COVID-19 is changing our lives more rapidly and more profoundly than we could have ever imagined. All over the world, governments order their countries into lockdowns, factories stop producing, people stop buying, citizens are confined to their four walls and businesses switch to working remotely wherever possible. Within day days, stock markets lost 40% and central banks are putting together packages against which the bail-outs during the financial and sovereign debt crisis pale.
It is no surprise that this pandemic will also pose significant challenges to companies undergoing merger control review processes. On Friday, 13 March 2020, the European Commission (“EC”) encouraged companies to “delay merger notifications originally planned until further notice, where possible”. A number of competition authorities around the world issued similar statements - the Federal Trade Commission indicated that it would not grant early termination for HSR filings submitted with the current (temporary) e-filing system.
Impact of the current crisis on merger control reviews
The current crisis will have a significant impact on merger control reviews:
- The immediate risk for notifying parties is that the EC rejects filings for incompleteness or stops the clock through expansive requests for information. The EC’s statement encouraging companies to delay merger notifications may well translate into the rejection of filings for incompleteness, unless the parties show compelling reasons (e.g. a long-stop date coupled with a significant break-up fee) not to postpone the filing. The EC routinely suspends the review in phase II cases, as seen in EssilorLuxottica/Grandvision (M.9569, suspended since 2 March) and Fincantieri/Chantiers de l’Atlantique (M.9162, suspended since 13 March). It is likely that we will see more of this. The impact of the COVID-19 outbreak will only increase this trend.
- It may well become more difficult for regulators to collect information from third parties, such as customers, competitors and suppliers, in the coming weeks. When such requests for information have been a nuisance in the best of days, in the current environment, companies are likely to be even less responsive in the coming weeks. While third-party input is necessary for regulators to carry out their investigation, delays here seem inevitable, in particular if the requests are expansive.
- Given the lockdown measures taken by many governments in response to the COVID-19 pandemic, it will be difficult to hold in-person meetings with the regulators, such as state-of-play meetings or oral hearings. While certain in-person meetings may be replaced by videoconferences or conference calls, it is unclear how formal oral hearings (which can gather dozens of people in one room) may still take place. This may be particularly problematic for companies undergoing an in-depth review and that may not want to renounce to the right of expressing their views at an oral hearing.
In summary, while certain issues may be overcome by factoring in possible delays in deal timing, others (e.g. impossibility to carry out market tests or formal oral hearings) seem to pose significant challenges.
However, even now, the world does not stand still. It’s just not good enough for regulators to say: “please delay your deal or your notification”. Other solutions will have to be found. Every crisis is also an opportunity. Merger control rules and the way they are applied will have to adapt quickly to ensure that global merger deals, and the rights of the parties involved in them, are not jeopardized.
We believe this is the perfect time for regulators, including the EC, to look into the mirror and assess possibilities to scale back on the enormous amount of information that notifying parties are required to provide. Striking a reasonable balance between ensuring that global merger deals move forward and the need to preserve competition is undoubtedly a challenge. We set out below possible options that could be quickly implemented until the COVID-19 outbreak is brought under control and even beyond.
A few simple measures to de-block merger control reviews
- For starters, leaving aside more structural changes, the EC should stop asking for excessive information from notifying parties. It was never necessary to ask parties to treat markets with a combined share of 19% as an affected market, hence requesting huge amounts of information. Or to require market share data for micro-markets which have never been defined so narrowly before by any regulator around the world before, on the basis that these could be “plausible markets”. These and other requests were never necessary, but have become a habit. In time of COVID-19, regulators should say farewell to unnecessary habits.
- Bearing in mind the above, filings under the current simplified procedure1 in the EU have to become simplified again: the EC should accept filings without pre-notification. After a 25 working-day review period, approvals should be granted. To the extent that the EC has limited resources or faces IT limitations during the outbreak, it can still avail itself of Article 10(6) of the EU Merger Regulation2 and grant approval by letting the 25 working-day time period elapse. This solution does not require any changes to the current EC rules and could be implemented immediately.
Renouncing on a pre-notification process and grating clearance within 25 working days cannot possibly pose significant competition concerns. Many national authorities, e.g. the German Bundeskartellamt, have been operating on this basis successfully for many years – no concerns of under-enforcement in Germany has ever been raised.
To the extent that the parties provided incomplete or even false information to the EC, in particular in relation to their market shares, the EC could sanction them ex post with the standard tools of the EUMR, specifically Article 6, which allows the EC to revoke a decision based on incorrect information for which one of the undertakings is responsible, and Article 14, which empowers the EC to fine undertakings up to 1% of their worldwide turnover for the provision of incorrect or misleading information.
This simple change of approach would free up huge resources in DG Competition.
- The thresholds for affected markets should be increased to benefit cases that are highly unlikely to cause a significant impediment of effective competition. This would significantly reduce the number of long-form cases the EC would have to deal with. Long-form cases are particularly problematic to deal with in times of COVID-19 because of the difficulties in carrying out market tests. A revised simplified procedure could be applicable in the following additional cases:
(a) Combined market shares of less than 35% for horizontal overlaps (instead of 20% under the current simplified procedure);
(b) Combined market shares for horizontal overlaps between 35% and 50%, and share increment of less than 2%;
(c) Market shares in vertically related markets of less than 40% (instead of 30% under the current simplified procedure).
All of these cases are highly unlikely to raise any competition concerns and should not drain EC and company resources in times of hardship. As affected markets are defined by a simple Commission Regulation, these thresholds could be easily and quickly amended.
- Moreover, we submit that the EC should not require companies to undertake highly speculative exercises aimed at identifying all “plausible markets”. The requirements of section 6 of the Form CO and of point 8 of the Notice on Simplified Procedure to identify all plausible markets should be suspended.
These simple measures described above would very quickly free up resources at DG Competition who could then focus on the remaining, more complex cases. Once freed up from unproblematic cases, it will be easier to focus on the other cases, thereby reducing delays.
Carrying out market tests will remain a challenge, but it will certainly be easier for the EC staff to collect required information by examining a smaller number of long-form cases. Drafting requests for information with moderation will likely increase the willingness of market participants to respond. Technology will help to organise virtual in-person meetings and even oral hearings.
1 Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 (“Notice on Simplified Procedure”).
2 Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (“EUMR”).
Coronavirus: Managing business impact and legal risks
This article was originally published on the Informa CompLaw Blog
Giuseppe Tantulli (Associate, White & Case) contributed to the development of this publication.
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