Global antitrust enforcement is growing in complexity as M&A activity climbs beyond record levels and businesses face closer scrutiny from increasingly sophisticated authorities, writes Vanessa Ip
Increasing internationalization has been a long-running theme in global antitrust enforcement. In Clifford Chance’s Global Antitrust Trends 2016 report, the law firm reported that global antitrust enforcement would invariably trend towards increasing complexity. The firm echoes this sentiment in its 2017 report, The Antitrust Horizon, predicting that for antitrust enforcement and merger control, the global trend will be towards proliferation and complexity, in terms of both procedure and substance. The report identifies two themes that will dominate the outlook for global businesses, including the propagation of new technology and the recent rise in protectionist rhetoric among many political leaders. “The former will bring new antitrust challenges and disputes, while the latter may result in greater political intervention in cross-border deal-making and more disputes over subsidies,” the report says.
According to Antoine Winckler, a partner at Cleary Gottlieb Steen & Hamilton in Brussels, “The increasingly global nature of transactions has further led to continued collaboration and co-ordination with other antitrust agencies around the world.” As regulation increases and antitrust authorities become more sophisticated, companies need to be more stringent and reinforce their compliance regimes to avoid being caught by regulatory sanction and scrutiny.
According to practitioners in the US, one of the most significant developments in the past 12 months has been the increasingly aggressive approach to mergers being taken by the Department of Justice (DOJ) and the Federal Trade Commission (FTC).
Janet McDavid, a partner at Hogan Lovells in Washington, observes that US merger control authorities are becoming more litigious. “[There has been an] increased willingness of both the FTC and DOJ to litigate matters that cannot be resolved in a way they think is satisfactory,” she says. “As a result, both agencies now have multiple matters in litigation. Both agencies have been insisting that parties to merger investigations put substantial and meaningful remedy proposals on the table before the agency will start to discuss the proposed remedy. The agencies have a view of what is needed to resolve their concerns and will not waste time considering inadequate remedy proposals.”
In its Competition/Antitrust Global Market Outlook 2016 publication, Linklaters reported that FTC and DOJ policies on merger remedies have become so strict and demanding that merging parties may ultimately be forced to abandon their transactions in cases where “the economics no longer make sense”.
But Jonathan Jacobson, a partner at WSGR in New York, says increased merger enforcement will have a minimal but positive effect on foreign investment, “at least to the degree that foreign investors are buying US companies they compete against”.
There have been significant developments in relation to antitrust laws and enforcement in the EU in the past year. With regard to cartels, while the European Commission (EC) has continued to enforce leniency applications, it has also imposed the largest cartel fines to date, totalling €3.6 billion (about US$4 billion).
Merger notifications have also reached a record high. According to Antoine Winckler, this is due to the high level of M&A activity in 2015, which resulted in the highest number of merger notifications to the EC since 2008. While merger control will often be an important consideration for high-profile investments and M&A, Fiona Carlin, a partner at Baker McKenzie in Brussels, warns that certain features of European merger control laws can mean that a mandatory merger filing is required in less obvious situations.
“The EC recently adopted an approach that has potentially far-reaching implications for how transactions involving state-owned enterprises [SOEs] should be assessed for the purposes of EU merger control,” she says. “When assessing the planned joint venture between China General Nuclear Power Corporation [CGN] and EDF, the commission controversially considered that the activities and turnover of other SOEs active in the same business sectors, i.e., energy and nuclear sectors controlled by the China’s State-owned Assets Supervision and Administrative Commission [SASAC] were attributable to CGN for the purposes of its review.”
In this case, “CGN’s turnover in Europe was not enough on its own to trigger an EC filing, but only once the turnover of other relevant SOEs were considered,” explains Alastair Mordaunt, partner and Head of the Hong Kong competition practice at Freshfields Bruckhaus Deringer. “The takeaway for SOEs is that they need to consider both the turnover and activities of other SOEs in their sector when assessing first whether their acquisition triggers an EU filing, and second the impact on competition arising from it. From a practical standpoint, this adds further burden on what is already a relatively difficult and often time-consuming information gathering process.”
Foreign investors are also not often sensitive to areas of antitrust enforcement that are different from the US system, says Winckler. “In particular, EU enforcement policy is often viewed as more complex and rigorous in areas such as ‘vertical’ contracts i.e., distribution (particularly in the online arena), or abuse of dominance. Obviously the commission’s tight control over state subsidies granted by national governments is also specific to the EU.
“Interestingly, with no foreign investment regulations at the EU level, European companies have remained attractive for foreign investors, including from China. Chinese outbound investment in Europe has continued on record high levels, resulting in an increasing number of transactions involving Chinese entities, including SOEs, reviewed by the EC. Notably, following the German government’s recent reopening of the review of the acquisition of Aixtron, a semi-conductor equipment supplier, by Grand Chip Investment Fund, a Chinese investor, there has been an initiative to call for a Europe-wide safeguard clause to stop foreign takeovers of firms where technology is deemed strategic for the future economic success of the region.”
According to a 2017 report by Berwin Leighton Paisner (BLP) titled Key Trends in Hong Kong and ASEAN Competition Enforcement, Association of Southeast Asian Nations (ASEAN) member states have committed to enacting national competition laws as part of their drive to develop economic growth and establish a level playing field for competition across Southeast Asia.
James Marshall, antitrust and competition partner at BLP in London, says there is a clear commitment among member states to have competition regimes in place and imbue the association with a culture of effective enforcement.
“It is clear that companies doing business across Asia will face active competition law regimes and enforcers in almost all key jurisdictions,” he says. “The scope of competition laws and the activities of competition agencies are expanding at pace. Companies active across East and Southeast Asia in 2017 and into the future should expect the active enforcement and expansion of competition law to continue, and should ensure that their Asian businesses have adequate compliance policies in place, and that key staff on the ground are fully aware of the importance of their competition law obligations.”