With over 125 competition regimes worldwide, and more regimes in the pipeline, the importance of a coordinated approach to merger control in cross border M&A transactions will continue to increase.
Merger control regimes globally are streamlining investigations for more straightforward cases, while tightening procedures, strengthening enforcement powers and devoting more resources to deals that raise concerns in consolidating sectors.
In 2014, we experienced significant changes to filing thresholds, disclosure requirements and powers of intervention in several major regimes. In 2015, regulatory requirements in cross-border deals are expected to increase further as more changes are implemented and more regimes become fully operational. Most notably, 2015 is the deadline for the 10 member states of the Association of Southeast Asian Nations (ASEAN), to put in place competition regimes, and, currently all but one of these countries is on track to meet this goal.
Relationships with competition authorities are very important - so understanding your authority really does matter
Companies planning deals in 2015 should be aware of several key trends in global merger control which are continuing to impact heavily deal timing and certainty.
The impact of newer regimes
Mature jurisdictions in Europe, America and Asia are likely to be on your deal team’s radar from the outset. Yet, as more countries adopt merger control rules and are keen to establish themselves on the international stage, global deals are increasingly being influenced by jurisdictions that, currently, would not typically be considered as key to execution in the early stages of planning a deal.
Often, a relatively new authority, in a jurisdiction which could appear incidental on first view, may well choose to 'flex its muscles' on a high-profile global deal, and/or take a different approach than other authorities, sometimes because of politically driven concerns. This can result in frustrating time delays or divergent outcomes, so advance knowledge is key.
A wider range of non-competition factors taken into account
As discussed in theme 8, wider public interest, foreign investment and local political issues are increasingly at stake in merger control, which, if unanticipated or poorly managed, may make the route to merger clearance a little less smooth, or in the worst case scenario, result in significant remedy requirements or a prohibition decision.
These can result from political interventions, or a wider range of factors being embedded in a country’s regime. In several countries in Africa, for example (including Kenya, Namibia and South Africa), local socio-economic considerations remain important to any merger analysis. If an authority examines the impact of a merger on employment, parties should expect requests for details of likely redundancies and potentially the imposition of commitments in relation to maintaining the local workforce and/or investing in the local economy. In practice, this means that, very early on in the transaction timetable, companies planning integration across multiple jurisdictions need to have an in-depth view of employment efficiencies and other public interest considerations specific to certain countries. Failure to provide these figures in a timely manner can result in delays.
Headline timetables can be misleading
Parties should pay close attention to when the filing ’clock’ (and therefore the filing deadline) will start running, and the length, in practice, of any review period. In some newer jurisdictions, the clock may start to run from Board approval of binding heads of terms (e.g. India). In others, notification will be triggered by the conclusion of a legally binding agreement or the announcement of a public bid.
However, most authorities’ published review periods do not include:
- pre-notification reviews,
which are tending to become longer and more in-depth across the board. In the UK, for example, recent changes were intended to streamline review periods and improve certainty and predictability for business. However, early experience shows that more time should be factored into deal planning in order to complete extensive pre-notification investigations and market testing. These may well add several weeks to a clearance timetable;
- ’stopping of the clock’ by the authority:
most authorities are able to stop the clock each time they request additional information until all information is submitted. The Indian authority, for example, recently stated that it has reviewed and cleared all mergers notified since 2011 within a 30-day Phase 1 time period. This 30-day review period, however, does not include time spent by parties responding to initial information requests; and
- referral between authorities:
referrals between supra-national authorities (e.g. the EU and COMESA) and national competition authorities can be lengthy and unpredictable, significantly impacting deal timetables. As and when more regional blocks are formed, this process is likely to become more prevalent.
Looking ahead to 2015
Over the coming year, we expect to see several important trends continue:
- authorities’ resources under pressure
The increased volume of M&A and antitrust enforcement has put agency case teams under pressure. The knock-on effect is there can be little room to manoeuvre in the face of impending deadlines;
- focus on disclosure
Parties should expect to make increasingly significant disclosures of internal documents as part of a filing. They should be addressing document creation and managing disclosure as part of a co-ordinated and efficient multi-jurisdictional approach, while also maintaining legal privilege where appropriate;
- increased role of political influence on merger control
Given the political situation in many regions, we expect the global political climate to continue to have a significant impact on merger control, particularly in key strategic sectors. The importance of anticipating political influences and maintaining constructive relationships with all relevant governments, authorities and regulators should not be underestimated (see further in theme 8).
- anticipating potential remedies
As discussed in theme 9, in tricky transactions, parties should decide early whether negotiations should include upfront discussions of potential remedies. Solutions may be needed to resolve global or local concerns, which will need to be balanced against commercial objectives.
- realistic deal planning
Parties should allow sufficient time for a thorough analysis of all potential (competition and non-competition) concerns, including a review of all the evidence, in order to develop a joined-up and consistent strategy across jurisdictions. Thinking more creatively, is there something about one of the parties’ position in a country that means the deal will have undue prominence in the mind of the regulator? It requires lateral thinking, knowledge of a regulator’s mind-set, and awareness of broader concerns to work out what this might be.
- shareholder and other stakeholder management
Early engagement with all stakeholders who may have views on the deal is highly recommended. A joined-up strategy is essential in politically sensitive jurisdictions or where the sector or parties involved are under the media spotlight.
Make sure that you fully understand the authority’s investigation processes and that you obtain ’real-world’ advice. Are there any obvious patterns of previous enforcement or decision-making? Is the authority pursuing any particular political or other agenda? Is it looking to make an example of a certain situation or event?