Innovation, dynamic competition, labor market effects, vertical issues...
Linked to jurisdictional creep and killer acquisitions is the trend of competition authorities looking at new theories of harm when assessing transactions for substantive concerns, with much greater focus in particular on innovation competition, dynamic competition and vertical concerns.
The European Commission has an increased willingness to take risks in relying on new forms of evidence to support novel decisions. This was a key point that the Commission’s Guillaume Loriot (Deputy Director-General for Mergers) made at GCR’s annual merger control conference in 2022.
In the UK, the CMA has also been particularly active regarding new theories of harm, including recently prohibiting Meta’s (Facebook) completed acquisition of Giphy, a deal raising digital, innovation and vertical concerns, which the CMA found substantially reduced dynamic competition. The CMA now considers itself a leading global authority at reviewing mergers in digital markets – due to its greater post-Brexit role with the UK outside the EUMR regime, but also having bolstered its expertise after criticism its predecessor organisation may have been naïve in the past (e.g. when clearing Facebook/Instagram).
The US authorities are also taking a more aggressive approach to new theories, with aggressive enforcement against vertical mergers a key aspect. Potential labor market effects are also now a key element in merger investigations, while there is a new hostility to private equity acquirers. And the FTC and DOJ are increasingly sceptical about remedies (especially behavioral remedies), so will not hesitate to seek to block a deal if they find concerns.
Meanwhile, in South Africa there is increased focus on public interest grounds (not only employment protection but also ownership by historically disadvantaged persons and workers) which must be considered alongside the impact on competition. As a result, use of public interest conditions is increasing in South Africa, and where remedies are imposed they usually relate to such conditions.
Don’t forget traditional concerns
Focus on novel theories of harm is, of course, in addition to traditional concerns – e.g. the European Commission prohibited two deals in 2022, one with innovation concerns front and centre (Illumina/GRAIL), but the other involved traditional dominance concerns (Hyundai Heavy Industries/Daewoo Shipbuilding & Marine Engineering). And in the US, 15 out of 16 deals challenged in 2022 had horizontal claims (nine of the 16 being full challenges, the other seven approved with consent orders).
Meanwhile in Asia, the authorities continue to subject their clearances to stringent remedies where deals raise dominance concerns (e.g. the conditional approvals in China and South Korea for Korean Air/Asiana, in China for II-VI/Coherent and in South Korea for LX International/Hankuk Glass Industries), portfolio power concerns (e.g. Chinese conditional approval of AMD/Xilinx) or vertical concerns (a joint venture between Avinex and Eastern Air Logistics, cleared in China with remedies).
New theories – but most deals are still cleared
While authorities are considering a broader range of concerns, the vast majority of deals are still cleared unconditionally. The European Commission, for example, reviews approximately 350 to 400 concentrations each year, but has prohibited only five since the start of 2018 (0.3 per cent), although a further 11 have been withdrawn in Phase 2 – including four in 2022.
Similar trends can be observed across the world. In the US, the FTC and DOJ have historically challenged less than 3-4 per cent of reported transactions, while significant investigations were down as a percentage of reported transactions for fiscal year 2021 (see our briefing here to learn more about US merger enforcement in the period October 2020 to September 2021). In China, 600 transactions were reviewed each year on average in the period 2018-2022, with only one prohibited (0.03 per cent) and conditions in 22 cases (0.7 per cent).
The UK is “one to watch” – from April 1, 2022 to March 15, 2023, a third of Phase 1 reviews (12 of 36) were referred to Phase 2, and only two of 12 Phase 2 reviews ended in unconditional clearance (with three prohibited, five remedied and two abandoned).
Latest antitrust and competition trends
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An increasing challenge for M&A parties is identifying where their deals will be reviewed in a context where merger control authorities are finding new ways to take jurisdiction over transactions falling below traditional (usually turnover-based) notification thresholds
Internal documents, gun-jumping and merger control penalties
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The continuing rise of antitrust damages actions
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