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Product Details
| ISBN-13: | 9781787422179 |
|---|---|
| Publisher: | Globe Law and Business |
| Publication date: | 03/31/2019 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 1440 |
| File size: | 3 MB |
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CHAPTER 1
Merger control – a global phenomenon
DLA Piper
The title of this introduction is by no means an exaggeration. No other area of competition law seems to have evolved and expanded so rapidly in recent years. The size and the number of sections in this book reflect that today, merger regulation has a marked impact on mergers and acquisitions of all sorts and sizes, as well as on the parties involved in these transactions, almost anywhere across the world.
In many jurisdictions, the substantive merger test has evolved beyond a straightforward dominance assessment based on market shares, to a more comprehensive and inclusive assessment of the transaction's impact on the requirements of dynamic competition, of which innovation is an increasingly important element. Thus, the nature and the number of variables taken into account by competition authorities have increased, making it more complex to assess the likely outcome of a merger review. At the same time, it can be observed that the percentage of transactions that get prohibited across the globe actually has remained small and fairly stable. To a certain degree, this may reflect an increased understanding among competition authorities that major corporate reorganisations are inevitable in a globalised economy and should in principle be welcomed to the extent that they do not give rise to significant negative externalities. Perhaps more importantly, however, it seems that such a large percentage of mergers is approved because of the increased tendency among competition authorities to make clearance conditional upon the acceptance of commitments (also commonly referred to as 'remedies') by the parties, with a clear preference for often far-reaching structural remedies – mostly in the form of a divesture of assets, subsidiaries or even complete business units. This way, approval decisions can have an almost equal impact on the shape and value of a corporate transaction as a prohibition decision would have had.
Another, rather recent, development in international merger control is an increased attention to and enforcement of procedural regulations. It is fair to say that in several jurisdictions the rules of merger procedure have evolved into a substantial risk for the parties to a notifiable transaction. For example, in most jurisdictions notified transactions are subject to a standstill obligation, prohibiting the implementation of the transaction prior to the final decision being issued. Breaches of this obligation (commonly referred to as gun jumping) – either because the transaction was not notified at all, or because it was notified but implemented before clearance – have clearly become a focal point for enforcement. While in 2002 the European Commission still allowed companies to get away with gun jumping in a transaction that raised competition concerns, since then both the frequency and the amount of fines imposed by the Commission for gun jumping have steadily increased, with 20 million [euro] of fines being imposed in 2009 and 2014, and a 125 million [euro] fine in 2018. Similarly, it has long been a procedural violation in many jurisdictions to supply incomplete or incorrect information in a merger filing, however it took a long time for this rule to be enforced. The European Commission waited until 2017 before imposing its first fine for a violation of this type, but it made sure that it would resonate – although it was explicitly held that the wrongful information had not had any impact on the outcome of the clearance decision, the violation was punished by a ?110 million fine.
From a historical perspective, North America has been at the forefront of the development of competition regulation and merger control. When the US Congress enacted the Sherman Act in 1890, the first genuine piece of competition legislation anywhere in the world, it prohibited "contracts in restraint of trade" and "attempts to monopolize", but it did not include a merger control regime and thus did not stop the very trend towards concentration that had caused the US Congress to legislate in the first place. It took 24 years until section 7 of the 1914 Clayton Act attempted to introduce a general prohibition of mergers and acquisitions that might substantially lessen competition or tend to create a monopoly, which, however, the US Supreme Court would quickly find inapplicable to asset acquisitions. Although this practically important loophole was fixed in 1950, a true ex-ante control of mergers combined with a waiting requirement was only introduced in the US by the Hart-Scott-Rodino Act in 1976.
In Europe it took a bit longer for effective competition regulation to be enacted. Well into the 20th century, several European countries regarded cartels as a legitimate way to rationalise competition, avoid ruinous rivalry and coordinate industrial activities. In those days, the purchase and sale of businesses would primarily have been regarded as the exercise of private property rights, which should not be restricted by regulation.
When the founding fathers of the European Community for Steel and Coal ('ECSC') and later of the European Economic Community ('EEC') gathered in the early 1950s to work out what eventually would become the European Union, they looked across the Atlantic for inspiration and practical guidance. The ECSC Treaty introduced the first system of ex ante merger control in Europe on the European continent (including the UK). It only applied to the coal and steel industry however, and the policy objective behind it was less the optimisation of productive or allocative efficiency, but more a political concern, that is the desire, understandable in 1951, to subject the German coal and steel industries to a common discipline shared by the other ECSC member states. This may explain why the EEC Treaty that was adopted a few years later did not include an equivalent of the ECSC merger provisions. The only competition rules introduced at European level at that stage covered anti-competitive agreements (Article 85 EEC) and abuse of their position by dominant companies (Article 86 EEC).
Even though the UK introduced merger control with the adoption of the UK Monopolies and Merger Act in 1965, at European Union level it took several more decades and two activist rulings of the European Court of Justice to pave the way for the introduction of merger rules. However, after the European Court of Justice had held in its 1973 Continental Can judgment that Article 86 could be used to prevent a dominant company from acquiring a smaller competitor, and in the 1987 Philip Morris case that Article 85 could be used to prevent one competitor from acquiring a minority stake in another competitor, a lengthy legislative process finally culminated in the entry into force of the first EEC Merger Regulation in 1990. Despite this slow start, merger control has swiftly and strongly become embedded in the European legal culture. Currently, the European Union's merger control rules are complemented by merger regulations at national level in all EU member states but one. Flexibility and legal certainty have benefitted from the introduction of referrals from member state to EU level and vice versa, and the 'one-stop-shop' concept based on turnover thresholds as well as the three-country-rule.
With Asia strengthening its role in the global economy, Asian competition authorities have assumed pivotal roles in international merger control. While for a substantial period of time the only Asian jurisdictions with robust antitrust regimes were Japan, South Korea and Taiwan, over the last decades comprehensive competition laws have been implemented in India, China, Hong Kong, Pakistan and most ASEAN members, with the remaining ASEAN members actively preparing to adopt competition statutes.
China in particular has emerged as a critical factor in international merger clearance strategy. China's Anti-monopoly Law ('AML') took effect in 2008, establishing a mandatory merger review scheme modelled largely on European practice. While decisions blocking or conditionally clearing transactions under the AML have largely reflected international practice, in some instances Chinese authorities have shown a willingness to move beyond commonly accepted standards, for example, by intervening in horizontal concentrations where parties have relatively low combined market shares. Chinese practice shows an inclination to impose quite elaborate behavioural remedies and in certain IP-related transactions the Chinese regulator has moved beyond regulating the post-transaction market conduct of the target and the purchaser, by imposing conditions to be observed by the sellers after closing. In addition, Chinese merger control has drawn international attention for its deployment of 'indefinite' hold-separate orders, allowing buyers to proceed with an acquisition while forbidding any actual integration or coordination until an unspecified future date.
Elsewhere in Asia, unwary parties have run afoul of unique procedural requirements, such as mandatory notification deadlines. Parties remain apprehensive that industrial policy, geopolitics, or domestic politics might impact antitrust enforcement across Asia – an acute concern as Asian competition authorities tackle novel issues in complex international transactions.
The voluntary merger control regime in Australia has undergone a substantive change with the determination of merger authorisation applications transferring from the Australian Competition Tribunal to the Australian Competition and Consumer Commission ('ACCC'). In recent years, a trend had been developing of large complex and contentious mergers being the subject of the merger authorisation applications to the Australian Competition Tribunal, which was perceived to be more business friendly than the ACCC on the basis that all merger authorisations before the Tribunal were authorised. The transfer of the responsibility for merger authorisation to the ACCC is likely to increase the level of scrutiny for complex mergers. However, it is expected that the vast majority of mergers will continue to be considered through the ACCC's 'informal merger clearance' process, which is a non-codified practice that has developed over the past 35 years and generally has worked very well due to the flexibility of the process and its timeliness. The ACCC does and will continue to cooperate and seek to share information with overseas regulators assessing the same cross border merger, which requires careful coordination of merger clearance strategy across jurisdictions.
Competition policy is recognised by most countries in Africa as being essential to transformation, growth and development. As a result, the number of countries with competition regimes has grown rapidly in recent years in Africa, from just over 10 in 2,000 to more than 30 (of which 20 have active domestic merger control authorities) in 2018. Various supranational, regional African competition regimes have also been formed. The Common Market for Eastern and Southern Africa ('COMESA') Competition Commission is the most active regional competition authority in Africa. Others that have been introduced, or are in the process of being established, include those of the East African Community ('EAC'), the West African Economic and Monetary Union ('WAEMU'), the Central African Economic and Monetary Community ('CEMAC') and the Economic Community of West African States ('ECOWAS'). Overlaps in jurisdiction exist between regional competition authorities and the domestic competition authorities of some member states. Overlaps also occur between the regional authorities themselves, as some countries are members of more than one regional authority at the same time. The regional authorities and their member states are still in the process of adopting competition frameworks aimed at ensuring that these overlaps do not result in duplicate merger filings being required for the same transaction.
Besides assessing the impact on competition and consumer welfare, many African merger control regimes (including Botswana, Cameroon, Kenya, Namibia, South Africa, Zambia and Zimbabwe) take additional public interest considerations into account, such as the impact of the merger on employment. This can contribute to the outcome of merger filings in Africa being less predictable than is customary in most other parts of the world.
In Latin America, merger control has existed since the 1990s, but has long been of questionable practical effectiveness. Recent efforts of several Latin American countries to revise and in some cases fully overhaul their merger control regimes, have contributed to the introduction of proper merger scrutiny across the region, following EU and US best practices. Most Latin American countries now have merger control and often rely on pre-merger notification systems. The level of enforcement has also seen a marked increase, with remedies being imposed on a growing number of transactions and unforgiving gun jumping fines being levied against companies that fail to observe local regulations.
Brazil faced a complete antitrust renovation in 2011, implementing a premerger notification system by mid-2012 and investing substantially in its competition authority's resources. This effort has brought Brazilian merger control enforcement to an unprecedented level. Following a similar path, Mexico implemented legislative reforms in 2013 optimising its merger review system. A new law was enacted, specialised competition courts were created and substantial changes to the review process were introduced with the aim of making merger control more effective. Costa Rica and Chile evolved from a voluntary to a mandatory pre-closing merger appraisal system in 2013 and 2016, respectively. The Chilean competition authority has boosted its merger control team with the creation of a market studies department, and has published several guidelines to assist self-assessment. A new antitrust law was enacted in Argentina in 2018. Although the basic structure of the previous law was kept in place, the new statute intends to streamline the procedure by reorganising the authority and by reducing the number of transactions subject to merger control. Colombia faced less stringent changes, but also managed to improve its legal framework issuing several clarifying resolutions since 2015. Peru's introduction of a mandatory merger review regime is underway. Paraguay and Ecuador, that previously had no merger control legislation, joined the group of Latin American countries devoting attention to market structure in 2013 and 2011, respectively.
Even fairly straightforward mergers and acquisitions may require numerous clearances around the world today, with each filing being subject to different procedural requirements and, in some cases, the possibility of being assessed on other factors than purely their impact on competition. This is all the more true for the large and often complex transactions engaged in by global corporations. While the merger clearance process is not without burdens, this Global Merger Control Handbook is intended to offer a helpful guide for navigating its course.
The contributions for this book were finalised in July 2018. For developments as of this date, we refer to the website of the relevant national antitrust and competition authority and the DLA Piper website.
Please note also that different jurisdictions use different terms for similar merger concepts. To enhance the readability, ease of use and consistency of language across the different chapters in this book, we have used one common set of terms.
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Excerpted from "Global Merger Control Handbook"
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