EU court ruling expands Brussels’ powers to scrutinise tech mergers

An EU court ruled that Brussels has the jurisdiction to examine the $8bn merger of US biotech groups Illumina and Grail even though the latter company has no revenues in Europe and the deal does not require member states’ scrutiny, expanding the powers of European regulators.

The ruling could set a significant precedent because it extends Brussels’ reach over deals in sectors such as technology and biosciences that potentially damage European rivals, adding an extra level of uncertainty for companies seeking to pursue mergers and acquisitions.

“The commission has the competence to examine that concentration which did not have a European dimension or fall within the scope of the national merger control rules of member states of the EU or states party to the agreement on the European Economic Area,” the General Court said on Wednesday.

Gene sequencing company Illumina said it would appeal against the decision at the European Court of Justice, arguing that the deal will boost investment in biotech and be transformative in the fight against cancer.

According to existing merger regulations, Brussels regulators have jurisdiction only if the company being acquired has a commercial presence in the EU and meets revenue thresholds. Brussels’ focus on the case of cancer test maker Grail was seen as controversial because the US company has no presence or revenues in any member state.

These new vetting powers, which activate a dormant article in the European treaty, will allow Brussels to open probes into transactions that fall below these thresholds, mainly “killer” acquisitions whereby large companies use their strong position to buy out rivals before they become serious contenders, undermining competition.

Legal experts said the ruling added antitrust risks to dealmakers and companies seeking to buy smaller competitors.

“This is a big deal,” said Salomé Cisnal de Ugarte, an antitrust partner at King & Spalding in Brussels. “This gives a significant power to Brussels that it didn’t use before and it will encourage member states to refer deals for which they don’t have jurisdiction to the commission to review them.”

She added: “Companies will have to assess a potential EU review if they are in particular sectors, like tech and life sciences. This makes dealmaking more uncertain because you will have to evaluate the risk of an EU merger review.

“Any deal that could have a competition impact or any deal that could risk a complaint by competitors is now at increased risk.”

Illumina said: “We remain focused on obtaining clearance of the deal. We continue to work with the European Commission to reach a resolution.

“We are committed to showing that this deal is not only pro-competitive, but that it will also usher in a transformational new phase in the detection and treatment of cancer by facilitating equal and affordable access to the life-saving early cancer detection test sold by Grail.”

An ECJ ruling on whether the EU has jurisdiction on the Illumina deal is unlikely to be made this year, however.

Antitrust investigators, led by competition commissioner Margrethe Vestager, were already scrutinising the transaction and are expected to restart proceedings soon. Their probe was suspended during the deliberations at the General Court.