- The numbers of significant antitrust merger investigations in the U.S. and the EU both are on pace to match 2017 levels.
- Bayer/Monsanto was resolved after a more than 24-month investigation in the U.S., the longest on record since DAMITT started tracking in 2011.
- Despite Bayer/Monsanto, the average significant U.S. merger investigation lasted 10.2 months, down from 10.8 months in CY 2017 and 12.2 months in 1H 2017.
- The EU made greater use of Phase II but the 13.4 month average duration of those investigations fell from 15.1 months in CY 2017 and 15.7 months in 1H 2017. Investigations resolved in Phase I with remedies lasted an average of 7.9 months, somewhat longer than in CY 2017.
- U.S. enforcement agencies imposed upfront buyer requirement in 86% of consent orders in 1H 2018, near record levels.
- United States v. AT&T confirmed the prior DAMITT finding that litigated merger challenges add roughly seven months to the timetable for completing antitrust review in the United States.
Newly released data from DAMITT, the Dechert Antitrust Merger Investigation Timing Tracker, indicates that the vigorous level of merger enforcement that has characterized recent years is unchanged, but what had been a four-year trend of increasingly longer significant antitrust merger investigations may have plateaued.
The DAMITT Q2 2018 update recorded 13 significant antitrust merger investigations resolved in the United States in the first half of 2018 and 10 in the EU, each roughly on par with the same period last year. In both jurisdictions, however, there was a marked change in the mix of type of resolutions. In the United States the number of complaints rose relative to the same period last year, while in the EU there was a larger percentage of investigations that went to Phase II in 1H 2018 as compared to 1H 2017.
U.S. investigations resolved in the first half of the year took an average of 10.2 months from transaction announcement to resolution but the median time was only 9.3 months. Both of these durations are materially quicker than during the same period last year but are roughly on par with results for the 2017 calendar year (CY 2017). EU Phase II investigations took an average of 13.4 months, quicker than the same period last year, but EU investigations cleared with Phase I remedies slowed to an average of 7.9 months.
The Number of Significant U.S. Merger Investigations Resolved Tracked 2017, but the Mix of Resolutions Changed Markedly
There were 13 significant U.S. merger investigations concluded by the Department of Justice (DOJ) and Federal Trade Commission (FTC) in 1H 2018, similar to the 12 in 1H 2017.
“Significant U.S. merger investigations” include investigations of proposed Hart-Scott-Rodino (HSR)-reportable transactions that result in a closing statement, consent order, complaint challenging a transaction, or transaction abandonment for which the antitrust agency issues a press release during the year in question.
With the exception of Bayer/Monsanto, all of the significant U.S. antitrust merger investigations resolved relate to deals that were announced after the presidential election of 2016, making this group the clearest reflection of Trump administration enforcement practice to date.
All six of the significant U.S. investigations concluded during Q2 2018 resulted in consents, unlike those concluded in Q1 2018, which included an unusual mix of complaints, closing statements and abandonments. The three complaints filed in 1H 2018 equal the total number of complaints filed in CY 2017.
Significant U.S. Antitrust Merger Investigation Outcomes (2011 – 1H 2018)
Significant EU Merger Investigations Continued Apace, but also Showed a Changing Mix of Resolutions
There were five significant EU merger investigations in Q2 2018, identical in number to Q1 2018. The 10 significant EU merger investigations concluded in 1H 2018 is slightly lower than the 14 concluded in 1H 2017 but is still on pace with the 21 significant EU merger investigations that concluded in CY 2017. In light of the procedural differences between the EU and the United States, DAMITT defines “significant” EU merger investigations to include transactions subject to the EU Merger Regulation and resulting in either Phase I remedies or the initiation of a Phase II investigation.
While the number of total proceedings is on a pace similar to 2017, the distribution between Phase I transactions resulting in remedies and Phase II proceedings shifted significantly. The five Phase II proceedings that concluded during 1H 2018 equaled the number of Phase II proceedings that concluded during all of 2017. In addition, while two of the five Phase II proceedings in 2017 led to the transaction being blocked, none of the five Phase II proceedings in 1H 2018 was blocked. Further observations will be required before we can determine whether there is a trend toward a greater use of Phase II proceedings.
Significant EU Antitrust Merger Investigation Outcomes (2011 – 1H 2018)
The average duration of significant U.S. merger investigations was 10.2 months during 1H 2018, down from 12.2 months in 1H 2017. This mean figure includes the Bayer/Monsanto investigation which was resolved with a consent order after more than 24-month investigation, the longest on record in the DAMITT database dating back to 2011. The median investigation duration, a figure that is not distorted by the unusually long Bayer/Monsanto outcome, was only 9.3 months, down from 10.9 months in the same period last year but roughly comparable to the 9.1 month median duration for CY 2017.
Reaching any firm conclusions about trends in the duration of significant U.S. merger investigations may be murkier than ever, but it appears that durations may have plateaued and the four-year string of ever increasing U.S. merger investigation durations may be broken this year. The 9.3 month median duration during 1H 2018 nearly splits the difference between the shortest six-month median duration in the last 3.5 years (8.1 months in 2H 2017) and the longest (10.9 months in 1H 2017). Trump administration officials continue to speak publicly about shortening the duration of significant merger investigations and their continued focus on this point may result in the trend reversing. DAMITT will be watching and reporting.
Average Duration of Significant U.S. Antitrust Merger Investigations (2011 – 1H 2018)
The five Phase II EU proceedings that concluded in 1H 2018 lasted an average of 13.4 months from announcement, nearly double the theoretical duration of the fixed timetable under the EU Merger Regulation. The five Phase I remedy case that ended in 1H 2018 lasted 7.9 months, far in excess of the theoretical period under the EU Merger Regulation. While the Phase II figure reflects a decline relative to 1H 2017 and CY 2017, the Phase I remedies figure indicates a sharp uptick from the 7.0 months average in CY 2017 and the 7.4 month average in 1H 2017. Both the Phase II and Phase I remedies figures continue to reflect the significant duration of pre-filing talks and the frequent use of timetable extensions in Phase II.
Phase II Proceedings
The 13.4 month average duration for 1H 2018 EU Phase II proceedings represents a decrease from the 15.7 month average in 1H 2017 and a decrease from the 15.1 month CY 2017 average while exactly matching the CY 2016 average. The average duration of Phase II investigations had been climbing steadily since 2011 when it was 9.4 months. This average compares to a theoretical formal timetable of six to seven months counting from the moment of notification. DAMITT data thus show that the average EU case proceeding to Phase II is taking about 3-4 months longer than the average duration of significant U.S. merger investigations.
The time between announcement and notification of Phase II transactions that were concluded in 1H 2018 was 5.8 months, 2.4 months shorter than the 8.2 month average during the same period last year but well above the 2011-16 average of 4.9 months. Merging parties invariably institute pre-filing talks with DG Competition staff very shortly after transaction announcement, if not before, and the growth of the period between announcement and notification is mostly explained by the intensity of staff demands for the inclusion of materials in the filing, before the formal timetable is triggered.
Four of the five 1H 2018 Phase II investigations (80%) entailed the use of “voluntary” extensions of time under Article 10(3) of the EU Merger Regulation. These Article 10(3) extensions are common practice in Phase II investigations, occurring in 88% of all Phase II investigations during the 2011-17 period analyzed by DAMITT and typically consuming the entire three weeks permitted. These extensions may be at the behest of the parties (for example, to create space for a remedy discussion), but are often conceded at the instigation of staff.
The Commission also used its powers under Article 10(4) of the EU Merger Regulation to “stop the clock” in three of the five 1H 2018 Phase II investigations. This power relates to parties missing deadlines to respond to information requests, and its use added an average of just over two months to each of these investigations. The increase in the average time added to those investigations was driven by Qualcomm/NXP, which was suspended for 4.4 months. The exclusion of Qualcomm/NXP brings the average time added to the remaining two investigations down to 0.9 months. By comparison, only 40% of 2017 Phase II investigations and 30% of 2011-16 Phase II investigations were hit with “stop the clock” orders, adding an average of 0.8 months.
The overall duration of cases going to Phase II reflects the increased intensity of the examination. But it also reflects an increased focus on internal documents, with EU proceedings in that sense aligning with U.S. “second request” practice. The pros and cons of this tendency may be debated, but on any basis it contributes to the reason why the average duration of cases that proceeded to Phase II is greatly exceeding the EU timetabling system.
Average Period from Announcement to End of EU Phase II Cases (2011 – 1H 2018)
Phase I Cases
The five significant EU investigations resolved in Phase I with remedies during 1H 2018 lasted an average of 7.9 months. This is lower than the 8.6 month average in 1H 2017, but significantly longer than both the 7.0 month average duration for CY 2017 and the 6.6 month average for CY 2016. When measured from deal announcement, Phase I cases with remedies are now requiring roughly four times the formal EU timetable of about seven weeks.
The time between announcement and notification for these Phase I remedy cases was 6.1 months, which was 0.6 months slower than the 1H 2017 average, and slower than both the 5.2 month average in CY 2017 and the 4.9 month average in CY 2016. During the pre-filing period, companies typically engage in extensive discussions with DG Competition staff over the scope and detail of the parties’ filing, which adds time to the formal schedule.
Average Period from Announcement to End of EU Phase I Remedy Cases (2011 – 1H 2018)
The U.S. agencies’ consent orders showed nearly the greatest reliance on upfront buyers in 1H 2018 as in any full year period measured by DAMITT in the past. The percentage of divestiture consent orders requiring upfront buyers rose to 86% in 1H 2018 as compared to 67% in 1H 2017 and 71% in CY 2017. The 2017 figures were anomalously low and the 1H 2018 figure is more in line with the three prior years in which the prevalence of upfront buyer requirements ranged from 86-87%. Both the DAMITT data and recent statements about merger remedies by U.S. agency officials strongly suggest that upfront buyer requirements are here to stay.
When an upfront buyer is required, merging parties must find a willing and able buyer; negotiate a purchase agreement with that buyer for the assets to be divested; and present that purchase agreement, the buyer’s business plan, and other information to the agency as part of the approval process before the merging parties can consummate their transaction. This process can add significant time to the investigation. DAMITT has observed that investigations ending with consents requiring upfront buyers lasted about two months longer than those with consents permitting the merging parties to find and negotiate with divestiture buyers after consummating their transaction.
U.S. Upfront vs. Post-Order Buyer Trend (2011 – 1H 2018)
The results are in from the AT&T/Time Warner trial and, surprisingly, the 205 days from complaint to district court decision was almost exactly as long as the 207-day average for the complaints filed in 2016.
The AT&T/Time Warner trial started only 123 days after the agency filed its complaint, nearly three weeks faster than the average of 140 days for complaints filed in 2016. But Judge Leon devoted nearly two weeks more to trial than the 2016 cases and took about a week longer to issue his 172-page opinion. What was once a 4-5 month process to litigate a contested transaction to judgment now appears to be a seven-month process.
Time to Litigate Government Antitrust Merger Challenges (Complaints Filed: 2011, 2015, 2016 and 2017)
The duration of significant investigations resolved during 1H 2018 in both the United States and the EU may be plateauing – if not reversing – the trend to longer investigations observed by DAMITT over the past few years. While the circumstances of future antitrust-sensitive transactions may lead to results above or below DAMITT averages, the latest statistics suggest that parties to the hypothetical average “significant” deal subject to review only in the United States would have to plan on approximately 10-11 months for the agencies to investigate a transaction and another seven months if they want to preserve their right to litigate an adverse agency decision. Deal timetables for cases likely to go to a European Phase II need to account for an average lapse of closer to 14 months from announcement to clearance. After slight declines in the number of significant investigations during 2017 relative to 2016, the data for the first half of the year suggest that 2018 may be a busy year for antitrust enforcers in both the United States and the EU.