Growing and protecting your business in the year ahead
Political changes and shifting economic dynamics globally will have important implications for antitrust policy and enforcement in the year ahead. The full implications for deal planning and antitrust risk will become more clear as the year progresses, but a number of important themes have emerged that businesses should anticipate in their planning.
Political intervention in key sectors: the role of antitrust authorities in making markets work for all stakeholders
Changes in government in some regions – including the UK and US – are predicted to lead to a less interventionist approach overall to market dynamics. Initial indications, however, suggest that, in 2017, governments across all regions could take a more direct role in antitrust enforcement and public interest review in certain sectors, particularly those with signs of consumer dissatisfaction about price, service levels or responsible corporate behaviour.
In response to increasing populism, Prime Minister May and President-elect Trump have each highlighted the role governments should play in controlling the behaviour of large business to ensure markets are delivering fair outcomes for consumers and employees:
- tapping into an apparent seam of dissatisfaction, Mrs May identified utility firms and retail banks as sectors subject to scrutiny if firms are suspected of abusing their roles; and
- during his campaign, Mr Trump commented about media and high-tech industries, suggesting he wanted the AT&T/Time Warner transaction blocked. Early indications, however, from transition team members suggest that the overall direction of US enforcement could be more lenient towards mergers under his administration.
Expect more continuity than change with the next US administration – we should anticipate differences primarily on the marginal M&A cases, where we may see a lighter hand in enforcement.
Mary Lehner, Partner, Washington DC
At the EU level, recent comments from Competition Commissioner Vestager illustrate how the concept of ‘fairness’ of opportunity and outcome, with all stakeholders having equal opportunity, plays an important role in EU competition policy. She is willing to intervene directly in markets when prices are seen to be excessive, whilst recognising that such intervention should be exercised carefully in order to avoid harming innovation.
In 2017, growth, fairness and consumer protection will remain high on the political agenda globally, and antitrust authorities will come under increasing pressure to help deliver on these goals.
Cross-border M&A: implications of increased protectionism and foreign investment controls
Despite the political rhetoric, most governments continue to advocate the economic benefits of foreign investment and free trade. Some sectors and investors, however, are likely to face increased scrutiny when seeking clearance for investments in certain countries.
Most recently, the UK government announced that it will publish proposals to reform its laws enabling government to intervene in future foreign investments in UK critical infrastructure. Early comments from Prime Minister May about defending sectors that are important to employees, regions and the whole country suggest that the government may widen the range of public interest factors that it may take into account in merger assessments (currently confined to national security, media plurality and financial stability), although a range of options (including a new foreign investment regime) are possible.
In Germany, concerns about high-value technology transferring overseas have led the government to consider extending its powers to block acquisitions in key sectors. The government announced plans to amend German foreign trade regulations in 2017 to allow for the prohibition of foreign investment in certain key technologies such as IT enterprises. There are also calls for stricter rules and more harmonisation in approach across EU member states.
The German government is spearheading a push towards new EU legislation that would allow member states to prohibit acquisitions of EU companies by non-EU entities in certain circumstances. Any such developments at EU or national level will need to be monitored closely in 2017.
Frank Montag, Partner, Brussels
Foreign investors in the US should expect close scrutiny by the Committee on Foreign Investment in the United States (CFIUS) for acquisitions involving businesses or services even loosely related to national security. China outbound investment into the US hit a record amount in 2016, but some in Congress have made legislative efforts in recent years to grant CFIUS the power to block transactions for reasons other than those related strictly to national security concerns (which are themselves already interpreted expansively). While these recent legislative efforts have failed to date, the possibility of the CFIUS statute being expanded during a Trump administration cannot be ruled out, particularly given the increasing focus on reciprocity of treatment between countries with respect to trade-related issues.
Compared to the antitrust regime, CFIUS allows much greater scope for direct presidential influence on decision-making, and the Committee is less accountable to public and judicial scrutiny given the lack of transparency and appeal rights. So Mr Trump may use CFIUS to further populist aims in transactions with even tenuous links to national security.
Governments will need to weigh the risks of introducing less predictability and transparency for foreign investors, given the importance of continued investment in infrastructure and innovation for economic growth. They will need to consider carefully the possible impact such action might have on cross-border M&A, inward investment and the prospect of retaliatory action by other countries.
Chinese companies looking to invest overseas in 2017 will need to be particularly mindful of both the heightened scrutiny likely to be exercised by Chinese authorities over certain outbound investments from China and the increased risk for all companies of review by governments in Europe and the US of foreign investments in sensitive or strategic sectors.
Nicholas French, Partner, Beijing and London
Brexit: preparing for parallel antitrust regimes in the EU and UK
As the EU and UK prepare to embark on negotiations for the UK’s exit, the implications for EU and UK competition enforcement range from little or no change (if the future UK/EU relationship is modelled on existing EU or EEA arrangements) to separation of regimes with dual-track processes, with or without co-operation arrangements that could minimise the burden on business.
Full separation means business losing the benefits of the EU’s one-stop shop for deals having effects in both the EU and UK, as well as the UK being part of the closely co-ordinated system of antitrust enforcement across the EU. This could increase costs and uncertainty for businesses engaged in deals and trade in the EU and UK and companies will need to be prepared to adapt their antitrust strategies, making sure they are able to respond quickly to any changes in regulatory approach.
The potential separation of UK and EU competition regimes makes it more important than ever to stay close to agency thinking in both centres to ensure your antitrust strategies adapt to any change of direction in enforcement.
Simon Priddis, Partner, London
Resource-constrained agencies and impact on case prioritisation: a focus on high-profile sectors and larger businesses
In a world of parallel regimes in the EU and UK, one immediate effect will be pressure on resources, as the UK’s Competition and Markets Authority (CMA) will be required to review a significant number of additional large-scale mergers with, apparently, no increase in budget.
In the US, if Mr Trump follows through on his pledge to impose a hiring freeze on all federal agencies, it may give the Federal Trade Commission (FTC) and Department of Justice (DOJ) staff fewer resources to devote to marginal cases.
The combined effect of these changes is likely to be a reprioritisation of investigative resources to higher profile cases and non-discretionary areas of work, such as notified mergers, with smaller scale and discretionary enforcement cases less likely to be pursued.
In a resource-constrained environment, there may be a tendency for agencies to target high-profile companies in key sectors with quick wins designed to satisfy political and consumer demand for visible results. Longer term, however, politicians will scrutinise these outcomes to ensure that any reprioritisation does not undermine their underlying focus on improving consumer welfare and economic growth.
Looking ahead in 2017
In an era of political uncertainty and changing regulatory environments, it is crucial for businesses to:
- stay close to agency thinking at a local level, being prepared to respond to policy changes whilst ensuring global antitrust strategies remain consistent and highly co-ordinated across all jurisdictions where the business is active;
- ensure local antitrust compliance policies are able to adapt quickly to any changes in approach that could place certain commercial activities at greater risk of regulatory intervention than before; and
- factor these changes into deal-planning and understanding and anticipating the political drivers that might hinder cross-border M&A or place certain deals under greater scrutiny for longer periods in particular regions.