying diverse opinions, voices, and analyses – something the leaked draft had not provided. Para. 376 then makes an important structural point about Member States’ prudential rules: harmonization at EU level (through the capital requirements legislation, the Single Resolution Mechanism, the Bank Recovery and Resolution Directive, and the rest of the prudential acquis) has measurably narrowed the room for standalone national intervention. The published draft extends that observation from prudential rules specifically to the financial services sector as a whole.

Beyond these constraints on the three recognized interests, every other public interest a Member State may articulate – safeguarding vital services, consumer protection, or anything else – must be notified to the Commission before adoption and may not be implemented before clearance (para. 390). Para. 391 specifically addresses a “labelling loophole”: where reasonable doubt exists about whether a measure genuinely protects a recognized interest, Member States may not simply “slap the label” on the intended measure and proceed. The notification and standstill requirements apply instead.

The Commission also recalls the general principles of EU law that Member States must adhere to when implementing measures to protect specific legitimate interests other than competition. Member State measures must remain limited to what is strictly necessary (para. 361); they must be both suitable and not excessive (para. 380). In that regard, para. 380(b) contains a particularly substantive point: measures that prohibit a transaction, or that have the de facto effect (see para. 365) of forcing it to be abandoned – through unduly lengthy regulatory review processes or unjustified conditions – are more likely to infringe Article 21(4) EUMR.

Para. 382 then addresses non-discrimination: acquisitions by EU companies cannot be treated less favorably than acquisitions by national ones, and Member States cannot exercise their prerogatives to practice de facto favoritism towards firms or nationalities of their choosing. Similarly, measures targeting a specific merger, as opposed to measures of general application incidentally affecting it, are flagged as more likely to violate Article 21(4) EUMR (para. 382). Together with the solidarity principle, para. 382 is the draft's structural defense against the kind of national favoritism that has driven the contentious cases mentioned above. Importantly, para. 389 closes the section on the Commission’s substantive assessment with a somewhat conciliatory instrument: a compatibility presumption. Member State measures that track the results of European reviews under the EU FDI Regulation, ECB or financial-sector authority recommendations on prudential rules, or media-plurality recommendations under the European Media Freedom Act are presumed compatible with Article 21 EUMR.

The Article 21 section concludes with a few procedural notes. While Member States may take measures protecting the recognized interests mentioned above without prior notification, measures protecting other public interests must be notified before adoption and cannot be implemented before Commission approval (para. 390). Once the notification of a Member State measure is complete, the Commission has 25 working days to decide on compatibility (para. 393); absent notification, it may act on its own motion or following a complaint, with no deadline (para. 394). Following such reviews, the Commission may adopt interim, positive, or negative decisions; where a Member State refuses to withdraw an incompatible measure, it may move to Article 258 TFEU infringement proceedings (paras. 395 and 398).