Mergers involving companies with significant activities in any particular jurisdiction are likely to find regulatory approval in that jurisdiction prior to implementation is the main focus of their merger control analysis. However, different jurisdictions have different thresholds for notification and legal obligations to file may arise in several jurisdictions where the parties have relatively minor activities. Where a company’s business is global in scope this can lead to a complex review of turnover allocation by jurisdiction even to determine where legal obligations to notify a transaction arise.
In the EU, the European Commission is required under the EC Merger Regulation (“ECMR”) to assess the impact of any qualifying transaction that affects markets within the EU (see Box 1 below for mergers qualifying for notification to the European Commission).
|Box 1: Mergers qualifying for notification to the European Commission|
Where the annual turnover of the combined businesses exceeds the specified thresholds identified below in terms of global and European sales, the proposed merger is deemed to have a Community dimension and must be notified to the European Commission.
A merger will be deemed to have a Community dimension where:
- the combined aggregate worldwide turnover of all the businesses involved is more than EUR 5000 million; and
- the aggregate Community-wide turnover of each of at least two of the businesses involved is more than EUR 250 million.
In addition, if the thresholds above are not met, a merger will nonetheless be deemed to have a Community dimension where:
- the combined aggregate worldwide turnover of all the businesses involved is more than EUR 2500 million;
- in each of at least three Member States the combined aggregate turnover of all the businesses involved is more than EUR 100 million;
- in each of at least three Member States included above, the aggregate turnover of each of the businesses involved is more than EUR 25 million; and
- the aggregate Community-wide turnover of each of at least two of the businesses involved is more than EUR 100 million.
An exception applies if a merger has its primary impact within a single Member State. This is deemed to be the case where each of the businesses involved achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.
At a national level in the EU, each of the Member States has its own merger control regime, with its own (lower) jurisdictional thresholds that apply if the ECMR thresholds are not met.
In the UK, unlike other jurisdictions, notification of mergers prior to completion is voluntary even where the transaction meets the thresholds to qualify for review. This does not mean, however, that companies can avoid regulatory scrutiny in the UK. Transactions which are not notified may still be examined by the authorities on their own initiative – or following a complaint from a third party – and this may lead to the transaction being subjected to conditions, or even blocked. If a deal has completed prior to the conclusion of the authorities’ examination, transactions may need to be “undone” in order for the authorities’ requirements to be met – and to the cost of the merging parties. Indeed, of the four qualifying mergers referred by the Office of Fair Trading to the Competition Commission for an in-depth investigation to date in 2009, three were completed mergers and each now faces potential prohibition, or at the least having deal-changing conditions imposed upon it.
Similarly, the US merger control regime captures a broad range of transactions capable of having an impact on US commerce or any activity affecting US commerce. In recent years, the US authorities have been active in their enforcement of merger laws, including mergers involving non-US companies, and their activity is expected to increase under the Obama administration.
Until recently, companies with business activities in Asia were able to take advantage of the comparatively less stringent merger control regimes, with many transactions requiring clearance in the EU or the US prior to implementation escaping regulatory review in Asia altogether. However, merger control is now expanding rapidly in Asian jurisdictions, with significant changes introduced in a number of Asian countries in 2007 and 2008 (see Box 2 below).
It should also be noted that even where transactions have no apparent impact on competition (e.g. where a financial buyer has no previous interest in the sector), failure to notify can still lead to the transaction being legally void, and to the potential of fines being imposed for failing to notify in accordance with the rules.1
|Box 2: Asian countries where mergers are increasingly likely to require prior approval|
- Japan – a new amendment bill is proposing to change the notification procedure for share acquisitions, which under the existing law need only be notified post-transaction, to require pre-clearance prior to implementation. This means that the number of mergers requiring prior approval is likely to increase significantly.
- Korea - The Korean merger control regime has been in place since 1980. Notification of the transaction is mandatory provided relevant thresholds are met. Since Korean merger control rules became applicable to foreign-to-foreign merger transactions in July 2003, the Korean Free Trade Commission has on several occasions fined foreign companies for delay in filing.
- Singapore - The Competition Law Act of 2004 introduced a competition law regime of general application in Singapore. The provisions relating to mergers and acquisitions came into force on 1 July 2007. As in the UK, notification for decisions is on a voluntary basis.
- China – a new Anti-Monopoly Law came into force on 1 August 2008. The merger control thresholds even for foreign-to-foreign mergers are relatively low. This means that cross border transactions with only a negligible local impact may require approval in the future.
- India – The Competition Act (as amended) will come into force in late 2009. Under the new merger control regime, which will apply to foreign-to-foreign mergers, notification will be mandatory and there will be a waiting period of up to six months before parties can close the transaction.
- For example, the European Commission imposed an unprecedented EUR 20 million fine on Electrabel in June 2009 for failure to notify its acquisition of Compagnie National du Rhône. In Germany, the Bundeskartellamt imposed two significant fines in recent months: Mars Inc. was fined EUR 4.5 million for implementing the merger before receiving clearance from the competition authority and German publishing house Druck und Verlagshaus GmbH was fined EUR 4.13 million again for failure to notify the transaction to the authorities. In the United States, the DOJ has shown itself to be willing to impose fines for this type of breach for years. In 2004, for instance, the DOJ imposed fines of US$5.7 million on Gemstar International Group Limited and TV Guide, Inc.