James Quinney of Herbert Smith Freehills assesses global merger control trends from the past 12 months
M&A activity has remained strong in 2016. There have been mega-mergers, including the proposed $100 billion-plus acquisition of SAB Miller by AB InBev, which have required merger control clearance across the globe. Below is a summary of some recent trends and developments in notable merger control regimes.
High-tech mergers have been closely scrutinised by the European Commission, the European Union's enforcer of EU competition law, in 2016. The protection of innovation has been cited as a reason for considering amendments to the jurisdictional rules of the EU Merger Regulation (EUMR) to allow the European Commission to review transactions that do not meet the turnover thresholds. In a speech entitled Competition: the mother of invention on April 18 2016, Competition Commissioner Margrethe Vestager said "protecting innovation is important in our merger policy. So important, in fact, that we're considering whether to change our rules to do it more effectively…when someone buys up an innovator, with a lot of good ideas but not yet much in the way of sales, we might not even have the chance to look at whether that merger will be bad for innovation…we're looking at whether to change the thresholds for notification".
There has been speculation about the introduction of a deal valuation or market capitalisation notification threshold, and in October 2016, the European Commission launched a consultation on procedural and jurisdictional aspects of EU merger control which sought respondents' views on whether a deal-size threshold should be added to the EUMR, and if so at what level. The consultation is open until January 2017 and the European Commission expects to publish responses in the first quarter of 2017. Germany is also planning to introduce a deal-size threshold test to its merger control regime to catch significant transactions in which the target's turnover is low (see page 6 for interview with Andreas Mundt, president of the Bundeskartellamt).
The European Commission has also indicated that it will increasingly focus on big data in reviewing mergers. In September 2016, Commissioner Vestager said that the European Commission is "exploring whether we need to start looking at mergers with valuable data involved, even though the company that owns it doesn't have a large turnover".
Consolidation in the telecoms sector has been a continuing trend in Europe. In May 2016, the European Commission's tough approach to 'four-to-three' mergers was reflected in blocking the Hutchison/02 deal. This was less than a year after a plan to merge the Danish operations of Telenor and TeliaSonera was scrapped by the companies after the European Commission demanded concessions that would have eradicated the financial benefits of the deal.
The European Commission continues to refer only a very small minority of merger cases to a more in-depth phase 2 investigation (in 2015 it was three percent of the mergers notified and the 11 phase 2 investigations initiated in 2015 were more than in any previous year since 2007).
The financial markets were volatile in the wake of the UK public voting in June 2016 to leave the EU. This may have a dampening effect on M&A activity but the full effect of the referendum result is not yet known.
The European Commission has also indicated that it will increasingly focus on big data in reviewing mergers
In the past year, there has been an up-turn in the number of mergers referred to phase 2 and increased use of the new undertakings in lieu of a reference (UILs) mechanism to resolve cases at phase 1. The Competition and Markets Authority (CMA) has also been undertaking a project to review previous merger remedies and remove those that it considers no longer need to remain in force.
In March 2016, the CMA announced plans to streamline its merger review procedures. It committed to clarify existing guidance notes on information requests and to publish additional guidance on its approach to derogations from initial enforcement orders (orders the CMA may make to prevent the further integration of the businesses of merging parties pending a full investigation of the merger) so that firms will have a greater understanding of when they may be used. The CMA also committed to hold earlier pre-notification meetings with merging parties. As with the European Commission, pre-notification discussions are becoming increasingly lengthy.
2016 has seen China's Ministry of Commerce (Mofcom) take a tougher position on parties that jump the gun by merging before the prospective deal has been approved (see page 14 for interview with Ruben Maximiano, a senior competition expert at the OECD). This trend is evidenced by increased enforcement in this area, with eight companies being penalised for filing offences as of August 2016. However, it is worth noting that Mofcom's bullishness does have a limit, with fines being used far more often than more draconian remedial measures such as divestments or the unwinding of a transaction.
Apart from the imposition of formal penalties, Mofcom has demonstrated a willingness to apply pressure to merging parties in other ways. For instance, Mofcom publicly announced in August that it had yet to receive a notification of the Didi Chuxing/Uber China merger from the parties, immediately putting pressure on the parties to notify.
Mofcom has been improving the overall merger control process, dealing with approximately 75% of mergers using its simplified procedure. The relative speed of this process – a review takes only 29 days on average – is thought to incentivise companies to file rather than risk gun jumping. Therefore, Mofcom can be seen to be using both a regulatory carrot and a stick in its dealing with merging companies.
Several mergers have been abandoned following opposition from US antitrust enforcers. In December 2015, General Electric abandoned a $3.3 billion agreement to sell its appliances business to Electrolux, mid-trial following the US Department of Justice's (DOJ) lawsuit to block the transaction. Also in December 2015, two major canned tuna producers called off a $1.5 billion merger in light of the DOJ's antitrust concerns. In May 2016, it was announced that the $28 billion Halliburton/Baker Hughes deal was called off after the DOJ continually rejected improved remedies and filed a lawsuit to block the transaction (see page 17 for interview with Sonia Pfaffenroth, the deputy assistant Attorney General for civil and criminal operations at the DOJs Antitrust Division).
The trend towards co-operation and transparency among different national competition authorities has continued during 2016. The increasingly collaborative approach can be seen in the Office Depot/Staples merger where the Federal Trade Commission's case team was assisted by the Canadian Competition Bureau.
Meanwhile, the number of global jurisdictions with merger control regimes (there are approximately 130) continues to grow. For example, in June 2016, the Philippines introduced its merger control regime.
Merging parties must also bear in mind that certain jurisdictions may have very strict filing requirements and in the last year national competition authorities have demonstrated an appetite to enforce them vigorously. For example, India has a mandatory filing deadline and in February 2016, the Competition Commission of India handed down an order fining General Electric INR50 million (€666,000) for missing the filing deadline for its merger with Alstom in 2014.
|About the author|
James Quinney is the global head of Herbert Smith Freehills' competition, regulation and trade group. He has over 20 years of experience and has been involved in a significant number of landmark competition and regulatory cases at UK and EU level. Quinney has a broad practice with a wealth of expertise in utility regulation, procurement and state aid, as well as merger control, strategic competition advice and contentious cartel and antitrust investigations.
Quinney also has excellent insight into competition policy issues, having previously been seconded to the European Commission and the UK Department of Trade and Industry. While at the European Commission, Quinney worked with the unit responsible for investigating and prosecuting infringements of the EU free movement rules, and while at the Department of Trade and Industry he advised ministers on the design of the new UK competition regime of the Competition Act 1998 and piloted the legislation through parliament.