Last Wednesday, 28 May, saw the European Commission approve the sale by Spain’s Telefonica of its O2 Ireland mobile phone operation to Hong Kong’s Hutchison Whampoa.
A&L Goodbody acted for Telefonica on the EU and Irish aspects including the European Commission notification.
The approval has been seen internationally as ground-breaking. Since the deal was signed on 21 June 2013, the European Commission has conducted an in-depth review of the case which was monitored by the telecom community globally. The Financial Times described it as “a closely scrutinised deal". The Wall Street Journal said the deal “has been closely watched by investors for signs of how EU authorities will treat further mergers in Europe’s rapidly-consolidating telecom sector”.
It was also a complicated deal: the level of complication was typified by a comment by The Wall Street Journal: “The UK’s Vodafone…criticized the Brussels-based European Commission for its conditional approval of an Asian conglomerate’s purchase of a Spanish-owned mobile operator in Ireland. Got all that? When it comes to telecom consolidation in Europe, the geography gets complicated.”
When the decision was published, the Global Competition Review said the decision is likely to be "the model” for the future mobile mergers.
The exact parameters of the clearance are not yet in the public domain. A&L Goodbody’s Dr Vincent Power, along with Aileen Murtagh and Michael Cocoman, who advised Telefonica on the competition law aspects said that the European Commission’s decision will not be made public for some time but the European Commission's press release contains useful messages for all economic sectors. Vincent made the following observations:
- "The Commission's press release refers to the risk that an “important competitive force” (the ICF) could be removed. ICF is not a very well defined concept in competition law but gives competition agencies a great deal of leeway in their investigations and decision-making. Agencies could use the concept to pay attention to players who are far from dominant (e.g., single digit market participants) to develop a "theory of harm" (e.g., around the ICF's disappearance or a possible change in the ICF's approach to competing in the market). So, this "ICF" concept is one for business people and their advisors to watch in future mergers."
- "Businesses should expect longer rather than shorter timetables for merger clearances. Nonetheless, a review process lasting almost a year is not unusual and dealmakers will have to factor in longer timetables. Indeed, even simpler Irish deals will probably take longer to review if the Competition and Consumer Protection Bill 2014 is enacted because the Irish Competition Authority will be given more time to review deals."
- "This deal was finally cleared based on a remedies or commitments package submitted by the buyer. This means that buyers in potentially "competition review" deals will have to consider not just the price they are willing to pay to buy the business but what they are willing (or not willing) to "pay" in terms of remedies or commitments to get competition approval."
- "The merger was a "4 to 3" merger but the Commission wanted some real sense that consumers would not be harmed by the reduction in competition hence the commitments to address those concerns."
- "The Commission's analysis is, as the press release shows, very in depth including looking at factors such as the buyer was the last to enter the market and therefore has different incentives compared to a longer established player, the structure of the market, the position of market participants and so on. Those involved in M&A deals will find the decision a very useful handbook or guide on how to do mergers in markets with relatively few players."