These moves follow similar actions by the State Administration for Market Regulation (“SAMR”), China’s antitrust authority. On February 6, SAMR issued a formal statement laying out revised procedures for merger filings, prohibiting face-to-face meetings and requiring parties to submit pre-merger notifications online or through the mail, obviating the need for in-person physical filings. SAMR’s communications with filing parties are now principally occurring by fax, email, and phone. Together, the moves are meant to ensure SAMR efficiently reviews merger notifications, a goal it has largely met. SAMR’s statistics indicate that since 3 February it has completed at least 45 merger reviews. Those approvals included one transaction subject to divestiture remedies and a number of deals—including those in which O’Melveny acted as global counsel—cleared through SAMR’s simple case mechanism.
While the American and European agencies’ requests and recommendations are non-binding, companies are well-advised to pay heed to the recommendations from the EC, FTC, and DOJ. As these regulators struggle to perform their statutory tasks of comprehensively assessing transactions in order to ward off harm to competition, there is a real risk that in times of strained resources these agencies will err on the side of caution and prohibit a merger unless they can overcome their doubts about a transaction’s impact on competition. The EC is particularly likely to follow such course of action considering that—unlike the FTC and DOJ—the EC does not need to go to court to seek an injunction to block a transaction.
Short of a prohibition decision, there are other negative consequences that companies risk by pressing ahead. If nothing else, a regulator’s failure to consult with third party stakeholders in a timely and effective manner (for example, as part of a market test exercise aimed at collecting views about a transaction’s impact on customers, suppliers and competitors) is bound to substantially delay the merger clearance process as regulators may be forced to ‘stop the clock’ in light of non-forthcoming information (most recently the EC has made use of this power by suspending its ongoing Phase II review of the Boeing/Embraer, the EssilorLuxottica/Grand Vision and the Fincantieri/Chantiers de l’Atlantique transactions on February 24 and March 2 and 13, respectively); parties may be encouraged to “pull and refile” their notifications in order to side-step the statutory review periods and afford the agency additional time to investigate; the EC could declare filings incomplete; or have recourse to demanding requests for information to gain time, if the parties insist on filing. Even though such an approach may eventually secure a clearance decision, a protracted process puts companies into limbo, raising uncertainty amongst employees and trading partners. A delay in a transaction’s schedule may also infringe obligations under the deal agreement potentially triggering contractual penalties and undermining deal security.
At O’Melveny, our antitrust experts have significant experience in appraising and managing such risks. Our in-depth understanding of how the EC, the Federal Trade Commission, the Antitrust Division of the Department of Justice, SAMR and other agencies around the world work, and our established relationships with these agencies’ staff, enable us to help our clients navigate the challenges that the COVID-19 crisis poses to their transactional ambitions. Should your company be contemplating a transaction, do reach out to us so we can assist you in devising the best antitrust strategy and timeline.