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Coronavirus - What are the merger control implications of covid-19? - Global

  • United Kingdom
  • Competition, EU and Trade
  • Coronavirus - Competition issues
  • Coronavirus - M and A issues
  • Mergers and acquisitions

12-06-2020

The challenges brought about by the COVID-19 pandemic have had an impact on merger control processes. Some businesses have decided to put transactions on hold and those that are going ahead, particularly more complex matters, face delays in obtaining merger control clearances. Some competition authorities have been asking parties to delay submitting their merger filings where possible whereas in other countries, such as in Spain, the merger review timeframes have been extended or suspended until after the “state of emergency” has ended. In this briefing we set out some practical considerations for businesses and provide an overview of the actions that a number of competition authorities are taking in light of the ongoing COVID-19 pandemic. This briefing complements our podcast, “Merger Control during Covid-19”, in which a panel of our merger control experts from across our international practice discuss these issues in more detail.

Contents

Practical Considerations
China
European Union
France
Germany
Russia
Spain
United Kingdom
United States
Our comment

Practical Considerations

Be proactive and ensure key staff members are available

Many competition authorities are requesting that businesses delay submitting their merger filings. Where this is not possible, the parties should engage with the relevant competition authority as early as possible so that expectations can be managed on all sides. The parties should ensure that their merger filings are as complete as possible, and that the relevant members of staff are available for the duration of the process to respond to any questions that the authorities may have regarding the transaction. Furthermore, the parties should engage with the authorities constructively and regularly update them on any changes to the timing of their transactions.

Dealing with possible delay in conditions to completion

It is important that the merging parties are realistic regarding timing when deal planning. The merger control process, particularly the pre-notification stage, in a number of jurisdictions is taking longer as a result of COVID-19, due to difficulties in obtaining information from third parties, as well as from the parties themselves, due to conflicting priorities or staff availability. Delays in responding to information requests is likely to result in the competition authorities “stopping the clock”, especially in relation to complex transactions and where market testing is important. 

Some competition authorities are taking steps to mitigate any delays from third party engagement. For example, in the UK, the Competition and Markets Authority (“CMA”), is publishing invitations to comment during the pre-notification process. 

In some jurisdictions, the merger control timeframes have been suspended for an unknown period, for example, in Spain. Therefore, if completion of a transaction is conditional on merger clearance, the parties should ensure that any long-stop date is realistic given the current situation. 

“Gun-jumping” can result in severe penalties

In most jurisdictions, once the relevant jurisdictional thresholds are met, a merger filing is mandatory and the transaction cannot be completed until merger clearance is obtained. Otherwise, the parties may be subject to severe penalties including fines and the unwinding of the transaction. Over the last few years authorities around the world have increasingly enforced their merger control rules by fining companies for failing to file. These fines can be significant. For example, the European Commission (“Commission”) fined Altice more than EUR 120 million for implementing its acquisition of PT Portugal before obtaining clearance.

In some jurisdictions, including in the EU, it is possible to apply for a derogation from the obligation not to close a transaction prior to obtaining clearance (so-called “standstill” obligation), however, in practice derogations are usually difficult to obtain.[1]

Even in jurisdictions where merger filings are voluntary, such as the UK, proceeding without merger clearance can carry significant commercial risks especially for the purchaser, who could in the worst case be required to sell the business that it has acquired if the UK authority determines that there are substantial competition issues. 

Therefore, any potential delays associated with obtaining merger clearance during the current COVID-19 pandemic must be balanced with the risk of severe consequences of completing the transaction before clearance is obtained. 

Failing firm claims

The pandemic may lead to increased consolidation and more distressed acquisitions which involve businesses that are failing financially and which would exit the market but for the merger. Merger control does allow for a “failing firm” defence which, if successful, provides a path to clearance even if a transaction does raise competition problems. Reports from regulators such as the CMA and the Commission confirm that they are seeing more companies argue this defence during the pandemic. However, this has historically been a difficult test to meet and parties should bear in mind that some competition authorities, such as the Commission and the CMA, have confirmed that they do not intend to treat “failing firm” claims more leniently during COVID-19. One rare and notable exception to this has been in the UK where the CMA provisionally cleared Amazon’s acquisition of a minority shareholding in Deliveroo on the basis that Deliveroo would be likely to exit the market absent the transaction.

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China

China's State Administration for Market Regulation (“SAMR”) is, in general, functioning as normal. As a result of the COVID-19 pandemic, the SAMR has amended its process to enable merger filings to be submitted electronically (through SAMR email boxes with hard copies couriered to SAMR). 

In terms of the SAMR’s merger review periods, while there were delays (particularly in obtaining feedback from third parties) earlier in the pandemic, for the most part, the SAMR is now operating near normal timetables. Furthermore, the SAMR made fast-track reviews available for: transactions essential to pandemic control and prevention, sectors severely impacted by the pandemic and transactions which facilitate the re-opening of the economy. However, face to face meetings are currently not taking place, which potentially presents an issue when presenting arguments in more complex cases.

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European Union

In response to the operational impact of the global COVID-19 pandemic, the Commission put in place a number of measures to ensure business continuity. All meetings are currently taking place remotely and the Commission is strongly encouraging the use of digital submissions as a temporary alternative to physical submissions.

Although the Commission is encouraging businesses to delay merger notifications where possible, it is continuing to accept merger filings where there are compelling reasons to notify without delay, e.g. in order not to impede the long stop date for the transaction. In fact, according to the Commission’s website, it has adopted a number of merger decisions and processed the notifications filed by companies during the pandemic. However, in some more complex cases, the Commission is facing delays and difficulties in collecting information from third parties (such as customers, competitors and suppliers) due to the disruptions caused by COVID-19. Parties intending to notify a transaction to the Commission during this time can expect longer pre-notification discussions.

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France

On 23 March 2020, a new French law declaring a public health emergency and addressing various health and economic issues arising from the COVID-19 epidemic was adopted. Based on this law, on 25 March 2020, the French government adopted a decree suspending all statutory deadlines that were due to expire from 12 March 2020. The applicable deadlines for merger control were suspended from 12 March 2020. These deadlines will start running again from 24 June 2020. 

Like the Commission, the Autorité de la Concurrence expected to encounter difficulties in gathering information from third parties for its merger investigations and, therefore, strongly encouraged businesses to delay submitting their merger notifications. The Autorité de la Concurrence stated that it is, however, committed to meeting the usual short deadlines, at least for Phase I reviews. In this regard, on 18 May 2020 the Autorité de la Concurrence announced that it had cleared 25 mergers since 18 March 2020, with an average clearance time of 22 working days, including for large transactions.

All merger notifications must be submitted electronically, as the Autorité de la Concurrence’s offices are closed and its workforce is working remotely.

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Germany

The Bundeskartellamt remains operational and is continuing to accept merger notifications, but only electronically. All of its meetings and communications are taking place remotely.

Like other competition authorities the Bundeskartellamt is requesting that all businesses consider whether their merger notifications are urgent and require immediate attention, and where possible to delay submitting their notifications. Furthermore, on 29 May 2020, a temporary amendment to the German merger control regime entered into force. This extended the merger control review periods on all notifications made between 1 March 2020 and 31 May 2020. For those notifications, the Phase I review period is extended from one month to two months, and the Phase II review period is extended from four months to six months. As the Bundeskartellamt has cleared many of the transactions notified to it during the relevant period, the change is expected to affect a limited number of transactions.

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Russia

On 25 March 2020, the Russian President adopted a decree introducing a nationwide non-working regime aimed at stimulating self-isolation in light of the pandemic. Notwithstanding this, the Federal Antitrust Service of Russia (“FAS”) has continued functioning as usual, but it has limited its offline activities including inspections, and is holding all meetings and hearings remotely.

The Russian merger review procedures have not been affected significantly by COVID-19. The FAS continues to accept submissions by post and via a correspondence box. However, up until 12 May 2020, it suspended accepting correspondence at its offices by courier.

Unlike some other competition authorities, the FAS has not issued any official statements regarding amendments to its procedural rules or the extension of the merger review timelines due to COVID-19. Existing legislation does, however, allow the FAS to extend the initial one-month merger review period for up to two additional months and the FAS has used this power to prolong the review of submissions filed during the pandemic.

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Spain

On 14 March 2020, a Royal Decree declared a state of emergency in Spain resulting in all administrative deadlines, including those applicable to the Spanish Commission on Markets and Competition (“CNMC”), being suspended until the end of the state of emergency. The CNMC can, however, grant exemptions from the blanket suspension on a case-by-case basis in certain circumstances including in order to avoid causing “serious damage to the rights and legitimate interests” to a party to the proceedings. This exemption may allow merging businesses to request that their merger review be completed as planned. All communications with the CNMC should be made electronically through the CNMC’s e-services portal, as its on-site registry is closed.

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United Kingdom

On 22 April 2020, the CMA issued guidance on its approach to merger assessments during the pandemic (“CMA Guidance”). The CMA is continuing to investigate mergers and is currently holding the position that it will not be suspending or extending the timeframes stipulated in legislation. It is, in fact, trying to complete its merger investigations more efficiently, wherever possible, to provide businesses with certainty.[2] However, it is encouraging merging parties to consider whether some filings can be postponed, for example, if a merger is not particularly well-advanced and may not ultimately proceed in order to temporarily reduce the strain on the CMA and to assist it in meeting its statutory deadlines.

All of the CMA’s meetings, hearings and general communications are being made remotely and, unlike the Commission, the CMA is not accepting any post or courier deliveries at any of its offices.

The CMA recognises that businesses may encounter difficulties in responding to statutory information requests due to COVID-19. The CMA Guidance confirms that this will generally constitute a reasonable excuse for not meeting a specified deadline and is unlikely to result in penalties. However, as is usual, delays in responding to information requests may result in the CMA “stopping the clock”.

As the merger control regime in the UK is voluntary, the CMA can “call in” completed mergers which have not been notified. The CMA normally imposes interim measures to stop integration between the parties before it completes its merger investigation. The CMA’s Guidance states that the CMA is unlikely to lift such measures that are already in place. However, it will grant derogations rapidly where the parties can show that such steps are necessary to ensure the viability of their businesses, and appropriate safeguards are established to protect the CMA’s ability to take appropriate action to protect UK consumers as part of the merger review process.[3]

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United States

The US Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) are currently only accepting electronic HSR notifications through a temporary e-filing system, but may request hardcopies at a later date. Furthermore, the DOJ and the FTC are conducting all meetings remotely, and all scheduled depositions have been postponed temporarily and rescheduled at a later date using secure videoconferencing.

The DOJ and the FTC temporarily suspended the processing of requests to grant early termination of the HSR Act’s waiting periods. However, on 30 March 2020 the Bureau of Competition lifted this suspension and stated that it would allow grants of early termination to resume (as time and resources allow).

Both agencies are asking notifying parties to be flexible and are seeking appropriate modifications of statutory or agreed-to timing, particularly for more complex transactions. The DOJ has suggested it will generally seek an additional 30 days to complete its merger review of transactions. The DOJ and FTC are continuing to monitor their workflow and may make further adjustments to their merger control procedures as they consider necessary.

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Our comment

The impact of COVID-19 is having a significant effect on the merger control process in a number of jurisdictions. Companies should, therefore, ensure that the timetables for their proposed transaction take account of possible delays in obtaining merger clearance particularly when a merger may involve complex issues and/or more than one merger filing is required.

If you have a query related to merger control, or for more information on how the coronavirus has affected merger control globally, please get in touch with a member of our team.

Further resources

Listen to our latest competition podcast "Merger control during Covid-19" >

View our Merger Control webpage >

Listen to our M&A podcast series >


[1] For example, since 1990, the Commission has granted derogations from the standstill obligation in just over 40 transactions.

[2] In Takeaway.com/Just Eat, the CMA published its final decision 26 days ahead of the statutory deadline. 

[3] For example, in Tobii/Smartbox, the CMA granted a derogation, in light of COVID-19, allowing Smartbox to take certain mitigating actions for the purpose of preserving the Smartbox business and maintaining it as a going concern. The mitigating actions relate to the cancellation of certain discretionary activity; the suspension of certain development projects; a reduction or redistribution of certain payments; a specified reduction of working time, and specified furloughing.