Increased consolidation is a likely consequence of the impacts of COVID-19. Katy Mattingley looks at how the European Commission (EC) is using merger control in pan-European M&A deals.
Merger control plays an important role in the regulatory landscape for M&A deals especially where there is an appetite for strategic deals that result in industry consolidation. Experienced advisers can help ensure a smooth process through the merger control process, which can be both lengthy and costly.
Following our insights issued in 2018 and 2019, we continue to report on an annual basis on the five-year trend in merger cases filed with the EC (based on the latest decision date). Key trends in the current period include:
Increase in number of filings with manufacturing accounting for 50% of merger activity
Following a broadly consistent level of filings between 2016 and 2018 of around 360, the number of merger cases reviewed by the EC increased in 2019 to 391. The number and proportion of filings that are full form filings remains lower than 2016 and 2017, however.
The manufacturing sector continued to account for more than half of (257) of the 476 full form filings over the five-year period, with 59 (23%) of those cases requiring remedies (46 at Phase 1 and 13 at Phase 2).
Other sectors with a relatively large number of filings include:
forty-nine cases in the information and communications sector, 15 (31%) of which were cleared with remedies: nine at Phase 1 and six at Phase 2;. the majority of the remedies were in telecommunications, reflecting consolidation in this sector
thirty-eight cases in the wholesale and retail sector – only five (13%) were cleared with remedies
thirty-five cases in the transport and storage sector – six (17%) were cleared with remedies, reflecting the consolidation in the shipping and airline sectors
twenty-seven cases in the financial and insurance sector – only three (11%) required remedies, all of which were given at Phase 1
the remaining 70 of the 476 full form filings over the five-year period are split across 11 sectors with 11 (16%) requiring remedies, six at Phase 1 and five at Phase 2.
Recently prohibited cases relate to traditional heavy industries
Over the five-year period, seven cases have been prohibited with the three more recent cases relating to traditional heavy industries. The other four cases were in admin and support services, quarrying and telecommunications.
Two of the seven cases proposed non-traditional divestment remedies: five cases proposed divestment remedies and one behavioural remedies which the EC stated did not go far enough to address its concerns.
High number of multi-jurisdictional cases
Over the last five years of the merger cases receiving conditional approval, there have been 29 (28%) cases that have seen remedies agreed by more than one merger control regulator – 20 were EC Phase 1 cases and nine EC Phase 2 cases.
In terms of the number of mergers clearing subject to remedies agreed with multiple regulators the highest have been:
Bayer/Monsanto (2017) which agreed remedies with 12 regulators
Dow/Dupont (2016) which agreed remedies with eight regulators
Linde/Praxair (2018) which agreed remedies with seven regulators.
Proportion of Phase 2 cases cleared with remedies increased from prior year
The percentage of cases cleared with remedies at Phase 1 reduced from around 20% in 2018, to 14% in 2019. Meanwhile, the percentage of Phase 2 cases cleared with remedies increased to 86% in line with 2015. In 2019 all cases bar one, which was prohibited, were cleared subject to remedies.
Increase in use of upfront buyers in divestment remedies
Over the five-year period, divestment remained the most popular remedy, in line with the Commission's viewpoint as set out in its EC Merger Regulation. Upfront buyer requirements saw an increase in 2019 but still only required in 19% of remedies.
In respect of non-traditional divestment remedies, the use of remedies which remove links with competitors and other third parties continues in a small number of cases. Other non-traditional divestment remedies include creating access to networks used in the telecoms sector which has experienced significant consolidation in the period.
We have acted as monitoring trustee in more than 80 cases, reporting to the EC and another 19 different regulators. This work has included monitoring standard and complex divestment and behavioural commitments. We have also acted as monitoring trustee in a number of multi-jurisdictional cases reporting to multiple regulators. Our approach to the monitoring trustee role is with a view to being pragmatic, commercial and able to guide you through the process without excessive demands or disruption to your day-to-day operations.
If you would like to understand more about our monitoring trustee services, including our experience in advising on governance and control required to ensure adherence to interim measures, please contact Craig Reed.
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