Compliance with EU and national antitrust merger control rules can significantly impact the feasibility, timing and costs of M&A transactions. If antitrust merger control rules are not considered in advance, they may ultimately become “deal killers.”
The parties need to assess, from early in the negotiations, whether the transaction may raise any competition issues. Therefore, antitrust counsel needs to be involved early in the process, and not only brought in during the final phase of the deal, in order to verify the feasibility of the transaction from an antitrust standpoint. For complex cases, it may be necessary to bring in antitrust counsel as far as two years before its expected implementation. Completing a timely antitrust review of a proposed transaction may allow the parties to save time and costs for the structuring of deals, that upon review are deemed to be infeasible, because they would likely be stopped by relevant competition authorities. In other circumstances, the early involvement of an antitrust counsel can help the parties define better strategies to minimize any potential competition risks raised by the transaction (e.g., whether a pre-merger divestment or other structural or behavioral remedies should be offered to the relevant competition authorities) and address potentially problematic issues with the authorities.
Compliance with merger control rules remains important to ensure a smooth and unproblematic closing, and to avoid significant competition issues. A preliminary multijurisdictional merger control analysis is required to verify whether a transaction needs to be notified in any of the countries where the parties have a presence or do business, and assess its likely impact on the timetable for the closing. Within the European Union, transactions that have a so-called “Community dimension” (in terms of aggregate turnover of the parties, as well as the areas of activity) are notified and (in principle) reviewed exclusively by the European Commission, in application of a “one-stop shop” principle. Consequently, such transactions do not need to also be reviewed under the merger control regimes of each EU Member States affected by the deal. However, in certain circumstances the transaction may pose more complex jurisdictional issues. For example, if a transaction having “Community dimension,” affects competition in a distinct market within a EU Member State, it may be referred (in whole or in part) to the local authority of that EU Member State. In turn, transactions without “Community dimension” may, in certain circumstances, be examined by the Commission, upon the request of one or more EU Member States or the Commission itself. In addition, local merger control regimes differ significantly from one another, on both procedural and substantial aspects. For instance, in most EU countries the merger control filing is mandatory if certain turnover or markets shares thresholds are met. But in other countries (i.e., United Kingdom), the filing is only voluntary (i.e., if the certain thresholds are met, the parties may notify the transaction in order to obtain a clearance by the relevant national authority, prior to the closing). In addition, there are jurisdictions which require the clearance of the relevant competition authority prior to the implementation of the deal (e.g., Germany and Austria), and others where it is sufficient to notify prior to the closing (e.g., Italy).
The Commission and the national competition authorities (NCAs) have been increasingly using their powers to ensure that companies comply with the merger control rules described earlier, in particular with those which set the procedural requirements of a filing. In May 2011, the German Bundeskartellamt imposed a fine amounting to EUR 206,000 on Interseroh Scrap and Metals Holding GmbH, for violating the prohibition to implement a merger before the notified deal was cleared. The Commission went so far as to levy a record fine of EUR 20 million in June 2010, against Electrabel (an electricity producer and part of the Suez Group) for failing to obtain prior approval for its acquisition of shares in Compagnie Nationale du Rhone. These fines were imposed despite the fact that the transactions did not give rise to competition concerns. It is very unlikely that this trend will change; rather, the antitrust regulators are expected to pay even more attention to the implementation of such rules in the future.
The Commission and the NCAs can impose significant fines for failure to notify a transaction or for its implementation prior to obtaining clearance (e.g., up to 10 percent of the parties global turnover, as far as the Commission is concerned). As mentioned earlier, such fines apply regardless of whether the transaction may have potential harmful effects on the relevant markets (although the lack of any substantive competition issues is considered ex-post as a mitigating factor). The authorities can also declare the merger to be illegal (i.e., null and void) and order the total or partial divestiture of the merged entity (or adopt other appropriate measures regarding the implemented concentration). Furthermore, in certain countries, such as Ireland, “wilful and knowing” failure to notify a transaction within the determined time limit may constitute criminal offense, punishable with a fine from EUR 3,000 to EUR 250,000.
As a result, specialized advice from local counsel is needed from the earliest stages of a potential deal, in order to assess: (i) the feasibility of the deal from an antitrust standpoint and how to approach potential competition risks; (ii) whether the transaction needs to be notified in any jurisdiction where the parties have a presence or do business; (iii) whether the transaction shall be made conditional on the clearance of the relevant competition authorities; (iv) when the parties should start collecting the relevant data to prepare the notifications, in order to allow enough time to submit the filings and receive approvals from the relevant competition authorities (taking into account, among other things, the potential competition issues raised by the transaction); and (v) the best way to approach and manage communications with each authority.
Finally, the input of the local antitrust counsel is also essential to advise corporate lawyers on the contractual clauses that should be included or avoided in transaction agreements (e.g., the antitrust condition precedent), the parties’ warranties, or other covenants that the buyer or seller may impose on each other (e.g., non-competition clauses set for a transitional period, commencing upon the closing date), which, under certain circumstances, may be considered ancillary to the transaction.
Compliance with merger control laws is sometimes underestimated. Parties to a proposed transaction in the EU should assess the merger control issues early in the process and evaluate and comply with any procedural antitrust requirements to avoid unnecessary delay, or even civil or criminal penalties, in any EU transactions.