There are over 140 jurisdictions globally that have some form of merger control. For multinational companies this means that transactions are likely to trigger filings in several different jurisdictions. Each jurisdiction varies by regime maturity, filing thresholds and compulsion. Some countries have turnover thresholds, others take into account a company’s assets or market share to determine whether notification is required. Successful navigation of these complex rules requires an in-depth understanding of cross-jurisdictional merger control issues; the ability to manage competition risk within the transaction documentation; and consideration of competition law exposure in sharing information with competitors.
1 | Retaining counsel for global transactions
Retaining a single firm with competition expertise in all relevant jurisdictions ensures that a thorough initial analysis is undertaken globally. A single point of contact provides for seamless communication and coordination across jurisdictions, which can minimise costs and in-house counsel time that is associated with managing multiple law firms and filings.
The transaction will also benefit from the certainty created by co-ordination of clearance timelines, and strategies implemented to address jurisdictional nuances which can assist in timely clearance, and ultimately completion of the transaction.
2 | Mandatory notification jurisdictions
Many jurisdictions have a mandatory notification framework, where failure to notify a transaction can result in significant fines for both transaction parties. It is simple to make an erroneous assumption that due to neither party having assets or offices located in a particular country that there will be no requirement to notify. Where revenue is derived from within a jurisdiction, or the parties are of a scale globally that their revenue is significant, assessment of whether thresholds are met is crucial. These filings can be required even if there are no substantive competition concerns.
3 | Non-mandatory jurisdictions
Voluntary notification frameworks such as those in Australia, the United Kingdom and Spain should not be dismissed due to their non-mandatory status. It is not the case that these jurisdictions do not have laws pertaining to mergers or acquisitions – the relevant laws prohibit mergers or acquisitions that are likely to result in a substantial lessening of competition. The voluntary nature of these regimes forms part of the framework which provides parties with certainty that the merger or acquisition will not be in contravention of local competition laws.
Enforcement agencies in these jurisdictions are proactive and will unilaterally initiate investigations into transactions that may raise competition concerns. Parties should consider the recommended notification thresholds closely to establish whether consultation with the enforcement agency is required. Failure to notify transactions with competition concerns under these regimes will have implications for transaction deadlines. Moreover, these enforcement agencies have the power to prevent the completion of the transaction in their jurisdiction, seek sizeable penalties for contraventions of the law or, if a transaction has already been completed, seek orders to unwind the transaction.
4 | Internal documentation
Documents such as presentations, information memorandums, board minutes or briefing documents, that articulate the transaction rationale, strategic decisions or any observations on the current state of competition can assist or derail a clearance process. This is true for documents prepared by the company or for the company by advisors such as investment banks. References that do not support the arguments put to the enforcement agency can seriously affect the likelihood of clearance.
Requests for information by an enforcement agency, whether voluntary or through use of a compulsory information gathering power, are a common feature of merger reviews around the world. Indeed, countries such as Canada and the United States require certain internal documents to be provided at the outset, where in other jurisdictions, information and documents will be requested to substantiate information proffered in the filing. The competition clearance implications of any internal document should be considered at the inception of any anticipated transaction. This will ensure that clearance risk is managed and the production of these materials do not result in enforcement agencies shifting their line of inquiry, which will require the parties to defend the position put forward in the filing.
5 | Deal documentation
Parties should seek input from competition counsel in the early stages of negotiations to ensure that transaction documentation reflects competition law imperatives and assigns risk appropriately between the buyer and seller. Provisions include:
- a condition precedent (CP) that completion of the sale is subject to the receipt of competition clearance from all necessary enforcement agencies. CPs can help mitigate the risks of both the buyer and the seller if the deal does not complete due to competition concerns;
- “hell or high water” provisions, which require the purchaser to fulfil certain obligations to remedy competition concerns, including divestiture. Notwithstanding these contractual obligations, if an enforcement agency’s concerns are so great, remedies may not be accepted even with the inclusion of the clause;
- cooperation between the parties, which set out who has responsibility for filings and the timing of these. Responsibilities can vary between buyers and sellers in different jurisdictions so it is important that these are clear and coordinated from the outset; and
- the sunset date, which is the date by which a deal must be completed, is a common inclusion in deal documents. When considering the jurisdiction threshold question, competition counsel can also provide input into an appropriate and realistic sunset date that provides adequate time for the merger clearance process in different jurisdictions, or suggest a mechanism for automatically extending the date for specified periods if the only outstanding condition precedent relates to competition approval.
6 | Timeline coordination
Regimes have varying timeframes for review, so it is essential to identify from the outset the jurisdictions that will require notification and the outer timeframes for clearance. The time required to prepare what are often quite detailed filings where there is competitive overlap and cross check information across jurisdictions should factor into the overall transaction timetable.
It is also common for enforcement agencies to coordinate their review to align decision dates. This is particularly relevant in the event of remedies to address competition concerns. If divestiture is required across multiple countries (or if a remedy in one country will address concerns in another), enforcement agencies will look to coordinate their approach to ensure consistency in remedies, which can only be achieved if reviews are at a similar stage in the review timetable.
7 | Coordination between global enforcement agencies
As noted above, cooperation and communication between competition agencies is commonplace, with many having memorandums of understanding between them to cooperate and facilitate sharing of information. Where information is provided to an enforcement agency on a confidential basis, the relevant agency will often request a waiver to disclose such information to a fellow agency in another jurisdiction. This brings the prior cross-checking and global coordination of submissions into sharp focus.
A consistent strategy and approach to clearance, including key merger factors such as market definition, is critical. Submitting filings on a consistent basis can minimise any gaps between jurisdictional assessment and result in a smoother global clearance process.
8 | Gun jumping
Information sharing underpins the necessary due diligence process and integration planning for a business once an agreement has been reached. However, if parties move beyond planning the coordination of activities prior to completion they risk “gun jumping”. Merging operations prior to completion is being taken increasingly seriously by antitrust authorities around the world, with individual fines of up to €80 million having been imposed.
Information that should not be disclosed includes:
- detailed pricing;
- details of customers or suppliers;
- proposed responses to upcoming tenders, or recent tender information; or
- agreements, financial information or strategy documents.
However, where clean teams and protocols are established, there are work arounds to enable the sharing of information between competitors that would otherwise be problematic. The next section discusses ways in which certain of this information can be shared on a limited basis.
In addition to the sharing of information, the actual integration of businesses cannot occur until the notification has been provided in all jurisdictions and completion takes place. It is not enough to wait until competition clearance has been obtained. Competition agencies can and will investigate companies for antitrust violations arising from any gun jumping activities.
9 | Information sharing protocols and clean teams
Information sharing protocols can minimise the potential for competitively sensitive information to raise competition concerns in the pre-completion phase. Establishing “clean teams” within the businesses allows for the disclosure of otherwise sensitive information subject to strict confidentiality obligations, including disclosure to others within their own business.
The laws of most jurisdictions recognise that competitively or commercially sensitive information may need to be shared to allow for proper consideration of an acquisition. However, the distortion of the competitive process must be considered not only during the pre-completion phase (“gun jumping”), but after the transaction, if, for some reason, the transaction does not complete. Holding a competitor’s competitively sensitive information, including pricing data, strategy documents, and tender proposals can raise competition concerns when that information is used to inform decisions after a failed merger. As such, any protocols should include provisions for the return or certified destruction of the information if the merger is not completed.
10 | Uncovering antitrust violations
Preparing to sell a business or undertaking due diligence requires a thorough review of a company’s operations. This process may uncover conduct that could raise competition concerns, such as abuse of dominance practices and cartel arrangements. If this is the case, a thorough internal investigation to determine the extent of any breach should be undertaken, followed by a recommendation on potential risk mitigation measures, including whether an application should be made for immunity. The implications for the seller and the buyer differ, and indeed, the stage of the transaction affects the potential outcomes for each party.
Deals that cross borders have the additional overlay of cross-jurisdictional regulatory assessment. Considering the competition and antitrust implications in the initial phases of a potential acquisition will assist in establishing clear steps through the clearance process. A unified, coordinated and consistent approach globally will ensure that regulatory clearance of a global transaction will proceed as smooth as possible.