This article is an extract from GTDT Merger Control 2024. Click here for the full guide.

The past year has seen more stringent merger control enforcement from competition authorities globally. This follows from an increasingly shared view from authorities and politicians across multiple jurisdictions that excessive consolidation in certain industries has been exacerbated in the past by a lenient approach to merger control enforcement. Although this has been a global trend, the toughest enforcement has come from the United States, the United Kingdom and the European Union.

This overall trend has manifested itself through:

  • an increasing number of transactions being blocked, requiring remedies or being abandoned across these three jurisdictions;
  • parallel reviews by regulatory authorities leading to divergent outcomes;
  • a heightened interest in non-traditional theories of harm, in particular around vertical integration, conglomerate or portfolio effects and innovation;
  • a distrust of non-structural remedies or complex structural remedies, such as carve-outs (especially in the United Kingdom) and, in the United States, an outright shift in policy against accepting any remedy at all in most cases; and
  • regulators extending their jurisdictional reach through the introduction of additional thresholds or a more expansive approach to calling in transactions for review that do not meet the applicable thresholds for mandatory notification.

The tougher approach to merger control has been compounded by the introduction of new digital regulation in the European Union, as well as upcoming or contemplated new digital regulations in the United Kingdom, the United States and across Asia. These new regulatory frameworks are intended to act as a backstop where existing competition law is perceived to have failed. The new regimes will impose additional transparency requirements and require designated companies to inform authorities about a much broader range of transactions.

Finally, the global increase in foreign investment regulation and the introduction of Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market (the Foreign Subsidies Regulation) have added a further layer of complexity to obtaining regulatory clearance for transactions. Successful mergers and acquisitions, therefore, require careful navigation of multiple layers of regulatory review and strategic planning on a global scale to minimise the risk of divergent outcomes.

Authorities more likely to challenge mergers in 2022

The United States stands out as a key jurisdiction in the global shift towards tougher merger control, with the Biden administration continuing to encourage greater intervention by the Federal Trade Commission (FTC) and the Department of Justice (DOJ). Specifically, the US agencies are increasingly willing to challenge transactions in court, even when faced with less than favourable odds that they will prevail. Consistent with this, the US agencies have a newly established preference for bringing an enforcement action instead of accepting a remedy, even where that remedy is a type of clear-cut structural remedy that historically would have been acceptable. The only remedy that has been accepted by the DOJ or FTC as at the time of writing in 2023 was in ASSA ABLOY/Spectrum Brands, where it was accepted mid-trial and only after the DOJ perceived that its chances of winning in court had diminished significantly following the appointment of an unhelpful judge. The DOJ and the FTC have also been increasingly willing to pursue non-horizontal theories of harm, as is the case with the portfolio effects theory in the FTC’s recent challenge to Amgen’s pending acquisition of Horizon Therapeutics.

Similarly, we have seen an increase in European Commission merger blocks, with the European Commission issuing two prohibition decisions in 2022 (Hyundai/Daewoo and Illumina/GRAIL) compared to none in the previous two years. The European Commission also conducted in-depth investigations into four transactions that were subsequently abandoned in 2022 (NVIDIA/ARM, Kronospan/Pfleiderer, Recticel/Greiner and Trimo/Kingspan Group). The European Commission’s analytical framework has also been supported by the EU Court of Justice’s recent decision in Commission v CK Telecoms UK Investments. The EU Court of Justice held that the EU General Court had ‘erred in law’ in overturning the European Commission’s block of the acquisition of O2 by CK Telecoms. Specifically, the EU General Court had erred in applying a higher standard of proof to the question of whether a concentration would significantly impede effective competition on the basis that the standard did not follow from the EU Merger Regulation (EUMR). It remains to be seen whether the ruling will further encourage the European Commission in its recent increase in prohibition decisions.

The same trend is also evident in the United Kingdom. During the past year, a transaction that was reviewed by the Competition and Markets Authority (CMA) (either because it was called in for review or following a voluntary notification) was more likely to be referred to Phase II for an in-depth investigation (14 out of 43 Phase I decisions), abandoned (Fedrigoni/Arjowiggins and Mzuri/Shuttercraft Holdings) or cleared subject to conditions in Phase I (13 out of the 43 Phase I decisions) than it was to be unconditionally cleared (11 out of the 43 Phase I decisions).

Although this trend is indicative of competition authorities across the globe continuing to take a tougher stance on merger control enforcement, complex deals still get cleared; however, concerns remain that unfavourable outcomes may occur in key jurisdictions, with an adverse outcome in one key jurisdiction having the potential to result in the entire global transaction unravelling. Increasingly, this requires careful planning and a globally coordinated approach with local expertise being engaged to navigate multiple merger control regimes with differing timelines, standards of proof and remedy approaches.

Parallel reviews by regulators risk divergent outcomes

Historically, competition regulators across the United States and the European Union in particular had focused on reaching consistent outcomes, absent compelling local differences in competitive conditions; however, in recent years this concern has become less prescient and it is increasingly common for regulators to reach divergent conclusions in merger control proceedings (eg, Google/Fitbit and Konecranes/Cargotec). This trend continued throughout 2022 and has continued into 2023. Most notable was Microsoft’s US$69 billion acquisition of Activision, which was subject to merger control review in multiple jurisdictions, including the United States, the European Union, the United Kingdom and China. Both the European Commission and the CMA conducted a Phase II in-depth investigation and identified competition concerns in relation to nascent cloud gaming services. Microsoft offered similar behavioural remedies in both jurisdictions, which involved a commitment by Microsoft to license Activision games to certain third-party cloud gaming providers. Despite this, the authorities came to different conclusions when considering the sufficiency of the offered remedies.

The CMA concluded that the remedy offered by Microsoft did not address competition concerns in the nascent cloud gaming market and could not be monitored effectively. Specifically, it noted that the cloud gaming market was ‘dynamic and fast developing, which makes it particularly difficult to accommodate the changes that may occur in the market within the specification of a behavioural remedy’. On this basis, the CMA rejected the remedies on 26 April 2023, while the European Commission accepted Microsoft’s remedy proposal on the basis of broadly positive feedback from cloud gaming providers in its market test and cleared the transaction on 15 May 2023. This divergence is reminiscent of Konecranes/Cargotec and highlights the fact that the CMA has a much lower tolerance for uncertainty regarding the effectiveness of remedies.

This stands in stark contrast to China, where the State Administration for Market Regulation (SAMR) unconditionally cleared the transaction in May 2023. Although SAMR did not disclose its reasoning for its clearance (as it is required to publish only prohibition and conditional clearance decisions), commentators opining on the reasons for SAMR’s decision pointed to, among other things, the gaming market in China being highly regulated and competitive, in addition to the parties’ market share being limited in China. This shows that SAMR is willing to chart its own course in relation to merger control enforcement in the absence of China-specific concerns.

In the United States, the FTC sued to block the transaction in an administrative court on 8 December 2022, alleging that the transaction would allow Microsoft to suppress competitors to its Xbox gaming console and subscription service, and referencing Microsoft’s previous conduct of allegedly reneging on commitments to the European Commission regarding its acquisition of ZeniMax. The request by the FTC for a preliminary injunction was, however, denied. Among the reasons for the court’s denial was the fact that, despite the ability that Microsoft would have to foreclose access to Activision content, there was no commercial incentive for Microsoft to do so. The FTC has, however, appealed this decision. In Australia, the Australian Competition and Consumer Commission (ACCC) announced a review of the transaction under its informal review process on 20 June 2022, which the ACCC has not yet closed. Based on the diverging views taken by different regulators to date, it remains to be seen how – or indeed if – the ACCC will connect these positions.

It will also be interesting to see whether Amazon/iRobot, currently under review by the FTC and European Commission but having received clearance by the CMA, will lead to diverging merger outcomes. The CMA’s clearance focused on the modest market share of iRobot in the United Kingdom and the fact that there were already active competitors in the market. This consideration may not apply to the United States and the European Union, where there have been calls by local lawmakers and advocacy groups to block the transaction. In referring the transaction to a Phase II review, the European Commission was particularly concerned about Amazon’s ability and incentive to degrade access to data and software for iRobot’s rivals. This included access to Amazon’s Alexa software and the ‘Works with Alexa’ certification.

Regulators take interest in non-traditional theories of harm

A heightened interest in non-traditional theories of harm has been present in recent merger control reviews, including through a forward-looking future competition and innovation lens. Authorities are adopting more novel ways to assess horizontal, vertical and conglomerate relationships between the merging parties.

In the United States, the FTC’s suit to block Amgen’s proposed acquisition of Horizon has marked a departure from the US agencies’ competitive overlaps-based approach of reviewing pharmaceutical mergers. The FTC is challenging the transaction on the basis of a novel portfolio effects theory of harm, under which it alleges that Amgen could leverage blockbuster drugs in its existing portfolio in negotiations with insurance companies and pharmacy benefit managers to insulate Horizon products from competition. In addition, in 2022, the FTC issued a policy statement on its enforcement of ‘unfair methods of competition’ under section 5 of the FTC Act, in which it stated that a series of mergers that gives rise to anticompetitive harms could be prohibited, even if the individual mergers would not themselves give rise to competition concerns.

Similarly, the European Commission has made it clear that it is willing to challenge mergers based on non-traditional theories of harm. In a speech in September 2022, Commissioner Margrethe Vestager said that the European Commission will ‘adapt [its] assessments and [its] methodologies in line with market specifics and based on [its] case experience. This includes new theories of harm related to data and innovation, in markets ranging from tech to life sciences to agrochemicals’. This approach was evidenced by the European Commission’s issuance of a statement of objections in relation to Booking/Etraveli in June 2023, on the basis that the merger of these two complementary businesses would strengthen Booking’s alleged dominant position in the hotel online travel agency market, thereby – according to the European Commission – allowing Booking to expand an ecosystem of services, increase barriers to entry and expansion and increase its online customer traffic. A similar concern was expressed by the European Commission in its referral to Phase II review of Amazon/iRobot. Specifically, it noted that Amazon would obtain access to iRobot’s user data, which could ‘provide Amazon with an important advantage in the market for online marketplace services to third-party sellers (and related advertising services) and/or other data-related markets’.

SAMR in China has continued to show a keen interest in vertical and conglomerate theories of harm. In 2022, it conditionally cleared AMD’s acquisition of Xilinx where SAMR raised conglomerate concerns finding that the merged entity would leverage Xilinx’s significant market power in the FPGA (semi-conductor devices) market to restrict competition in the related (neighbouring) markets. In II-VI/Coherent, SAMR was concerned that the vertical integration would lead to foreclosure effects given the parties’ significant market power in the relevant upstream and downstream markets. SAMR was concerned that the merged entity could engage in anticompetitive conduct such as refusal to deal, discrimination, excessive pricing, degradation of supply or misuse of competitively sensitive information, or a combination thereof.

Broadcom/VMware has been subject to in-depth reviews by many authorities, including on the basis of vertical and conglomerate theories of harm. In particular, the CMA, the FTC, the European Commission and SAMR have explored whether Broadcom could degrade interoperability between VMware’s software and competitors’ hardware to foreclose the latter. Although the CMA, FTC and SAMR reviews are ongoing, the European Commission has already cleared the transaction on the basis of ‘comprehensive access and interoperability commitments’ to its rival, Marvell, and any future entrant to the market.

In the United Kingdom, the CMA has also continued to probe vertical mergers including in respect of continued access to data that may be important to upstream and downstream rivals (eg, Amazon/iRobot, LSEG/Quantile and UnitedHealth/EMIS). In addition, the concept of dynamic competition continues to serve as an important theory of harm in the CMA’s merger review process. The recent update of the CMA’s Merger Assessment Guidelines explained this novel theory of harm as encompassing a consideration of future competition – both in terms of entry and expansion – of companies that are not currently in competition; therefore, dynamic competition allows the CMA to take a flexible and forward-looking approach to assessing counterfactuals, future competition and entry or expansion irrespective of the uncertainties inherent in looking many years into the future. In its July 2022 ruling on Meta/Giphy, the Competition Appeal Tribunal (CAT) had ‘no hesitation’ in concluding that the CMA’s finding of a reduction of dynamic competition was lawful. With this procedural endorsement from the CAT, the CMA looks set to continue to utilise this theory of harm in its review of transactions.

Two notable themes have been developing under this increased level of interest in non-traditional theories of harm. First, parties have abandoned global transactions based on some regulators’ views that behavioural remedies will be inadequate to address vertical and innovation-related theories of harm, such as with NVIDIA/ARM. Second, a divergence in the identification and assessment of these non-traditional theories of harm by regulators has been driven by differences in applicable legal standards and statutory frameworks. Microsoft/Activision serves as an example of such a divergence, in particular from the different ways in which the European Commission and the CMA looked at the counterfactual of how the cloud gaming space would develop going forwards and what would accordingly constitute an effective remedy.

Scepticism towards non-structural or complex remedies

The FTC and the DOJ in the United States have traditionally been open to accepting structural remedies in horizontal mergers and behavioural remedies in instances of non-horizontal mergers where a transaction raised competition concerns. More recently, however, they have shifted towards a more aggressive approach to merger enforcement, which includes a scepticism towards even clear-cut structural remedies in horizontal cases. In a speech to the New York State Bar Association, the head of the DOJ’s Antitrust Division, assistant attorney general Jonathan Kanter, expressed his concern that remedies too often missed the mark and that ‘when the division concludes that a merger is likely to lessen competition, in most situations [they] should seek a simple injunction to block the transaction. It is the surest way to preserve competition’. Similarly, FTC chair Lina Khan stated that the FTC will be ‘focusing [its] resources on litigating, rather than on settling’, illustrating the US agencies’ distrust of behavioural or carve-out remedies in complex merger cases. In fact, under the current DOJ administration, only one divestiture remedy has been accepted since 2021. After initially rejecting ASSA ABLOY’s proposed remedy for its acquisition of part of Spectrum Brands, the DOJ sued to block the transaction in federal court. As the trial was ongoing, the DOJ and the parties reached a settlement to resolve the DOJ’s concerns through a divestiture. Although the case shows some willingness of the current DOJ administration to accept remedies, it could be argued that the DOJ accepted this single divestiture remedy in part to avoid the threat of an unfavourable precedent if the court ultimately ruled against the DOJ and imposed a higher burden on it in cases litigating a remedy.

In the United Kingdom, the CMA has demonstrated a similar aversion to behavioural or complex carve-out remedies. This can be further complicated by the fact that the CMA’s timetable and sequencing of procedural steps can result in a timing discrepancy during global remedy negotiations, which can exacerbate the risk of divergent outcomes. The UK government has proposed reforms (which are likely to come into force in 2024) to make the CMA remedies process more flexible, including the ability for binding commitments to be agreed earlier during a Phase II review. Attention will be paid to how this change is implemented in practice and whether it improves the ability of merging parties to engage with the CMA on remedies earlier in the Phase II process.

The approach taken by the European Commission shows that it is generally more willing to consider both behavioural and carve-out remedies especially where the market test conducted is supportive of the remedy. In May 2023, Commissioner Vestager noted in her speech at the Studienvereinigung Kartellrecht International Forum that European courts require that remedy proposals cannot, as a matter of principle, be dismissed. Further, in acknowledging that there is a preference for structural remedies (over 80 per cent of European Commission conditional clearances relied on structural remedies in the previous five years), she noted that ‘the nature of merger control is that it requires a case-specific assessment. In certain situations, [the European Commission] can accept solutions other than divestitures. Generally speaking, those solutions consist in granting access to a technology or an asset’.

One example of a transaction that was abandoned in light of scepticism towards behavioural remedies was NVIDIA’s planned acquisition of ARM, which faced regulatory scrutiny across jurisdictions (including by the CMA, the FTC and the European Commission) on the basis of vertical and innovation theories of harm. Vertical foreclosure concerns were raised in all major jurisdictions on the basis that an ecosystem had developed around ARM architecture for certain end uses and the acquisition of ARM by NVIDIA would have taken the former (as a neutral developer and innovator of chip architecture) off the market, thereby negatively affecting innovation. As the behavioural remedies offered were considered unsuitable by regulators, the transaction was ultimately abandoned.

Regulators extending their jurisdictional reach

There has been a trend towards regulators adopting a more expansive interpretation of their jurisdictional reach to review transactions that they perceive to harm competition despite involving a target with low revenue or limited nexus to the jurisdiction in question.

The European Commission famously changed its policy on article 22 of the EUMR and called in the transaction of Illumina/GRAIL in 2022. The European Commission’s prohibition decision in this instance looks set to become a test case, with Illumina’s appeal against the prohibition currently before the EU General Court. To what extent the European Commission’s approach will be vetted by the European courts remains to be seen, with the EU General Court recently refusing to grant the European Commission’s request for an expedited hearing. Meanwhile, the European Commission has imposed a record-breaking fine of €432 million on Illumina for gun jumping. This figure hits the statutory cap of 10 per cent of Illumina’s turnover in 2021.

In the same vein, the UK share-of-supply test continues to give the CMA a significant amount of discretion in deciding which transactions it wants to review. Based on its decisional practice, the CMA has taken an expansionist view of this test. The CAT has previously upheld the CMA’s power to, among other things, establish a UK nexus to a transaction even when a party lacks a direct presence in the United Kingdom and for the CMA to use its discretion, which it can adapt during the course of the review, in defining the relevant description of goods and services under the share-of-supply test. Further, the Digital Markets, Competition and Consumers Bill reform in the United Kingdom, which is expected to come into effect in 2024, will introduce an additional jurisdictional threshold to capture purely vertical and conglomerate transactions, providing even more flexibility for the CMA to review transactions. With the proposed UK merger reforms retaining the share-of-supply test as currently enacted, the expansionist approach of the CMA appears to be endorsed by the legislature.

Regulatory authorities in the United States have also worked to expand the basis on which they can pursue non-traditional theories of harm within their already broad jurisdictional power to review transactions affecting US competition. Although section 5 of the FTC Act has traditionally been narrowly interpreted, its provision that allows the FTC to challenge an ‘unfair method of competition’ has been expansively interpreted as a result of a 2022 FTC policy statement. The statement, which provides a non-exhaustive list, specifically cites the FTC’s authority to challenge mergers involving nascent or potential competitors and mergers that would not have traditionally violated antitrust laws.

In China, amendments to the Antimonopoly Law, which came into force on 1 August 2022, allows SAMR to call in transactions that fall below the merger control thresholds and to require parties to file if a transaction is likely to eliminate or restrict competition. Like other jurisdictions, this is aimed at facilitating SAMR’s ability to review killer acquisitions that do not meet the turnover thresholds. Implementing regulations, which came into force in April 2023, provide further guidance on the procedures and legal implications of a call-in review. This will significantly increase deal execution risk, especially for high-profile and transformative global transactions. A robust, substantive antitrust analysis is therefore recommended to assess the risks presented by a call-in review even where transactions do not meet the thresholds for mandatory notification.

In India, the jurisdiction of the Competition Commission of India (CCI) to review a transaction was extended by the recently approved Competition (Amendment) Bill 2022. Among other amendments, the reforms include the expansion of notification thresholds from asset value and turnover to also include transaction value, meaning that transactions now have three alternative metrics on which they can trigger a review by the CCI.

Novel digital regulations for designated firms

The past year has also seen the introduction of digital regulations that provide separate merger control transparency requirements for designated digital companies. In the European Union, article 14(1) of Regulation (EU) 2022/1925 (the Digital Markets Act) now provides that a gatekeeper, as determined by the European Commission under article 3(1) of the Digital Markets Act, is required to notify the European Commission of any acquisition involving a party that provides ‘core platform services or any other services in the digital sector or enable[s] the collection of data’. This transparency requirement applies irrespective of whether the transaction meets the thresholds outlined in the EUMR. Article 14(5) of the Digital Markets Act explicitly provides that national competition authorities of EU member states may use the information provided to the European Commission under the Digital Markets Act’s merger transparency requirements pursuant to a member state’s request to the European Commission under article 22 of the EUMR. This transparency requirement may therefore result in an increase in referrals to the European Commission under article 22 of the EUMR.

The United Kingdom is similarly seeking to increase transparency over mergers and acquisitions activity in digital markets with the introduction of the proposed Digital Markets, Competition and Consumers Bill, which will empower the CMA to designate undertakings that have a strategic market status based on certain qualitative and quantitative criteria. Designated firms will have, among other things, a duty to report mergers when acquiring certain proportions of an undertaking’s shares or voting rights (starting at 15 per cent) once other applicable conditions are met. There would then be a short waiting period for the CMA to decide whether to open a formal investigation into a given transaction, provided that the jurisdictional thresholds are met.

Outside of Europe, the global trend towards digital regulation continues to gain momentum. In the United States, debate continues about the need for additional powers to regulate digital companies. In May 2023, a bill proposing the Federal Digital Platform Commission Act (the FDPC Act) was introduced in Congress. If enacted, the FDPC Act would significantly reform the merger review process for digital companies in the United States; in particular, it proposes the creation of a Federal Digital Platform Commission that could designate undertakings as systemically important digital platforms. Companies designated as such platforms would be required to submit merger filings under the Hart-Scott-Rodino Act to the proposed agency, in addition to the current recipients of such filings (ie, the DOJ and the FTC) under section 14 of the FDPC Act. This would introduce a significant additional layer to the US merger review process, as the Federal Digital Platform Commission would have the power to request additional information on the merger, cooperate with the DOJ and the FTC in reviewing the filing, and provide a recommendation (which must be given substantial weight) to the DOJ and the FTC on whether to challenge the merger.

In Asia, Japan’s Act on Improving Transparency and Fairness of Digital Platforms (TFDPA), which came into force in 2021, provided the Ministry of Economy, Trade and Industry with an expanded remit of enforcement to ‘secure fairness in operating digital platforms’. Recently, an inter-ministerial organisation was established to assess an ex ante regime, similar to the one contained in the Digital Markets Act, for inclusion in the TFDPA. It remains to be seen how the regime, if adopted, would be incorporated into Japan’s existing framework for merger reviews.

Increasing scrutiny of foreign direct investments and subsidies

Over the past year, the number of foreign direct investment (FDI) regimes has continued to proliferate globally, including through the UK National Security and Investment Act, which came into force on 4 January 2022. FDI regimes are also currently in the process of being introduced or expanded in jurisdictions such as Ireland, Belgium and the Netherlands. Given that FDI regimes can be triggered by minority investments and asset transactions, FDI filing requirements can have a significant impact on transaction timelines even where merger control notifications are not triggered.

At the EU level, Regulation (EU) 2019/452 formalised cooperation between EU member states but retained the devolved nature of FDI screening at member state level. This lack of standardisation can create uncertainty for parties to a transaction in the European Union – for instance, in the 2023 transaction involving Whirlpool and Arçelik, the Italian government is reported to have intervened under its ‘golden power’ FDI laws to require remedies that included employment protections. Unlike merger control regimes, such FDI reviews are highly political and tend to leave a narrower scope for negotiation with regulators and governments.

In the European Union, the Foreign Subsidies Regulation came into force on 12 July 2023. The Foreign Subsidies Regulation places notification requirements on companies operating in the European Union that benefit from subsidies granted by non-EU countries. Regarding merger reviews, article 18 of the Foreign Subsidies Regulation will place additional notification requirements where the EU turnover of the target exceeds €500 million and all undertakings party to the transaction receive financial contributions from non-EU countries exceeding €50 million. Going forward, complex mergers will have to navigate multilayered regulatory regimes to obtain clearances.

In the United States, there has been a similar focus on notification requirements for foreign investment under the Committee on Foreign Investment in the United States (CFIUS). Prior to 2022, CFIUS had only issued two penalty fines. Recently, the Department of the Treasury released the CFIUS Enforcement and Penalty Guidelines; although they do not involve a significant change to the substantive requirements to notify foreign investment, they do outline increased CFIUS powers to issue fines of US$250,000 or the value of the transaction, whichever is greater. This will renew the focus on compliance with the CFIUS foreign investment notification requirements for further merger and acquisition-related activity.

As a result, the increasing complexity of merger control regimes is being compounded by the global proliferation of foreign investment reviews (formally and informally through political backchannels) and other mandatory pre-closing merger approvals, such as those that are laid out in the Foreign Subsidies Regulation.