Global economic growth is back on the agenda and companies are once again looking to position themselves for success by pursuing mergers and acquisitions. But what are the prerequisites for success in an increasingly disrupted world?
Welcome to the second White & Case merger control publication, the first edition of which was warmly received. Earlier this year, it became apparent that an update was required, not so much driven by regulatory change, but rather to take into account policy shifts.
For example, we have seen the US catch up with Europe in relation to vertical mergers, the AT&T/Time Warner review being the most prominent recent example. At the same time, the European Commission has forged ahead again with a focus on conglomerate mergers and innovation markets. Perhaps the Dow/DuPont merger has attracted the most attention, as authorities now get out their telescopes and look far into the horizon to identify anti-competitive harm. There is a sense among the Commission’s hard-liners that in the past too many mergers wriggled through without proper analysis. Our own view is that it may be legitimate to look ahead to try and identify harm (after all, that is what merger control is all about), but this long lens should not be forgotten when it comes to reviewing the synergies that a merger may create. However, Europe has set the tone, and we expect other authorities to follow.
Europe also seems to be taking the lead (and others will follow due to the prospect of publicity-garnering fines) in relation to procedural infringements. The argument for pursuing companies for inaccurate filings, for example, is that such violations call into question the very system of merger control. Be that as it may, due process needs to be followed in such cases, and this may divert valuable resources to past cases as opposed to dealing with the current case load. In other words, pursuing a few flagrant cases may be necessary to set a precedent, but they should not become regular items on the authorities’ agendas (bringing with them attendant increases in filing times, and costs). Our view is that the authorities should confine their focus to statements that would have yielded a very different outcome, not mere technical infringements.
This leads us to the subject of gun-jumping. Again, viewed from afar, this should not be a problem in no-issues filings, and authorities typically have the tools to unwind a completed merger. The maxim ‘no harm, no foul’ ought to be applied to these cases to ensure that valuable resources are not frittered away on them.
In sum, our assessment is that the global system of merger control continues to limp along. However, the costs associated with a system containing myriad controls are increasingly high. Looking ahead, we wonder whether a fundamental overhaul is needed to ensure that transactions that pose no problems are not saddled with the costs imposed by the global system. (Yes, this will mean some authorities will have to relinquish jurisdiction in certain instances, safe in the knowledge that a transaction will be reviewed elsewhere.)
But more importantly, we continue to believe that the system of mandatory pre-merger review is fundamentally flawed and that instead we should shift to a system of voluntary merger control in which only mergers that present genuine issues need to be notified. Ironically, when commentators question whether the UK system of merger control needs to change in light of Brexit, one of the things that we would not change is the voluntary nature of the system.
Axel Schulz and Matteo Giangaspero
The European Commission is increasingly concerned that market consolidation will harm innovation and has changed dramatically the way it examines the impact of mergers on innovation. Merging parties should be prepared for it.
Has the disclosure standard for companies been raised in the EU?
When it comes to mergers within the digital landscape, the greatest challenge for regulation is to strike the right balance as regards enforcement. How are EU authorities taking action and what does this mean for the innovation economy?
Strati Sakellariou-Witt and Jan Jeram
An increase in cases has been seen as a warning that the EU is ramping up its response to potential conglomerate effects. What can merging companies do to prepare for a challenge?
Rebecca Farrington, Noah A. Brumfield, Jérémie Jourdan, Veronica Pinotti, Martino Sforza, and Julio Felipe Pantazis
Regulators in key global markets are increasingly demanding remedial action to allay competitive concerns.
The European Commission is paying greater attention to investors who hold stakes in multiple companies in the same industry and considering how this concentration of influence might have an anti-competitive effect.
Patrick Sarch and Sophie Sahlin
Effective handling of antitrust issues can help businesses bolster their negotiating position—whichever side of the deal they're on.
Pontus Lindfelt and Matteo Giangaspero
The evolution in private equity means that forward-thinking firms are adding early-stage review to their merger strategy.
Dr. Tobias Heinrich, Marc Israel, Farhad Jalinous, Igor Ostapets, Veronica Pinotti, John Tivey, Jun Usami, Z. Alex Zhang, Orion Berg, and Ksenia Tyunik
A clampdown by governments across the world on potential security threats has increased the scrutiny of participants seeking clearance for cross-border mergers and acquisitions.
Whether it is 'hard' or 'soft', a UK exit from the EU will mean a very different dynamic in terms of merger control.
Toshio Dokei, Hideo Nakajima, Seiji Niwa, and Takako Onoki
In the past 18 months, Japan’s regulator has tackled Big Data, introduced greater disclosure and conducted a high-profile, parallel merger review.
Gun-jumping has been in the crosshairs of competition-law enforcers for the past decade, and recent developments show authorities across the world are taking an even tougher line.
Jérémie Jourdan and Martin Möllmann
When European Union Courts overrule European Commission decisions on transactions, finding a solution to the situation can be challenging for parties to the deal.
Partner Mark Powell discusses how the global merger control systems have evolved in the past and what lies ahead.
Partners Axel Schulz and Marc Israel talk about how merger control authorities across the world are taking a greater interest in deals that may potentially raise national security concerns.
Partners Marc Israel, Mark Powell and Axel Schulz discuss how competition regulators investigate issues relating to common ownership.
Partners Axel Schulz and Mark Powell and counsel Sophie Sahlin discuss issues relating to gun-jumping.
Partners Marc Israel and Mark Powell discuss how Brexit may impact the deal approval process, both in the UK and in the EU.
Partner Axel Schulz talks about how competition authorities are increasingly concerned about the impact of consolidation on innovation.
Whether it is 'hard' or 'soft', a UK exit from the EU will mean a very different dynamic in terms of merger control
There has been much debate about whether there will be a 'hard' Brexit or 'soft' Brexit and the impact that each of these outcomes might have on the UK's future relationship with the rest of the European Union (EU), especially in areas such as financial services and as regards the extent to which 'passporting' rights will continue.
However, when it comes to merger control, the type of Brexit that ultimately occurs is irrelevant. Once the UK leaves the EU, mergers and acquisitions that meet relevant thresholds will be subject to review by both the European Commission (EC) and the UK's antitrust body, the Competition and Markets Authority (CMA). Post-Brexit, larger deals that previously met the EU's turnover thresholds and were reviewed under the 'one-stop-shop' principle will be subject to review by both the EC and the CMA. While the UK's merger control system will remain voluntary, many cases reviewed by the EC will no doubt also be notified in the UK (or called in for review by the CMA if parties decide, often for very good reasons, not to notify in the UK).
The CMA has reviewed an average of 70 merger and acquisition deals per annum over the last three years and Andrea Coscelli, the CMA's chief executive, says he expects that post-Brexit that number could jump by between 30 and 50 per year.
Further, Coscelli expects that around half a dozen of these will likely be subject to an in-depth Phase II investigation (i.e., akin to a second request in the US). With its workload set to rise by around 50 per cent, the CMA is already planning how to cope with the additional burden on its resources, including seeking additional funding from the UK Government.
In terms of substance, the way in which mergers are reviewed will not be affected by Brexit, and economic-based assessment will continue. Procedurally, the CMA can be expected to continue to work closely with the EC and the national competition authorities (NCAs) of the remaining Member States. However, as the CMA will no longer be a member of the European Competition Network––a forum in which the EC and Member State NCAs cooperate––Brexit may hamper efficient dialogue between the CMA and EC/NCAs, especially when each or several of these bodies are assessing the same merger. It may become more difficult to exchange information about a case without seeking and obtaining specific waivers from the merging parties involved.
Inevitably, some cases will raise competition concerns in the UK and in other jurisdictions and so discussion about the competitive effects of a case, and coordination of effective remedies, will be important.
From a policy perspective, leaving the EU will give the UK power to intervene in cases on non-competition grounds in respect of mergers that would otherwise have been subject to review only by the EC. That is because the EC's rules limit the ability for Member States to intervene in mergers subject to the EC's exclusive jurisdiction to specified grounds (public security, media plurality and prudential rules).
Post-Brexit, these limitations will not apply to mergers that fall within the CMA's jurisdiction. With the UK currently consulting on amendments to its merger rules to cover a wider range of foreign direct investment issues, certain mergers reviewable by the CMA may be subject to both a competition test and a wider public interest-style test. For example, MPs have urged the government to intervene in Melrose's bid for GKN. Whether there is a 'hard' or 'soft' Brexit, companies and their advisers –– as well as the CMA––will have to get used to a different dynamic in terms of merger control once the UK leaves the EU. While the voluntary system of UK merger control is expected to remain, should parties decide to notify a deal in the UK, this will inevitably add to the time and cost of securing clearance.
Post-Brexit, merger control will stay the same only if the UK becomes a member of the European Economic Area (following in the footsteps of Iceland, Lichtenstein and Norway), because the EC's exclusive jurisdiction to review mergers that meet its thresholds extends to cover EEA Member States.
Partners Marc Israel and Mark Powell discuss how Brexit may impact the deal approval process, both in the UK and in the EU.
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