Authorising M&A: global trends in merger review

February 2019  |  FEATURE  |  MERGERS & ACQUISITIONS

Financier Worldwide Magazine

February 2019 Issue

As well as being a procedure designed to assess whether a proposed M&A transaction is likely to substantially lessen competition, merger review also needs to accommodates all the vagaries of the M&A arena.

In the US, Europe and many other jurisdictions, the merger review arena has seen changes made to its core processes and procedures in recent months, with a number of fresh legal and regulatory developments disrupting the planning of complex M&A transactions.

“There has been significant discussion by DOJ officials as to whether they will accept conduct and behavioural remedies in vertical transactions, with many suggesting they will be far less likely to do so going forward,” says Debbie Feinstein, a partner at Arnold & Porter. “In addition, remedies in horizontal merger cases are also being more closely scrutinised, with new provisions being added to consent decrees to enhance the likelihood that a remedy will be successful.”

In terms of the merger review arena in Europe, the big discussions have centred on innovation and developments in digital markets. “Innovation considerations span across industries, although they are particularly relevant for pharma and agrochem transactions,” says Francesca Micheletti, head of EU merger control at Policy and Regulatory Report (PaRR). “The European Commission (EC) is scrutinising pipeline products to a greater degree and, in the case of the DowDuPont merger, it also assessed the impact of the deal on research and development (R&D) capacity and incentives.”

DOJ and FTC reforms

Another of the more consequential recent developments in the merger review space is the DOJ announcement that its antitrust division is instituting a series of policy changes aimed at modernising and expediting its merger review processes.

“Lawyers have expressed much scepticism toward the DOJ’s proposal to streamline the merger review process so that second requests are completed within six months,” says Joseph Tipograph, Washington DC bureau chief at Dealreporter. “Such a timeline, they say, primarily puts the onus on the companies to quickly marshal voluminous data through the DOJ second request discovery process, even though doing so can put companies at risk of inadvertent disclosures of irrelevant and privileged communications.

“In addition, the DOJ has revoked its 1984 non-merger guidelines with plans to issue new guidelines within the year and withdrawn its 2011 merger remedy guidelines, thereby reinstating the 2004 policy,” he continues. “These policies draw from the DOJ’s lawsuit against the vertical Time Warner/AT&T merger, which it lost in federal district court in June 2018, and is currently awaiting a decision on appeal from the DC Circuit.”

Furthermore, alongside the DOJ’s reforms, the Federal Trade Commission (FTC) has been conducting hearings to determine whether its antitrust enforcement policy and doctrine needs to be modernised in order to meet today’s challenges, such as those posed by the digital economy. “Deal lawyers seem to prefer the FTC’s more bureaucratic approach to considering policy change to the DOJ’s initiatives, as the FTC gives executives and lawyers a voice in the reform process,” adds Mr Tipograph.

Smoother reviews

In order to facilitate a smoother merger review process and achieve compliance with the least possible disruption, M&A practitioners need to be completely au fiat with all the key compliance issues.

For Ms Feinstein, companies engaged in an M&A transaction need to prepare early with substantive arguments and avoid ‘hiding the ball’. “Agencies will find out what the issues are and you will lose time if you are not upfront about the key issues from the beginning,” she suggests. “If you know there are likely to be substantive concerns, be prepared to offer reasonable remedies early in the process. Too often parties wait too long to discuss remedies and then offer only limited remedies.

“Agencies do not see remedy discussions as a negotiation,” she continues. “Rather, they see a competitive issue to be resolved and need to be convinced that a remedy will do so. Understanding what they will want – and what they will accept – is critical to having a smooth remedy process.”

In the view of Ms Micheletti, a smoother merger review process means a less aggressive approach by M&A parties. “US companies in particular can approach the likes of the EC the wrong way – often with a litigation-style attitude and excessively questioning procedures and requests for information – with the result that a review is delayed unnecessarily.”

Going forward, it remains essential for companies to be careful about with whom they deal, be aware of fresh legal and regulatory trends and developments, and ultimately ensure that an M&A transaction is above board, makes sense and clears agency hurdles.

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Fraser Tennant