Jones Day Global Merger Control Update
This Jones Day Global Merger Control Update discusses developments in existing merger control regimes over the first half of 2018, as well as the emergence of new merger control regimes worldwide.
Over the past few years, merger control enforcement has surged around the world, reaching well beyond the major jurisdictions. More than 110 jurisdictions now have merger control regimes. Some are more active than others, but all must be taken into consideration when assessing the antitrust risks of a cross-border M&A transaction.
In this Update, we discuss (i) key changes to existing regimes in Canada, China, Colombia, Germany and Austria, Italy, Lithuania, the Philippines, Sweden, Ukraine, the United Kingdom, and the United States; (ii) the temporary suspension of the authority's merger control reviews in Indonesia; and (iii) anticipated changes to the current regimes in Israel, Peru, and the United Arab Emirates.
Key Changes to Existing Merger Control Regimes
Canada Increases Threshold of "Size-of-Target" Test
The Canadian Competition Bureau increased the threshold of the "size-of-target" test, effective February 10, 2018.
The "size-of-target" test refers to the value of assets in Canada to be acquired, or owned by the corporation whose shares are being acquired, or the annual gross revenue from sales in or from Canada generated by those Canadian assets. This threshold has increased to C$92 million (approx. US$71.3 million) and represents a C$4 million increase from the C$88 million (approx. US$68.1 million) threshold for 2017.
The "size-of-parties" test requires that the parties to a transaction, together with their affiliates, have assets in Canada or annual gross revenue sales in, from, or into Canada that exceed C$400 million (approx. US$310 million). This threshold remains unchanged.
China Reforms Merger Control Regime
China passed legislation in March 2018 to create a new merger control agency, the State Administration for Market Regulation ("SAMR"). This authority will combine the three agencies that had previously enforced competition laws. SAMR is taking over the powers, specifically in relation to merger control, previously granted to MOFCOM, which is part of the Ministry of Commerce.
No significant change in merger policy is anticipated in the short term since the same MOFCOM officials will continue to oversee merger control within the SAMR. Long term, consolidation could lead to greater consistency in the application of competition laws and thus enhance legal certainty. Companies must now assume that documents submitted in merger proceedings could be shared with SAMR staff involved in nonmerger-related issues.
For more information, see Jones Day's June 2018 White Paper on the reform.
Colombia Increases Threshold for Merger Control Filings
The revenue threshold for mergers in Colombia has increased to approximately US$16 million due to an increase in the minimum salary. A merger control filing is required in Columbia where:
- The parties are present in Colombia and the parties are dedicated to the same activities or participate in the same vertical value chain; and
- The value of their combined Colombian assets or their combined Colombian revenues, including all other related companies within Colombia or abroad, exceeds by 60,000 times the monthly minimum wage in Colombia.
The minimum salary increased to CO$781,242 in 2018. Thus, the second threshold has increased accordingly to approximately US$16 million.
Germany and Austria's Competition Agencies Publish Guidance on Merger Control Thresholds
New merger control thresholds took effect in Germany and Austria in 2017. The new thresholds are based on the value of the transaction. (For more detail see our Global Merger Control Update from May 2017). The German Federal Cartel Office and the Austrian Federal Competition Authority published a guidance paper in May 2018 since assessing the value of a transaction can be difficult. The guidance paper clarifies that the value of a transaction comprises assets, monetary benefits, assumption of liabilities, and any future or variable components of the transaction (such as stock or cash funds in foreign currencies).
Italy Makes Annual Adjustment to Turnover Thresholds
The Italian Competition Authority ("ICA") annually amends the turnover thresholds for the notification of transaction based on the gross national product price deflator index.
Italy's recently revised thresholds, set out below, provide that transactions are reportable to the ICA if:
- The combined Italian turnover of all the undertakings concerned exceeds €495 million (approx. US$559 million); and
- The individual Italian turnover of each of at least two undertakings involved in the transaction exceeds €30 million (approx. US$33.8 million).
The slight increase in the first set of thresholds, which relate to the combined Italian turnover of the undertakings concerned, is not likely to decrease the number of notifiable transactions in Italy. Under Italy's rules, the updated merger control thresholds are already applicable to deals signed under the old thresholds, but will be closed under the updated thresholds.
These revised thresholds entered into force on March 12, 2018.
Lithuania Increases Merger Notification Thresholds
The Lithuanian Competition Council revised its merger control regime, increasing the merger notification thresholds as follows:
- The parties' combined turnover exceeds €20 million (approx. US$24.6 million), which is an increase from €14.5 million (approx. US$17.9 million); and
- The turnover of each of at least two parties exceeds €2 million (approx. US$2.5 million), which is an increase from €1.45 million (approx. US$1.8 million).
The amended merger control regime came into force on January 1, 2018.
Philippines Adjusts Notifications Thresholds
The Philippine Competition Commission ("PCC") adjusted the notification thresholds in March 2018. The new thresholds are as follows:
- Sales in, into, or from the Philippines, or the value of local assets of at least one party (buyer or target, including their group) exceed ₱5 billion (approx. US$95.7 million); and
- The value of the transaction exceeds ₱2 billion (approx. US$38.3 million).
Under the old regime, the two thresholds were each ₱1 billion.
The new threshold came into force on March 20, 2018.
The PCC also established an annual automatic adjustment of the threshold, beginning on March 1, 2019, based on the official estimate of the nominal GDP growth of the previous calendar year rounded up to the nearest hundred million.
Swedish Competition Authority Authorized to Reject Transactions in Merger Control Cases
The Swedish Competition Authority is authorized, as of January 1, 2018, to issue decisions to approve or reject a transaction in merger control cases. Previously, the Competition Authority was required to request the Patent and Market Court block a notified transaction, and only the court could prohibit a transaction or order divestitures.
Ukraine Adopts Law Linking Merger Reviews to Sanctions List
The Ukrainian Parliament adopted a law in December 2017 that allows the Antimonopoly Committee of Ukraine ("AMC") to deny merger clearance of transactions involving undertakings appearing on the Ukrainian sanctions list. Under this amendment, notifiable transactions should not be cleared if special economic and other restrictive measures (sanctions) apply to the merging parties or persons exercising control over them.
Therefore, the AMC can reject merger control filings, or close Phase II reviews without issuing a decision if the transaction in question involves any party on the sanctions list. If a clearance is granted without taking into consideration relevant sanctions, the merger clearance decision may be reviewed and invalidated within five years following its adoption.
United Kingdom Lowers Jurisdictional Thresholds for Mergers in Select Sectors
Under a new law, as of June 11, 2018, lower jurisdictional thresholds apply to mergers involving businesses engaged in the following sectors:
- The development or production of items for military or dual military and civilian use;
- Owning, creating, or supplying intellectual property for computing processing chips; or
- The development and production of quantum technology ("Relevant Enterprises").
- The lower jurisdictional thresholds for deals involving Relevant Enterprises are as follows:
- The turnover test is lowered from £70 million to just £1 million; and
- The share of supply test will apply even if only the target has a 25 percent or more share of supply—there will no longer be any need for both parties to supply the same category of goods or services.
For more information, see our June 2018 Commentary on the changes to the merger control regime for foreign takeovers.
United States Adjusts HSR Thresholds
The United States adjusted the Hart-Scott-Rodino ("HSR") Act thresholds in February 2018. These thresholds are adjusted each year by the Federal Trade Commission based on the change in the gross national product. The adjusted HSR jurisdiction thresholds concern both the "size-of-transaction" threshold and the "size-of-person" threshold.
A transaction now meets the size-of-transaction threshold if the acquirer will hold, as a result of the transaction, voting securities, non-corporate interests, as well as assets of the acquired person valued in excess of $84.4 million. This represents a 4.5 percent increase from the 2017 threshold of $80.8 million with the following consequences:
- Transactions valued at less than $84.4 million are not reportable.
- Transactions valued at more than $84.4 million but not more than $337.6 million are reportable only if also satisfying the size-of-person threshold.
- Transactions valued at more than $337.6 million are reportable, regardless of the parties' size (unless an exemption applies).
A transaction meets the size-of-person threshold if either the acquired or acquiring person has annual net sales or total assets of at least $168.8 million and the other party to the transaction has at least $16.9 million in annual net sales or total assets.
The 2018 adjustments to the HSR Act thresholds took effect on February 28, 2018.
Indonesia Temporarily Suspends Merger Reviews; Proposes Mandatory Prenotification Merger Regime
The Indonesian Commission for the Supervision of Business Competition suspended all merger reviews, its involvement in antitrust litigation and appeals before courts as well as all other legal activities involving its commissioners between February 27, 2018, and March 1, 2018. While the suspension was only temporary, the potential for shutdown in the future remains.
In addition, an amendment to the country's competition law that will introduce a mandatory prenotification merger regime is expected to be implemented later in 2018.
Israeli Antitrust Authority Publishes Draft Amendment to Reform Merger Control
The Israeli Antitrust Authority published a draft amendment to reform the law on merger control in October 2017. It passed the first stage of the approval process in February 2018.
This amendment seeks to abolish the nexus requirement for foreign companies so that it will no longer be necessary for a company to hold a significant shareholding in a local entity, to have a place of business in Israel, or to have the ability to influence a local representative's commercial decisions. Moreover, the draft law proposes to increase the turnover thresholds and increase the authority's powers to extend the merger review period from 30 to 150 days.
Peru's Legislature Contemplates Expanding Merger Control Regime
The legislature in Peru is considering a bill to introduce a mandatory merger control regime. Currently, merger control only applies to the electricity market.
United Arab Emirates
The United Arab Emirates Competition Committee held its first meeting of the year in March 2018, which focused on developing guidelines and standards in the field of merger control. A merger regime has existed since 2016, whereby a merger must be notified if the combined market shares of the parties exceed 40 percent. However, thus far, no enforcement has occurred, and there is no public record of any merger control notifications.
For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus/.
Bernard E. Amory
Craig A. Waldman
Michael H. Knight
Johannes P. Willheim
+86.10.5866.1194 / +1.415.875.5841
Bernhard Hofer, an associate in our Brussels Office, assisted with the preparation of this Update.
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