TheChek News Flow

Was it nature or nurture? In the unhappy case of a DNA testing company and its sliding share price, the answer is both

Even before its birth as a public company, 23andMe never really had a chance. The DNA-testing firm’s shares have slid, revenue has disappointed and profit has not materialised. Co-founder Anne Wojcicki now wants to take 23andMe private, at a meagre price. This misfortune is the result of both nature and nurture.

As business models go, 23andMe was stunted from the start. Customers pay to spit into a tube, mail it back and learn what is written in their genes. Results can range from discovery of genes associated with serious medical conditions to more frivolous revelations, such as the genetic propensity to hate other people’s eating noises.

The problem is that after that big reveal, there is not much scope for recurring business. Back when 23andMe’s backers exploited frothy market conditions to merge with a special purpose acquisition company, the company forecast $400mn of revenue by 2024, boosted by activities such as drug development. It made just $220mn.

Wojcicki is to blame, though a wider slide in valuations of experimental drugmakers didn’t help. The godparents share some responsibility: Citigroup and the late Credit Suisse brought 23andMe to market in 2021. Citi’s analyst declared the $10 stock to be worth $14, only for the share price to halve in just over six months.

Even an injection of Richard Branson’s DNA didn’t help. The Virgin mogul set up the Spac that acquired 23andMe and handed it a public listing. His involvement in other blank-cheque firms has flopped too. An investment in eco-disinfectant maker Grove Collaborative has shrunk by 97 per cent. Of the two space companies Branson sold to Spacs, Virgin Galactic’s operations are on hold and Virgin Orbit went bankrupt.

The best hope for 23andMe is a takeover by Wojcicki, who proposed buying the portion of the company she doesn’t own for 40 cents a share in July. That was rejected by independent directors, who subsequently resigned. With the stock trading at 27 cents, it no longer looks so mean.

Still, it’s not clear what Wojcicki would get. No fewer than 13 US states — covering one-third of the population — have passed laws forcing companies to get consent from genetic data providers before a transfer to a new owner, say privacy advocates at the Electronic Frontier Foundation. If many say no, the value of 23andMe’s main asset may melt away before the ink is dry on a deal.

That’s more reason for investors to take what they can get and learn from their mistakes — namely, piling into a fragile, unproven business model in a hyped-up market. Genetic testing makes it possible to anticipate future challenges from the get-go. Backers of 23andMe did nothing of the sort.

The group saw a “marked deterioration” in sales of fashion and leather goods to Chinese consumers.

PARIS — The Chinese dam has broken for LVMH Moët Hennessy Louis Vuitton.

The world’s biggest luxury group missed market expectations with a 4.4 percent drop in revenues in the third quarter, blaming lower growth in Japan and a “marked deterioration” in sales of clothing and accessories to Chinese nationals.

Overall sales in its key fashion and leather goods division were down 5 percent on a like-for-like basis versus the same period last year, sharply below a Visible Alpha consensus forecast for a 1 percent increase.

The sector leader’s struggles illustrated the depth of the crisis in confidence among Chinese consumers.

Their spending on fashion and leather goods was down in the midsingle digits in the third quarter, after rising in the mid- to high-single digits during the first half of the year, chief financial officer Jean-Jacques Guiony told analysts and journalists on a webcast on Tuesday.

Golden Week Not That Golden

Business in watches and jewelry remained under strain, but did not worsen. The country’s National Day Golden Week holiday, which ran from Oct. 1 to 7, did not move the needle either way, Guiony noted.

The French conglomerate, which owns more than 75 brands including Louis Vuitton, Dior, Tiffany & Co. and Sephora, is on a general cost-cutting drive, but it plans to continue investing in stores, communications and events in China next year in the belief that demand will eventually bounce back. “We don’t give up,” Guiony said.

“We are still very hopeful that the luxury industry will continue to develop and will continue to surf on the wave of the emergence of the upper middle class,” he added. “We see absolutely no reason why, after a cyclical downturn as we are experiencing today, we shall not be in a position to recover.”

The fortunes of luxury stocks have been closely tied to China’s announcements regarding economic stimulus measures designed to counter flagging growth linked to factors including a slumping property market and high youth unemployment.

The world’s second-largest economy is at risk of missing its target of around 5 percent growth in 2024, analysts say.

Guiony said recent announcements showed that Chinese authorities understand the need to spur household spending, though he would not speculate on the timing of a potential turnaround.

“Whether these measures will be sufficient or not, [or] will be completed in the future by further measures, I don’t have a clue, but clearly it shows that they are taking the issue very seriously,” he remarked.

Slowdown Since Second Quarter

Reporting results after the market close, LVMH said revenues totaled 19.07 billion euros in the three months to Sept. 30, below the Visible Alpha forecast of 20.01 billion euros.

Stripping out the impact of currency fluctuations, sales were down 3 percent year-on-year, indicating a slowdown from the second quarter, when organic revenues increased 1 percent.

Like-for-like sales in Japan were up 20 percent in the third quarter after a 57 percent jump in the prior three-month period as the yen recovered from its recent weakness.

In the rest of Asia, the trend worsened with a 16 percent decline in the third quarter.

Sales were flat in the U.S. and up 2 percent in Europe, representing a slight quarterly deceleration in both cases.

LVMH does not break down results by brand and Guiony offered little insight on the underperformance of fashion and leather goods, beyond saying that Vuitton was slightly above the division average and Dior slightly below.

Creative Churn

The segment is facing a period of creative churn, with the departure of Hedi Slimane at Celine, to be succeeded by Michael Rider; Kim Jones exiting Fendi, with no successor yet revealed, and Sarah Burton taking over at Givenchy.

Guiony said LVMH was counting on product innovation to emerge from the market slump, and the onus will be on the new artistic directors to stoke excitement around their offerings, although these won’t come on stream for several quarters.

Some analysts have suggested that its cash cow brands are also in need of a refresh.

“The impression is that both LV and Dior are in transition and need a breather before they regroup and restart. Both brands have seen the same womenswear creative directors in place for a long while, which seems less than ideal,” Bernstein analyst Luca Solca and his team said in a report in August.

Uncharacteristically, Tuesday’s initial press release from LVMH did not include a quote from chairman and chief executive officer Bernard Arnault, with the group merely reiterating its guidance for the year.

But at an event last week celebrating the 10th anniversary of the luxury group’s vocational training program for craftspeople, the luxury mogul emphasized the importance of quality products over marketing.

“Our future customers should feel drawn to our products because of their perception of the excellence of our craftspeople, and not because we’re trying to reel them in with some classic marketing tactic based on a study of what they want,” Arnault said.

LVMH’s share price has fallen by 27 percent from its intra-year peak of 872.80 euros on March 14 as inflation has curbed discretionary spending.

But Guiony made clear that LVMH would not be changing strategy or lowering prices in an attempt to win back aspirational customers.

“I think it would be a mistake. We have to stay true to what we are. The offer in luxury has been the key strength over the years,” he said. “The current situation is more demand-driven than offer-driven.”

Organic sales of watches and jewelry were down 4 percent in the third quarter, while wines and spirits posted a 7 percent drop. On the bright side, perfumes and cosmetics were up 3 percent, and selective retailing rose 2 percent.

Revenues at travel retail operator DFS are still below 2019 levels, and LVMH said last week that it was bringing back Ed Brennan as interim CEO to help steer the business back to growth.

More Management Changes?

There is speculation that other senior management changes are in the works, after a series of big shifts in LVMH’s C-suite and the appointments of Arnault’s sons Alexandre and Frédéric to its board of directors.

During this year alone, executive changes have included the nomination of a new deputy CFO and head of LVMH Fashion Group, as well as the stepping down of Antonio Belloni, LVMH’s long-standing group managing director.

In late September, LVMH revealed internally the upcoming departure of Christopher de Lapuente, CEO of the selective retailing division, who is retiring at the end of October.

Even as it tries to rein in spending, the luxury group must deal with a number of unexpected bills in the coming months.

If confirmed, French Prime Minister Michel Barnier’s plan to raise the corporation tax would cost LVMH between 700 million and 800 million euros, Guiony said.

Meanwhile, a disappointing Champagne harvest is set to wipe 40 million to 50 million euros from the profits of the division, he added.

Cécile Cabanis, participating in her first call as deputy CFO, said the wines and spirits division would also be hit by China’s imposition of temporary anti-dumping measures on brandy from the European Union, a measure that disproportionately affects cognac producers.

Cabanis said China accounts for just under 20 percent of Hennessy’s revenues, but tariffs should have limited near-term impact as inventories in China are high due to recent weak demand.

LVMH was the first major player to report third-quarter sales. French group Kering is due to unveil its figures on Oct. 23, followed by Hermès International on Oct. 24.

“For the time being, the material revenue miss of the luxury bellwether LVMH is a clear negative for the industry ahead of the [third-quarter] reporting season and in the run-up to key Christmas and Chinese New Year trading periods,” Thomas Chauvet, analyst at Citi, said in a research note after the results.

Transportation Department says it’s the largest penalty against an airline for civil-rights discrimination

Lufthansa LHA 3.24%increase; green up pointing triangle was fined $4 million by U.S. regulators, who accused the German airline of discriminating against 128 Jewish passengers by stopping them from making a connecting flight due to the alleged misbehavior of a few fliers.

The passengers, who were going from New York City to Budapest in May 2022 for an annual memorial event in honor of an Orthodox rabbi, weren’t allowed to board a connecting flight in Frankfurt, Germany, the U.S. Transportation Department said.

On the first leg of the flight, some passengers said they were told by the crew to wear face masks and not to stand in the aisles. The passengers said they didn’t see anyone that didn’t comply. Lufthansa at the time required passengers to wear a face mask, while U.S. and German law prohibit passengers from assembling in aisles or galley areas during a flight.

The captain of the flight informed a Lufthansa security manager of misbehavior by passengers traveling on to Budapest. No specific passengers were identified, according to the Transportation Department. Still, the airline put a hold on more than 100 passengers’ tickets.

In Frankfurt, the gate staff called the names of passengers allowed to board, and left the 128 travelers waiting at the gate “confused and upset” as the plane left, the Transportation Department said.

Most of the 128 passengers were wearing clothing worn by Orthodox Jews, such as black hats, pants and jackets. They told the Transportation Department that they were treated like they were a group of one, even though many didn’t know each other, “because they were openly and visibly Jewish.”

In a video posted to social media a few days after the flight, a Lufthansa employee talking to an upset man at the Frankfurt airport says, “It was Jewish people who were the mess.” The man replies, “Jewish people on the plane made a problem, so all Jews are banned from Lufthansa for today?” She answers, “Just for this flight.” The video was verified by Storyful, which is owned by News Corp, the parent company of The Wall Street Journal.

Lufthansa tweeted an apology several days after the flight, saying it regretted that “the large group was denied boarding rather than limiting it to the non-compliant guests.”

The Transportation Department said the $4 million fine is the largest it has issued against an airline for civil-rights violations. Half of the fine must be paid within 30 days. The other $2 million was credited to Lufthansa for paying back the affected passengers.

Penalties for civil-rights violations by airlines are somewhat uncommon, as proving discrimination can be difficult. Airlines are more commonly fined for customer-service violations such as not providing required refunds.

“No one should face discrimination when they travel, and today’s action sends a clear message to the airline industry that we are prepared to investigate and take action whenever passengers’ civil rights are violated,” said Transportation Secretary Pete Buttigieg.

According to the Transportation Department, Lufthansa said the passengers were denied boarding due to an “unfortunate series of inaccurate communications, misinterpretations, and misjudgments,” and its employees didn’t discriminate against customers. Lufthansa rebooked most of the passengers on flights the same day.

Lufthansa said Tuesday it has cooperated with the Transportation Department and will continue to have a dialogue with Jewish organizations and advocacy groups. It said it has created antisemitism and discrimination training for its employees.

Jewish organizations have called out rising antisemitism in the U.S. and other countries in recent years, a problem worsened since the Oct. 7 attack on Israel by Hamas last year and the ensuing war in Gaza.

Jonathan Greenblatt, the CEO of the Anti-Defamation League, a Jewish advocacy group, said in a post on X that the incident “was clear antisemitism” and that the airline blamed “Jews as a group for the alleged actions of a few.”

The Transportation Department said it had a right to investigate the Lufthansa incident because the flight originated from the U.S. and Lufthansa’s foreign air carrier permit requires it to obey U.S. laws.

Alibaba, Baidu, and state-owned Beijing Financial Holdings among investors who have agreed to take over 30% of Horizon Robotics’ shares ahead of IPO

Alibaba 9988 -0.65%decrease; red down pointing triangle and search-engine giant Baidu BIDU -5.19%decrease; red down pointing triangle are investing in a nearly $700 million equity offering by a Chinese smart-driving firm, indicating rising demand for assets in the rapidly growing market for autonomous driving.

Horizon Robotics, which is planning to raise as much as 5.41 billion Hong Kong dollars through an initial public offering, equivalent to $696.6 million, will begin taking orders from institutional investors starting Wednesday, it said in a filing.

Alibaba, Baidu and state-owned Beijing Financial Holdings are among the cornerstone investors who have agreed to take over 30% of the company’s shares ahead of the IPO. Horizon Robotics is expected to start trading on the Hong Kong exchange on Oct. 24.

Having cornerstone investors helps companies better market their shares to institutional and retail investors.

Chinese companies have been exploring the use of advanced driver-assistance systems in consumer cars and robotaxis as a progression toward full self-driving vehicles. Chinese policymakers are promoting the development of cars, roads, and cloud services to support autonomous driving.

Horizon Robotics provides advanced driver-assistance systems and autonomous-driving solutions that combine algorithms, purpose-built software, and processing hardware for assisted and autonomous driving for passenger vehicles.

The company has set a price range of 3.73 Hong Kong dollars to 3.99 Hong Kong dollars per share. The final IPO price will be determined on Oct. 22.

The offering comes at a time when Chinese equities markets are showing some signs of revival following Beijing’s multibillion-dollar monetary and fiscal push to rejuvenate its ailing economy, which has been battered by weak consumer demand and a real estate slump.

Horizon Robotics said that nearly 70% of the IPO proceeds will be used over five years for research-and-development purposes, while the rest will be used for sales and marketing expenses and meeting working capital needs.

Goldman Sachs, Morgan Stanley and China Securities International are among the banks advising Horizon Robotics on the IPO.

Push for Budget reforms to allow foreign residents to pay tiered charges amid fears of exodus of rich

Wealthy foreigners and their advisers are urging chancellor Rachel Reeves to replace the UK non-dom regime in this month’s Budget with a new system modelled on Italy’s flat-tax system that they say would halt an exodus from Britain.

Foreign Investors for Britain, a lobby group set up after July’s general election, has proposed a so-called tiered tax regime that would exempt non-doms from inheritance tax on non-UK assets and free from UK tax on foreign income, gains and certain UK investments for up to 15 years. 

They would pay a tiered annual charge to do this, ranging from a £200,000 charge for net wealth up to £100mn to a £2mn charge for net wealth over £500mn. 

The previous Conservative government pledged in March to abolish the non-dom regime that allows wealthy foreign residents to avoid paying UK tax on overseas income, cutting the amount of time that people can benefit from the perks of the status from 15 years to four. 

The Labour government confirmed it would implement these changes and pledged to tighten the rules further by removing the ability for non-doms to use trusts to shelter their overseas assets from UK inheritance tax.

Non-doms, their lawyers and tax advisers have urged the government to dilute these proposals, amid warnings that it would bring in little revenue and concerns that wealthy foreigners are already leaving the UK for countries including Italy, Switzerland and the United Arab Emirates. 

Their main issue is with the new inheritance tax rules and Reeves is considering dropping this element after being told that making non-doms’ entire global estate subject to UK inheritance tax could cause people to emigrate.

Leslie Macleod-Miller, chief executive of Foreign Investors for Britain, said: “The government is saying that they’re determined to lead the way on growth but we’re concerned they’re leading those who have the ability to partner with the government on growth to other jurisdictions.” 

Foreign Investors for Britain’s proposal for a tiered tax regime follows the success of a flat tax that was announced eight years ago in Italy by then prime minister Matteo Renzi’s centre-left administration. 

As part of a series of tax breaks designed to reverse the country’s infamous brain drain and lure wealthy foreigners, a newly arrived resident — or an Italian who has lived abroad for at least nine years — can pay a flat tax of €100,000 a year on any foreign income and assets for up to 15 years, and be fully exempt from inheritance tax on foreign assets during that period. In August prime minister Giorgia Meloni’s cabinet approved a rise in the annual levy to €200,000.

Macleod-Miller said that their proposed tiered tax regime for the UK “speaks to reform, gives certainty and is fair because those with the broadest shoulders bear the heavier burden. It has a simplicity to it and will provide real revenue that will go straight into frontline services.” 

Reeves hoped to raise £2.6bn over the parliament from her crackdown on non-doms, including £1bn in the first year.

A new report published on Wednesday by consultancy Oxford Economics on behalf of Foreign Investors for Britain suggested that, instead of raising additional revenues, Labour’s proposed non-dom reform could cost £900mn in 2029-30 and said that the lobby group’s alternative proposal would raise £1.1bn for the exchequer in 2029-30.

Foreign Investors for Britain, which is funded by non-doms and their advisers, is due to speak to Downing Street about such a tiered tax regime on Thursday. Last month it presented research to officials at the Treasury and HM Revenue & Customs showing that 83 per cent of non-doms identified inheritance tax on worldwide assets as a key driver of any decision over whether to emigrate.

In June, research by a dozen law firms and one accountancy firm found that around 4 per cent of the 300 or so non-dom clients surveyed had been planning to leave the country within two years before the March Budget. This rose to 55 per cent after the then Tory chancellor Jeremy Hunt’s Budget announcements.

In contrast, 80 per cent of respondents said in the June survey they would be willing to remain UK resident for a longer time if a special tax regime were offered, that required annual payments of a pre-determined sum, like that in Italy.

“It’s not about tax breaks for wealthy people. It’s about recognising that these people are highly mobile and there is a very strong international competition to attract them,” said Damian Bloom, partner and head of private client at law firm Taylor Wessing, who has been working to co-ordinate the industry response.

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UK luxury brands in risk of going from riches to rags

Mulberry and Burberry in need of a drastic change of style

“Heritage” features large in the marketing mythology of the world’s ritziest brands, signalling such virtues as longevity and timeless craftsmanship. “Heritage,” says Clive Black, retail specialist at brokers Shore Capital, is an invaluable aid to brand recognition, “and a huge challenge for those that don’t have it”.

But it is also a double-edged sword in an industry that sets out to test tradition and celebrates season-to-season mutability. Looking back can be a difficult way to move forward. 

Few luxury goods companies cling harder to their heritage than Burberry and Mulberry, the UK’s only two listed makers of deluxe clothing and leatherwear. The former makes much of the legacy of Thomas Burberry, who designed a light, breathable, rainproof fabric that was used by explorer Sir Ernest Shackleton and British soldiers in the trenches in the first world war. Mulberry — smaller but the UK’s largest maker of top-notch bags and belts — talks of its roots in stereotypical British pursuits of hunting, shooting and fishing. 

Both are struggling with losses and thinning margins, having tried to push into lucrative new markets and alienating customers with big price rises. Both are entering a period of brutal change under new managements whose first task must be to leave the past behind.

During the heyday of British chic, about 15 years ago, the brogueish and outdoorsy charms of Le Style Anglais and Mulberry’s Alexa satchel were all the rage. Mulberry’s shares were close to £25 then. The group’s price was more than 60 times earnings and its market value was £1.5bn. It is now a stock market titch, valued at about £80mn.

Last month, even as Mulberry’s new chief executive Andrea Baldo lyricised the group as “a beloved brand with a proud heritage”, he announced an emergency £10mn cash call from Mulberry’s two biggest shareholders — the Ong family of Singapore and Frasers group, the retail empire of Mike Ashley, which own 93 per cent between them. 

Mulberry, it seemed, lost £34mn before tax in the year to March, against pre-tax profits of £13.2mn the year before. Baldo made clear that the cash is needed urgently if the group is to keep its Somerset factories going and its stores open. Revenues so far this year are down nearly a fifth on last year, the company said.

Frasers group, owning about 37 per cent of the shares, responded with a 130p-a-share bid, raising it to 150p-a-share. The Ong family, owning 56 per cent, has rejected both. For the moment the Ongs are backing Baldo: he outlined plans to reposition the brand, ditch the company’s (expensive) strategy to expand its overseas store estate and retrench to the core UK market, which represents nearly 60 per cent of sales. 

Frasers — said to be aggrieved that Mulberry has largely stopped distributing its kit through Frasers’ department stores — is dismissive. It is clear, it says, “there is no current commercial plan, turnaround or otherwise”; and that £10mn will not be enough. Mulberry will have to go back to shareholders cap in hand unless, Frasers adds cryptically, “there is very real change”. Mulberry’s board is caught between the two sides. Other shareholders can only watch from the outside as the battle unfolds.

Mulberry’s riches-to-rags tale should resonate with Burberry investors. 

In essence, Mulberry forfeited customers’ love more than a decade ago when it began raising prices without convincing shoppers its bags were worth it. It has never recovered. Sales growth has stagnated and costs have risen as Mulberry tried fruitlessly to expand overseas and control its distribution channels. 

The rather bigger Burberry has expanded more successfully. Only a tenth of its sales are UK-based. Yet it too has had to learn that high prices alone do not earn brands places at the high table of fashion. 

In essence it has failed in its ambition to turn its check and trenchcoat into the ultimate in swank on the Rue du Faubourg Saint-Honoré, ranking alongside the likes of Gucci or Chanel. 

In particular, it has failed to win over aspirational Chinese buyers who have largely driven the growth of the fashion industry for the past two decades. That is all the more painful since the personal luxury goods market has more than doubled in value since 2010, according to consultants Bain.

The group’s abiding mistake, say onlookers, was to turn off customers — as Mulberry did — by yanking up prices of products, notably handbags, to protect juicy margins just as consumers across Asia, the US and Europe began tightening belts. The rich might still shell out £8,000 for a Chanel clutch but not £1,700 for a Burberry “snip” tote or trenchcoat.

Burberry’s shares are half what they were in 2011 and the market value of the group has more than halved to £2.25bn. In July, Burberry admitted it expected to make a first-half loss and suspended its dividend. Last month, the group was relegated from the FTSE 100 Index of top UK companies. 

Burberry wasn’t the only company that didn’t see what was coming. Fashionistas aplenty assumed, after the post-Covid shopping bonanza, that the wealthy would just keep on shopping. It was a shock when they didn’t. Kering, which owns Gucci, said in July for instance that operating income could decline by up to 30 per cent in the second half of this year. 

UBS analysts worry the downturn will last a while yet. Key data points, UBS says, are not encouraging for a quick recovery: Swiss watch exports, tax-free shopping receipts and consumer confidence everywhere are down. “The industry seems to be entering its own specific cycle,” says UBS. High prices and little product innovation has led to consumer “fatigue”. “Some players may need to restore [the perception of] value for money.” That will be a challenge for groups maintaining plush store estates. Burberry more than most.

“It is hard to tell what the CEO change [at Burberry] can bring”, say analysts at BNP Paribas Exane. They note the futility of “persistent attempts in recent years to reignite sales growth and improve profitability”. BNP reckons ebit margins are down to 2.2 per cent. The only upside risk would be a bid, it adds, but “we don’t see any prospective buyers”. 

Certainly, the shares at a little above 600p are hardly a steal at nearly 300 times BNP’s forecast earnings to March 2025, dropping to 27 times in 2026. That assumes the company restores adjusted earnings before interest, tax and amortisation to about £150mn (against £418mn in 2024). 

To do so may involve more than streamlining costs and recalibrating prices. As Black from Shore Capital says: “Brands have to evolve.”

The group mutters about being more inclusive and re-engaging with core customers. But it balks at suggestions that the brand will become more affordable and its latest catwalk was full of Burberry tartans and trenches. The danger, if Burberry doesn’t reimagine its heritage more drastically, is that someone else will — much as Mike Ashley is reimagining Mulberry. 

Brussels seeks powers to block ‘killer acquisitions’ in Europe and beyond

Reforms would allow EU regulator to intervene on takeover deals where companies try to stymie smaller rivals

Brussels plans to expand its powers over merger deals in order to stop “killer acquisitions” that pose risks to start-ups in Europe and beyond, according to people familiar with the discussions.

The European Commission, the EU’s top competition enforcer, has pledged to overhaul its rule book on mergers and acquisitions for the first time in decades, including by revising when and where it can intervene on deals.

The reforms under discussion would aim to significantly extend the commission’s jurisdiction to mergers involving companies that generate most of their revenue outside Europe, three people familiar with the plans told the Financial Times.

One option under consideration would be to introduce a new threshold for taking over scrutiny of a merger, which would be based on the value of the deal rather than relying on the existing turnover criteria, the people said.

While the details of the reforms are still being debated, one of the priorities for the EU’s incoming competition chief, Teresa Ribera, will be addressing the threat of so-called “killer acquisitions”.

Commission president Ursula von der Leyen urged Spain’s nominee in her mission letter to tackle the risks of foreign companies attempting to take over smaller rivals in order “to eliminate” competition.

The proposed changes come after Brussels claimed jurisdiction over biotech company Illumina’s $8n acquisition of cancer screening start-up Grail, even though both are based in California and lacked revenues or presence in Europe. Brussels lost its case after the EU’s top court said it had no legal basis to scrutinise the transaction, leaving officials scrambling for options.

Companies hope the revised rules will bring legal certainty by clarifying when transactions must be notified to the commission, mainly in cases where small but high-growth potential companies are bought by larger incumbents. 

But some officials are worried such reforms would open a “Pandora’s box” — giving EU member states the possibility to introduce reforms that are favourable to their markets, or shift powers from Brussels to national competition authorities.

Other EU officials have discussed giving the commission more powers to call in mergers even without the prior consent of member states — a less palatable option since it is likely to face opposition from countries such as France and Germany.

Any reforms will still need the commission, the EU’s executive, to start the formal consultation process, and it could take years before any changes happen, the people said. Ribera would first need to be in office, with the legislative process expected to start next year.

A commission spokesperson declined to comment.