Caveat Emptor: Are Lengthier EC Merger Reviews the New Norm?
January 18, 2018
As merger reviews become more thorough and document-intensive, companies planning to engage in global M&A deals in 2018 should factor potentially lengthier merger reviews by the European Commission (EC) into their deal timelines. The increasing use of the EC’s stop-the-clock powers when requesting additional information from the notifying parties can significantly delay merger investigations, while EC scrutiny of a proposed purchaser where deals are cleared subject to a divestiture commitment may add months to the overall M&A process.
In this WSGR Alert, we highlight some EU merger review trends from 2017, and we offer selected tips on how to mitigate delays in the review process.
Standard EU Merger Review Periods
The majority of mergers are approved by the EC following an initial 25 working day review period (Phase I), extendable to 35 days if commitments are offered to address competition concerns raised by the EC. In cases where the EC has “serious doubts” about a deal’s compatibility with EU competition rules, it opens an in-depth (Phase II) review that lasts—at least in theory—90 working days, extendable to 125 working days if commitments are offered or at the request of the notifying parties or the EC. These time periods can be suspended where the parties fail to provide information requested by the EC in a timely fashion.1
Suspension of Merger Review Periods
The EC is demonstrating an increasing willingness to stop the clock during its merger review process and, in fact, did so more than once in the same case in a number of investigations in 2017.
The Phase II review of Qualcomm’s bid for NXP Semiconductors, which received conditional clearance on January 18, 2018—close to 9 months after notification to the EC—was halted twice by the EC due to information requests.2 The EC has likewise stopped the clock twice in its Phase II investigation of Bayer’s takeover of Monsanto. While Bayer had originally aimed to close the deal before the end of 2017, the EC’s review deadline for this complex agrichemical deal was pushed back to March 5, 2018, due to the suspensions.3 The Dow/DuPont agrichemical merger received clearance in March 2017, following two suspensions of its in-depth review.4 In Essilor/Luxottica, the EC has suspended its review of the deal once so far after the companies failed to provide requested data.5
“Phase III” Merger Control Process
For merger reviews that end with a structural remedy being offered to the EC, a conditional clearance does not necessarily signal the end of M&A costs: the EC decisions published in the last two years show that purchaser approval can take anywhere between 20 days and 9 months, coming close to a “Phase III” in the overall merger process.6 With the EC quietly ushering in a new practice of publishing its purchaser approval decisions in 2016,7 the entire merger control process risks becoming even more drawn out for the parties to the main transaction, as the EC takes the time to ensure its (now public) decision is as robust as possible to mitigate the risk of an appeal by a dissatisfied third party.
Unless a fix-it-first remedy is required, the parties are typically given six months, supervised by a monitoring trustee, within which to enter into a final agreement with a suitable purchaser for the divestment business following adoption of the final decision. If unsuccessful, a divestiture trustee is then usually given another three months to secure a buyer in something closer to a fire sale.
Once the parties have signed an agreement, they must submit a reasoned purchaser proposal to the EC. The EC, with the input of the trustee, will then assess whether the proposed purchaser satisfies the purchaser criteria, and that the divestment business is being sold in a manner consistent with the commitments.
In the course of its assessment, the EC is likely to request more detailed information from the proposed purchaser (including its business plan), meet with the proposed purchaser, engage in discussions on the modification of the sales and purchase agreement (SPA) or ancillary agreements, and market test the proposed purchaser and agreements. From the decisions published in 2017, it is clear that the EC pays particular attention to any inconsistencies between the commitments and the SPA and ancillary agreements—even if made at the request of the purchaser or through the ordinary commercial negotiations of an SPA. In one case, negotiations were re-opened with the purchaser to address inconsistencies between the final agreements and the commitments with regard to the scope of the intellectual property transferred.8 In another, the duration of a non-compete in the SPA had to be extended to match that provided for in the commitments.9
To mitigate any potential for delays in the EU merger review process, companies should ensure that they engage in constructive pre-notification discussions with the EC and respond in a timely manner to the regulator’s inquiries throughout the merger review process. Many of the suspensions are driven by data-intensive requests and merging parties should anticipate being called upon to produce large volumes of internal documents, and factor in the consequential delays due to the EC’s review of the data provided.
Unlike the strict timing obligations governing the merger review proper, the EC is not bound by any deadlines in its assessment of the proposed purchaser of a divestment business and companies should be prepared to build a (possibly) lengthy EU purchaser approval process into their deal closing timelines and SPA long-stop dates as a precaution.
Competition counsel should continue to be involved and consulted when corporate teams are finalizing commercial negotiations between the parties to the divestment and in drafting the SPA and ancillary agreements to confirm that, in so far as practicable, deviations from the text of the commitments are kept to a minimum.
For more information, please contact Paul McGeown (+32 2 274 5703) or another member of the global antitrust practice at Wilson Sonsini Goodrich & Rosati.
Deirdre Carroll contributed to the preparation of this WSGR Alert.