Implications of increased inter-agency cooperation for international businesses agreeing deals
Antitrust authorities are cooperating with each other more and more when reviewing deals. Although this is a well-established practice among older agencies, we are now seeing a marked increase in cooperation with newer agencies. With over 100 jurisdictions world-wide, this has major implications for international companies agreeing deals.
Cooperation can result in more efficient multiple merger reviews and avoid conflicting outcomes. EU Competition Commissioner Vestager, speaking at an International Competition Network (ICN) workshop in September 2015, emphasised the importance of inter-agency cooperation. She mentioned several examples of cooperation which had resulted in coordinated clearance decisions and remedies, thereby making the process run more smoothly for the companies concerned.
Another benefit is that increased contact between agencies creates healthy peer pressure to deliver high-quality merger review processes, and can therefore raise standards across the board.
On the downside, increased cooperation requires parties to dedicate resources to playing their part in ensuring effective cooperation - a burden which may be considerable. Other potential downsides include delays and duplicative remedies. Dealing effectively with this requires attention to several issues.
“Communication with all agencies throughout the process plays a key role and in some cases may avoid the need for remedies in certain jurisdictions: if they understand clearly the issues that have been identified and how these have been resolved elsewhere, they may accept those remedies as sufficient to remedy the issues in their own jurisdictions.”
Álvaro Iza, Partner, Madrid
Overall strategy: think global and local
Inter-agency cooperation requires parties to be at least as coordinated as the agencies, if not more so. A global strategy means, at a minimum, presenting a coherent substantive antitrust story and consistent arguments to different agencies. However, it needs to go well beyond coordination on the substance of the case to be successful, also to encompass timing, protection of privileged and confidential data and remedy strategies.
The newer agencies frequently look to the more established ones, such as those in the EU and US, as a benchmark. In cases involving global markets, clearance in those jurisdictions can be key to paving the way for smooth clearance processes elsewhere. In a recent pharmaceuticals deal, for example, the Commission cooperated with the FTC and, despite some differences in the substantive assessment, compatible and non-conflicting remedies were agreed as between the EU and the US. Agencies in Canada, Australia and Pakistan relied on the EU and US remedies to clear the transaction.
The order in which the agencies are approached is therefore key: sometimes it is helpful to obtain clearance from the more sophisticated agencies first, before engaging actively with others, but this is not always possible. The US has been known, for example, to use the longer Brazil process to give itself more time.
At the same time as designing an overall global strategy, it is important not to lose sight of local peculiarities, and especially of jurisdictions in which political or policy concerns may have an impact (see further Theme 10).
Protecting information: know the scope and the limits of disclosure
Waivers of confidentiality from parties have been instrumental in facilitating inter-agency cooperation and have become the norm in the major jurisdictions, including Australia, Brazil, Canada, China, the EU, Japan and the US. Increasingly agencies seek waivers early on in merger reviews and for multiple agencies. This means that, within a few weeks, information provided to one agency will be in the hands of others.
Parties must realise that when they supply data to one agency they are effectively supplying it to several others at the same time. This can be particularly crucial in the case of side letters in which the scope and extent of remedies is set out: while these can be protected from disclosure in some jurisdictions, that may not be the case in others, meaning that in practice all the agencies have access to them.
Legal professional privilege provides some protection from disclosure but given the vast and growing quantities of documents and data that now have to be produced, identifying and protecting privileged material is more crucial (and challenging) than ever.
Data protection and privacy rules also contribute an additional layer of complexity, given the wide variation in the level of protection provided in different jurisdictions.
“Being pro-active is key. For maximum effect, think about all aspects of a remedy upfront, including communications to the agencies, other stakeholders and the public at large.”
Thomas Janssens, Partner, Brussels
Timelines: plan for sufficient pre-notification and keep in touch with agencies
Early engagement with agencies is essential in complex global cases. Parties need to inform the relevant agencies prior to notification so that inter-agency consultation and cooperation can start at the pre-notification stage. Parties should be prepared to comply with information requests from agencies during the pre-notification stage, and build timetables to accommodate the possibility of extended scope and length of pre-notification contacts. Aligning merger review timetables in multiple jurisdictions presents great challenges, not least because the nature and availability of pre-notification contacts vary widely. Whether to align timetables is a strategic decision that must be made early in the process.
While parties may make the strategic decision to start obtaining clearance in major jurisdictions, and then use these decisions to engage with other authorities, it is important to keep authorities in all potentially interested jurisdictions informed as the case progresses. This may place the authorities in a better position to give timely clearance since it tends to reduce the resources that they need to devote to the case themselves. If an agency receives short notice of a transaction, even if there are no competition concerns, there may be procedural delays.
Cooperation between agencies is often beneficial where remedies are being considered in several jurisdictions. It can facilitate different but reconcilable and consistent remedies, or common remedies that address similar concerns in more than one jurisdiction.
To achieve effective coordinated remedies, it is important to ensure that the agencies are in a position to coordinate with their counterparts in other jurisdictions from as early as the pre-notification stage. This means engaging with them early about remedies, and designing remedies with a view to the overall global picture. In a recent energy deal, close co-operation on both the substantive assessment and remedies resulted in aligned remedies and clearance on the same day from the Commission and the DOJ, despite the two having different concerns due to different conditions in their respective markets.
It is important to understand which jurisdictions may be comfortable relying on remedies extracted in other jurisdictions, especially if there are no assets, or assets are not being combined, in their jurisdictions. This approach varies by jurisdiction. For example, a car parts deal raised similar issues in the US, Brazil, Canada and Mexico. The concerns were resolved by a divestiture largely consisting of Mexican and US assets. In that case, the Canadian agency cleared the transaction unconditionally, relying on the US remedy, but the Mexican and Brazilian authorities required nearly identical divestiture orders. Although inter-agency cooperation resulted in a consistent remedy across jurisdictions, the parties were still required to comply with divestiture orders in three jurisdictions for the same divestiture package.
“While designing a global remedies strategy may be relatively straightforward in transactions involving local markets such as retail, a more sophisticated approach will be needed to craft a workable set of remedies when cross-border and international markets are involved.”
Bruce McCulloch, Partner, Washington DC
Looking ahead to 2016:
More than ever before, increased inter-agency cooperation will require parties involved in global transactions to:
- plan a global strategy, review documents and amass evidence from the outset;
- establish a globally coordinated team of experts, with clear and effective communication lines;
- consider possible remedies at an early stage and from a global perspective, even including in the analysis jurisdictions where the parties do not have assets if there may be competition issues in those markets;
- engage with authorities as early as possible, in some cases to work actively on obtaining clearance and in others to keep them informed of progress; and
- pay attention to differing national laws concerning document disclosure, in particular the rules on confidentiality, privilege and data protection.