Multi-jurisdictional mergers often pose multi-faceted competition problems. Finding a solution (or several solutions) to those concerns is key to getting the deal through. Sometimes a global remedy will solve the concerns of several regulators, but this is not always possible, or indeed necessary.
A recent example shows how global merging parties and the Australian Competition and Consumer Commission (ACCC) have navigated the complexities associated with processes of multiple competition authorities, while preserving a commercial deal.
On 22 November 2012, the ACCC announced it would not oppose the proposal by Nestlé SA to acquire the global infant nutrition business of Pfizer Inc (the transaction), subject to court enforceable undertakings.
Both Nestlé and Pfizer have a strong presence in infant nutrition markets globally, and the transaction was subject to regulatory clearance in several countries. Some jurisdictions (including Brazil and China) have already granted clearance, while the transaction has been blocked by the Mexican competition authority. The transaction is understood to be subject to continued review in some other jurisdictions, including South Africa.
In Australia, Nestlé’s key brands include NAN and Lactogen, while Pfizer supplies the S-26 and SMA brands. A key concern of the ACCC was the removal of a close competitor and the reduction of major suppliers of infant nutrition products in Australia from three to two (the other major player being Nutricia, part of the French-based Group Danone).
Nestlé has agreed:
- to grant an exclusive 10 year licence for Pfizer’s S-26 / SMA brand portfolio to an independent purchaser;
- not to re-introduce or licence to a third party the licensed portfolio for a further 10 years;
- not to introduce products with the same or non-material variations to the formulations of the licensed products for 20 years; and
- not to disparage the purchaser of the licensed portfolio or make any reference to the divested brands when Nestlé is marketing a new infant nutrition product for 5 years.
The undertakings are intended to facilitate a new third player to enter the Australian infant nutrition market and become a viable, independent and long-term competitor. Other global players do not currently have a significant presence in the Australian market.
A permanent divestiture of the brands was not required, the ACCC concluding that the licence and re-branding remedy proposed by Nestlé adequately addressed the competition concerns.
The 20 year time period during which Nestlé is restricted in its use of the licensed brands is designed to give the new player an opportunity to establish a foothold in the Australian market and introduce its own brands, thus overcoming the barriers to expansion identified by the ACCC. Semi-structural remedies of this sort are not entirely without precedent in Australia. In a domestic milk merger in 2008, as part of a broader divestiture package, the ACCC also accepted an undertaking to licence certain milk brands for a period of 2 years.
The ACCC’s willingness to come to a decision independently of other jurisdictions in considering the Nestlé / Pfizer transaction was likely influenced by the fact that the remedies stand alone as an Australian solution to address the concerns identified. Meanwhile for the parties, the solution offers sufficient flexibility to continue to deal with other competition authorities, while retaining ultimate global ownership of the brand in the long term.
Other recent global deals
Earlier this year, the ACCC showed a willingness to come to an early conclusion in a global merger, when it unconditionally cleared the Glencore/Xstrata merger in July ahead of regulators in larger jurisdictions. The European Commission (EC) subsequently imposed conditions on its clearance in late November. The EC’s remedy requires Glencore to divest its minority shareholding in, and terminate its off-take agreement with, the world’s largest zinc producer, Nyrstar.
Meanwhile, the ACCC continues to review the global Hertz/Dollar Thrifty merger, which received conditional clearance in the US on 16 November, subject to an upfront divestiture to an identified purchaser.
Impacts for global mergers?
In some past deals, the ACCC has held back its review until overseas regulators resolved their concerns, sometimes accepting exactly the same commitment or remedy as offered to authorities of larger jurisdictions.
These recent examples show that flexibility of approach in managing multi-jurisdictional merger control processes is possible. A local solution to a local problem may work in many mergers. A global remedy may be more practical in others.