16 December 2016 by Jérémie Jourdan and Sophie Sahlin
How to navigate the global maze of merger control regimes
Multijurisdictional merger filings have multiplied in recent years in line with the proliferation of merger regimes around the world. More than 140 countries have now implemented some kind of a merger control regime, adding layers of complexity to international M&A deals, which are already extremely complicated.
After a record year in 2015, most large M&A transactions now have a significant cross-border dimension. However, due to the significant time and cost involved in gaining clearance in each country the parties operate in order to complete a deal, companies must be up to speed with all new merger filing regimes around the world and their varying timetables and nuances.
To avoid disrupting a deal, organisations must complete an analysis detailing which jurisdictions they will need to file in. They must also develop a clear understanding of key differences in requirements between jurisdictions so that they can inform the relevant merger authorities. It takes a great deal of experience and skill to navigate through the maze of global merger control regimes. Key areas that need to be addressed by organisations during the process include:
Some jurisdictions have chosen to create additional ‘triggering events’. They may cover situations in which an acquirer is not seeking sole control, such as in a joint venture or the purchase of a minority stake, and sometimes this only applies to certain industries. Companies should be aware of these specificities and not assume that only full-fledged acquisitions of control have to be reported.
Important discrepancies between merger filing regimes remain, even though there is some level of harmonisation among different countries. Merger filing obligations may be triggered by different factors such as market share and the size of the parties’ turnover and assets. The market share thresholds require that the parties define the relevant market, which is a notoriously complex task.
Companies need to pay careful attention to the relevant competition landscape. This is normally needed in jurisdictions with voluntary merger control regimes, where it is recommended to file if the transaction is likely to raise competition concerns or there is a risk of the authorities investigating the transaction on their own account.
This forces the parties to make certain difficult strategic decisions, which can have a significant impact on timing. For example, in Australia – which has a voluntary merger regime – the parties can decide to make a full filing, a very simplified filing or wait for a potential information request.
The parties can also decide to close, even when the merger authority is reviewing a transaction, although that can be risky if the authority raises concerns.
Most merger control regimes worldwide require at least two of the parties in the transaction to be active in the relevant jurisdiction for the regime to be triggered. However, there are exceptions to this rule and these countries are generally referred to as ‘single-trigger’ jurisdictions.
This means that it is enough that only one party in the transaction be active in the relevant jurisdiction. In the EU, exceptions of this kind can be found in Spain and Portugal, where transactions may be subject to merger control even when the investing company has no business there, provided the target meets the market share thresholds (no increment is required).
Outside the EU, different regimes prevail. Ukraine was for a long time one of the most notorious single-trigger jurisdictions because of its very low thresholds, as a transaction required notification where either party generated €1 million in the country.
The thresholds were amended in May 2016 – thanks at least in part to cooperation with the EU – but there remains several countries where a transaction will meet mandatory filing thresholds because of the presence of only one party and despite the transaction lacking any effect in these countries, which may be considered contrary to international law principles.
Ultimately, it remains for companies to decide whether or not to file in certain jurisdictions, by balancing the potential commercial risk of delaying a transaction with the legal risk of not filing.
Organisations must be prepared for the fact that it is very time-consuming to obtain merger clearance and the review period is regularly protracted. As such, parties often have to enter into pre-notification discussions with merger authorities. As a rule of thumb, it usually takes at least one month to gain clearance and in jurisdictions with fledgling merger regimes and inexperienced authorities, it can take considerably longer than that.
In Japan, for instance, the Japan Fair Trade Commission (JFTC) will send multiple extensive questionnaires during the pre-notification process, which can significantly delay the date of filing. The JFTC will carry on sending multiple detailed requests during the official 30-day review period, and if it considers that the parties have not responded quickly enough, it could take even the most straight-forward looking transaction to a phase two review, which can take at least 90 days.
Similarly, in Indonesia, the official review period does not start until the Commission for the Supervision of Business Competition (KPPU) has declared the filing complete, which can take two to three months. Indonesia adds an additional layer of difficulty with a voluntary pre-merger filing and a mandatory post-merger filing (which must be submitted within 30 business days of signing) that is required even if a voluntary premerger filing was submitted.
Timings of merger reviews are notoriously hard to plan for so companies need to factor that in. France, for example, is known for its ‘incompleteness letters’ – that is, letters declaring the filing incomplete and restarting the clock. It is not rare for the letters to come your way on the penultimate day of the merger review period, sometimes without much warning. They are a powerful tool for the authority to obtain information that parties may otherwise be reluctant to disclose or obtain at great cost.
Navigating through the maze of merger control regimes around the world takes a great deal of research and experience. An extensive network of offices or global legal contacts are also required, so make sure appropriate local assistance is at hand. Plotting the course for a successful deal is challenging, with timing issues, market share thresholds and filing being particularly tricky. However, despite various hurdles that come up, with the right guidance, skills and rigour, it can be a pain-free experience.