Europe takes a tougher approach to technology mergers
Taiwanese companies should keep Europe in mind when planning new deals
While we may be weathering the COVID-19 pandemic, the geopolitical fractures and economic decoupling that reshaped the global business landscape in 2020 have continued to accelerate throughout 2021. It might be too early to say the global markets are "back to business," but there are strong signs that we are on the right track to return to normalcy.
In the Americas, the transactional markets are booming, particularly for M&A and capital markets transactions. The expected passing of a new significant infrastructure bill by the US Biden Administration is expected to create significant infrastructure spending and investment opportunities in the years ahead. Within Europe, the Middle East and Africa (EMEA), we see the rapid emergence of environmental, social and governance (ESG) thematic investments, as well as a renewed focus on technology and healthcare transactions. Private equity (PE) and venture capital (VC) investments into Africa, often viewed as the next growth frontier, have also increased. In Asia-Pacific, Sino-US decoupling and the emergence of special purpose acquisition companies (SPACs) have given rise to significant changes in traditional fundraising avenues and exits.
Moreover, these trends are taking place amid the continuing uncertainties of the world’s varying responses to the COVID-19 pandemic and complex, new global regulatory developments involving trade, sanctions and other geopolitical business issues. For companies and investors based in Taiwan, it can be a challenge to navigate these global risks while seeking out the many growth opportunities that still exist.
We hope this year's report for Taiwanese businesses and investors provides helpful guidance amid a time of historic global transitions.
We begin by reviewing European competition authorities’ heightened focus on the technology sector and tough approach to technology mergers. Similarly, Taiwanese companies doing business in the US may feel the impact as US antitrust policy increasingly targets the technology industry.
Taiwanese businesses and investors should prepare for foreign direct investment (FDI) regulatory scrutiny early in their deal processes, particularly in cross-border M&A transactions involving Europe, the US and other countries, as well as investments into "sensitive" sectors that increasingly include technology, healthcare and other data-driven industries.
Due to the ongoing regulatory changes, global and regional businesses involved in US-Sino trade should balance the competing restrictions while maintaining a cautious approach.
Taiwanese companies exposed to the US market need to understand the rise in US disputes over standard essential patents (SEPs) and how US juries will likely resolve related damages.
We will also discuss how the SPAC and de-SPAC process can help high-potential target companies gain liquidity and the particular opportunities this presents for Taiwanese companies.
Finally, our update on Asia-Pacific financing trends presents insights into areas of financing optimism and robust deal activity throughout the capital markets.
We look forward to discussing these and other issues with you.
Taiwanese companies could feel the impact of the current push for wide-scale change
Within less than a year after taking office, the Biden administration's antitrust leaders are pushing for wide-scale changes to the US antitrust laws and how those laws are enforced. Initiatives from both the executive and legislative branches of government aim at merger and conduct enforcement and target the technology sector.
To support a more activist approach, US antitrust regulators are advocating a move away from the consumer welfare standard (i.e., antitrust should protect consumers from unfairly high prices) to a public welfare standard. The public welfare standard focuses on a multitude of social goals, including protecting small businesses, discouraging high concentrations of economic power and promoting fairness in economic dealings. The reemergence of the "big is bad" philosophy has taken aim at the technology sector. For example, key Biden administration officials, including the Federal Trade Commission (FTC) Chair Lina Khan and the US Department of Justice (DOJ) Antitrust Division nominee Jonathan Kanter have been vocal about the need to use US antitrust laws to address concentration of power, focusing on technology companies.
For Taiwanese companies, particularly those doing business in the US, it is well worth paying attention to these initiatives, including President Biden's July 9, 2021 Executive Order on competition policy, proposed Congressional antitrust legislation, and new federal regulatory approaches in merger and conduct investigations.
In July 2021, President Biden signed Executive Order 14036 "Promoting Competition in the American Economy." The Order contains 72 initiatives that seek to coordinate the federal government's response to competition issues, while focusing on administrative policies and urging federal agencies to take action. The Order encourages the DOJ and the FTC to focus their enforcement efforts on key markets, including the technology sector. The Order calls for vigorous enforcement of the antitrust laws, including potential challenges to already consummated mergers. The Order also establishes a White House Competition Council, led by the Director of the National Economic Council, to monitor progress and to coordinate the federal government's response.
With respect to the technology sector, the Order targets "killer acquisitions," (i.e., acquisitions by dominant players of nascent or innovative competitors), the accumulation of personal information and data, "unfair methods of competition" in internet marketplaces and restrictions on independent repairs.
The Order identifies three areas where the Biden administration believes dominant technology companies are undermining competition and reducing innovation:
The Order seeks to address these issues through greater merger scrutiny (particularly of nascent competitors), establishing data rules and encouraging the FTC "to establish rules barring unfair methods of competition on internet marketplaces."
The US approach to merger review has already changed significantly under the Biden administration and the FTC's new Chair, Lina Khan.
One recent and stark example is the FTC's August 2021 announcement that if the FTC cannot complete its investigation during the statutory Hart-Scott-Rodino Act (HSR) waiting period (generally 30 calendar days, with limited exceptions), then the FTC may advise merging parties via a "Warning Letter" that the merger investigation remains open. According to the FTC, while merging parties that receive a Warning Letter are legally permitted to close their transaction, they do so at their own peril, because of the FTC's ongoing investigation.
The Acting Director of the FTC's Bureau of Competition explained that a "tidal wave of merger filings" has strained the FTC's ability to sufficiently investigate deals within the HSR waiting period. It is unclear whether this new approach is permanent. The DOJ's Antitrust Division has not yet indicated whether it intends to adopt a similar procedure.
Expiration of the HSR waiting period has never provided permanent antitrust agency approval. However, merging parties traditionally were reasonably sure after an HSR waiting period expired that there was no continuing investigation or significant risk of an impending merger challenge. The FTC's new process certainly alters this status quo.
Although not specifically targeted by the change, the FTC has identified the technology sector as a focal point and is particularly concerned with mergers involving "killer acquisitions" and nascent competitors. Technology companies need to carefully consider a number of factors in this environment, including how to allocate antitrust risk in their agreements. For example, sellers will need to check whether antitrust covenants allow a buyer to refrain from closing because an investigation is still open. Buyers will need to examine the realistic risks of a post-closing investigation. And both parties will need to decide whether they have indefinite document preservation obligations.
In addition, the FTC is also ramping up its enforcement tools.
In July 2021, the FTC announced a policy shift by rescinding its 2015 policy against using Section 5 of the FTC Act in lieu of more specific provisions of the Sherman and Clayton Acts. As opposed to the more specific standards under the Sherman and Clayton Acts, Section 5 broadly prohibits "unfair methods of competition." Unlike the extensive case law interpreting the Sherman and Clayton Acts, there is little case law on Section 5. In rescinding the 2015 statement, the FTC Commission majority recommitted to the FTC's "mandate to police unfair methods of competition even if they are outside the ambit of the Sherman or Clayton Acts." This development is widely viewed as confirming that the FTC will seek to aggressively enforce the antitrust laws. As part of its enforcement efforts, the FTC also approved resolutions to use civil investigative demands and subpoenas to investigate seven specific enforcement priorities, including technology companies and digital platforms.
Legislative initiatives from both political parties in the US Congress to reform US antitrust laws also focus on the technology sector.
In October 2020, the House Subcommittee on Antitrust issued the Majority Staff Report and Recommendations, which included sweeping findings resulting from its investigation into four technology companies, and called for broad changes to US antitrust laws that would affect the tech industry and beyond. In 2021, the US House of Representatives Antitrust Subcommittee held a series of hearings aimed at investigating how best to reform the US antitrust laws. These hearings again focused on the technology sector, positing that the unchecked growth of these companies has resulted in less innovation, fewer jobs and less choice.
At this writing, multiple bills have been proposed in the US Congress pushing for antitrust reforms, some specifically targeting technology companies. Early bills proposed by Senators from both political parties sought to create new merger presumptions and prohibitions—some of which are specifically geared toward large corporations—and to prohibit novel forms of allegedly "exclusionary conduct" such as "self-preferencing." In June 2021, a bipartisan package of five bills was introduced in the US House of Representatives and, in July 2021, House Republicans announced their own "Big Tech" regulation agenda.
The bipartisan House package of proposed bills include the following measures targeted at large technology companies:
At this point, it is difficult to know exactly which bills will pass and in what form, especially given the high level of political gridlock in Washington, DC.
While the two major US political parties disagree on many key proposals, they appear aligned in their fervor for change and in their focus on the technology sector. However, there is a growing divide within the Republican Party, with some who believe proposed legislation goes too far in some places and not far enough in others. Some detractors argue that these bills would undermine innovation, block transactions that could otherwise benefit consumers and give the federal government too much power without addressing the specific competition concerns underlying the calls for new legislation.
Despite this uncertainty, there is little doubt that efforts to change US federal antitrust laws are the strongest they have been in decades.
Aggressive moves to change US antitrust laws and how they are enforced—like President Biden's Executive Order, changes in merger and conduct enforcement and proposed federal legislation—will continue to have a significant impact on antitrust enforcement, the technology industry and Taiwanese technology companies doing business in the US.
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