Jones Day Global Merger Control Update
This Jones Day Global Merger Control Update examines recent developments in merger control regimes, as well as anticipated changes to those regimes worldwide.
Merger control enforcement has continued to surge around the world and reach well beyond the major jurisdictions. There are now more than 130 merger control regimes, including multijurisdictional agencies such as the Common Market for Eastern and Southern Africa. In 2018, there also was an uptick in gun jumping violations resulting from either a failure to file or observe standstill obligations. Some jurisdictions are more active than others are, but all must be considered when assessing the antitrust risks of a cross-border M&A transaction.
In this Update, we review: (i) key changes to existing regimes in Angola, Central Africa, India, Ireland, Israel, Morocco, Philippines, Thailand, and the United Kingdom; (ii) adjustments to the current notification thresholds in Canada, Ecuador, Mexico, and the United States; (iii) gun jumping violations; and (iv) anticipated changes to the current regimes in Argentina, Ireland, France, Mexico, Nigeria, Peru, Ukraine, the United Kingdom, and the United States.
Key Changes to Existing Merger Control Regimes
Angola Launches New Competition Regulator
In January 2019, Angola's competition regulatory authority, Autoridade Reguladora da Concorrência (Competition Regulatory Authority of Angola or "ARC"), became active with the presidential appointment of a board of directors. ARC is an independent regulator that succeeds Angola's now defunct competition authority, the Institute of Competition and Prices. ARC will enforce The Competition Law, 5 of 2018, which applies to all economic activities in, or having an effect in, Angola.
Premerger control filings for qualified transactions are now mandatory in Angola. A party that fails to notify a qualified transaction is subject to a fine between one percent and five percent of the annual turnover of the infringing undertakings. Consummating a transaction without clearance from ARC can result in a penalty between one percent and ten percent of turnover.
Pre-merger notification in Angola is required if:
- Combined share of the parties is 50 percent or more in the Angolan market or a substantial part of it; or
- Combined share of the parties is 30 percent to 50 percent in the Angolan market or a substantial part of it, and if at least two of the undertakings concerned individually achieved turnover in Angola of more than AOA 450 million (approximately €1.3 million or US$1.4 million or) in the last financial year; or
- The combined turnover in Angola of all undertakings participating in the merger exceeded AOA 3.5 billion (approximately €9.8 million or US$11.0 million) in the last financial year.
Economic and Monetary Community of Central Africa Issues First Merger Clearance
The Communauté Economique et Monétaire de l‘Afrique Centrale (Economic and Monetary Community of Central Africa or "CEMAC") has issued its first merger control clearance decision. Established in 1994, CEMAC is a regional customs and monetary union in Central Africa. Member states include Cameroon, Chad, the Central African Republic, Equatorial Guinea, Gabon, and the Republic of Congo. Although CEMAC had enacted a mandatory merger control regime, it has not been active until recent months.
In January 2019, a Jones Day team coordinating worldwide merger control filings related to a transaction in the agrochemicals industry was involved in obtaining the first CEMAC antitrust approval. Although CEMAC historically did not enforce its merger control regime, going forward, transacting parties with business in the region should consider whether a CEMAC filing is necessary in light of the agency's recent activity.
India Amends Merger Control Regime
In October 2018, amendments to India's merger control law went into effect. The new rules grant authority to the Competition Commission of India ("CCI") to allow merging parties to request to withdraw and refile their merger notice. If merging parties refile their notice within three months, the CCI will apply the fees paid in the first notification against the fee for the refiling.
Ireland Increases Notification Thresholds
The Irish Competition and Consumer Protection Commission ("CCPC") increased its financial notification thresholds, effective January 1, 2019.
Based on the revised thresholds, a pre-merger notification is required in Ireland if:
- The aggregate turnover in the Republic of Ireland of the undertakings involved is not less than €60 million (previously €50 million); and
- The turnover in the Republic of Ireland of each of two or more of the undertakings involved is not less than €10 million (previously €3 million).
The CCPC's welcome adjustments to Ireland's notification thresholds are aimed at reducing the number of unnecessary notifications. The CCPC retains authority to review transactions that do not meet the thresholds.
Israel Revises Notification Thresholds
In January 2019, the Israeli parliament approved amendments to Israel's competition laws. With respect to merger control, the amendments significantly increase the combined turnover threshold from ILS 150 million (approximately €36.6 million or US$41.3 million) to ILS 360 million (approximately €87.8 million or US$99.0 million). The individual turnover threshold of ILS 10 million (approximately €2.4 million or US$2.8 million) remains unchanged.
The amendments also lowered the so-called "monopoly" threshold. Prior to the amendments, Israel's competition law defined a "monopoly" as an entity with market share that exceeds 50 percent. Now, a "monopoly" also includes an entity with "significant market power" even if its market share is less than 50 percent. The Israeli Competition Authority plans to publish guidelines on the definition of "significant market power."
Based on the revised thresholds, a pre-merger notification is required in Israel if:
- The combined share of the parties involved exceeds 50 percent; or
- The combined turnover in Israel of the parties involved exceeds ILS 360 million (approximately €87.8 million or US$99.0 million) and the turnover in Israel of each of at least two parties involved exceeds ILS 10 million (approximately €2.4 million or US$2.8 million); or
- Either party involved has a "monopoly" position (i.e., with a market share exceeding 50 percent or significant market position).
Morocco's Competition Council Becomes Fully Operational
In late 2018, King Mohammed VI of Morocco appointed members to its new Competition Council ("CC"), including Mr. Driss Guerraoui as president, that will make the agency fully operational.
Morocco modified its competition laws in 2014 and 2015, but until December 2018, it lacked a dedicated authority to investigate matters. This development transfers the merger control function to the CC from the head of government (le Chef du gouvernement), which accepted merger notifications until the King appointed the CC members.
Under the new merger control rules, transactions must be notified to the CC prior to consummation if one of the following conditions is satisfied:
- The aggregate worldwide turnover of the parties involved exceeds MAD 750 million (approximately €69.6 million or US$78.5 million); or
- The aggregate turnover in Morocco of at least two of the parties involved exceeds MAD 250 million (approximately €23.2 million or US$26.2 million); or
- The parties involved have a combined market share of at least 40 percent of a national relevant market or a substantial part thereof.
Philippines Issues Guidelines on Notification of Joint Ventures
In September 2018, the Philippine Competition Commission ("PCC") published guidelines that clarify PCC rules on notification of joint ventures. Under the guidelines, parties may form a joint venture by: (i) incorporating a joint venture company; (ii) entering into a contractual joint venture; or (iii) acquiring shares in an existing corporation.
According to the guidelines, an acquisition of shares in an existing corporation constitutes a joint venture when the existing and new owners exercise joint control. Joint control exists when an entity has authority to determine the strategic commercial decisions of the joint venture (positive joint control) or to veto such decisions (negative joint control).
The guidelines further clarify how the PCC applies its size-of-party and size-of-transaction tests to joint ventures.
Size-of-Party Test. A joint venture meets the size-of-party test if the aggregate annual gross revenues in, into, or from the Philippines, or value of assets in the Philippines of the ultimate parent entity of at least one of the acquiring or acquired entities, including that of all entities that the ultimate parent entity controls, directly or indirectly, exceeds PHP 5 billion (approximately €84.7 million or US$96.5 million).
Size-of-Transaction Test. The size-of-transaction test is met if: (i) the aggregate value of the joint venture partners' assets that will be combined in the Philippines or contributed into the joint venture exceeds PHP 2 billion (approximately €33.9 million or US$38.6 million); or (ii) the gross revenues generated in the Philippines by assets to be combined in the Philippines or contributed into the joint venture exceed PHP 2 billion (approximately €33.9 million or US$38.6 million).
Thailand's Merger Control Regime Becomes Fully Operational
In late 2018, the Thai Office of Trade Competition Commission ("OTCC") published a series of guidelines that will make Thailand's merger control regime fully operational. Until this development, the pre-merger approval regime was not operational because the OTCC had not issued guidelines on the applicable notification thresholds.
As reported in our Global Merger Control Update in December 2017, Thailand's Trade Competition Act introduced a new, dual merger control regime:
- Pre-merger approval: Any merger that may result in a "monopoly" or "dominance" must be notified prior to closing.
- Post-merger approval: Any merger that may "materially reduce competition" must be notified within seven days from closing.
The new guidelines define "monopoly," "dominance," and "materially reduce competition:"
- Monopoly arises where there is only one business operator in a relevant market, which has: (i) the power to freely determine the price and quantity of its goods or service; and (ii) a turnover of at least THB 1 billion (approximately €27.7 million or US$31.5 million).
- Dominance arises where:
- A business operator has: (i) a market share of at least 50 percent; and (ii) an annual turnover of at least THB 1 billion (approximately €27.7 million or US$31.5 million); or
- A business operator: (i) is one of the top three business operators in a relevant market that collectively has a market share of at least 75 percent; and (ii) has an annual turnover of at least THB 1 billion (approximately €27.7 million or US$31.5 million). This test does not apply to any business operator with a market share of less than 10 percent.
- A transaction materially reduces competition if: (i) the combined turnover of the parties involved in a relevant market exceeds THB 1 billion (approximately €27.7 million or US$31.5 million); and (ii) the transaction does not result in a monopoly or dominance.
United Kingdom Updates Guidance for Merger Remedies and Exceptions to the Duty to Refer
In December 2018, the UK Competition and Markets Authority ("CMA") published updated guidance on merger remedies. The document provides a single source of guidance on remedies in the United Kingdom, consolidating the CMA's experience in recent merger investigations, judgments of the Competition Appeal Tribunal, and the CMA's research into remedy outcomes.
The revised guidance provides detail related to:
- The process and timing for consideration of remedies in Phase 1 proceedings, including useful flowchart for remedies in Phase 1 and Phase 2 investigations;
- Information gathering and early consideration of remedies during Phase 2 proceedings;
- The treatment of remedies during litigation following a merger decision; and
- Divestiture remedies, including how to design remedy packages and the CMA's preference for an up-front buyer.
The CMA also published guidance that explains the circumstances in which it has discretion not to refer a merger for a Phase 2 investigation, despite CMA's view that there is a realistic prospect that a transaction will harm competition. These are when:
- the markets concerned are not of sufficient importance to justify a reference;
- anticipated mergers are insufficiently far advanced, or insufficiently likely to proceed, to justify a reference; or
- any relevant customer benefits arising from the merger outweigh the adverse effects from any substantial lessening of competition.
Adjustments to Notification Thresholds
Canada Adjusts Threshold of "Size-of-Target" Test
The Canadian Competition Bureau increased the threshold of the "size-of-target" test, effective on February 2, 2019. Canada's Competition Act requires premerger notification of certain transactions in which both "size-of-target" and "size-of-parties" tests are met.
The "size-of-target" test refers to the value of acquired assets in Canada or assets 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 increased to CAD 96 million (approximately €64.1 million or US$73.1 million) and represents a CAD 4 million increase from the CAD 92 million (approximately €61.4 million or US$70.1 million) threshold for 2019.
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 CAD 400 million (approximately €266.9 million or US$304.7 million). This threshold remains unchanged.
Ecuador Adjusts Notification Thresholds
Ecuador increased the unified basic salary ("RBU"), which parties use to determine whether a transaction meets the financial notification thresholds in Ecuador. The updated RBU is US$394.
The notification thresholds in Ecuador have been adjusted as follows:
- The combined turnover of the parties involved in Ecuador exceeds RBU 200,000 (approximately €69.7 million or US$78.8 million);* or
- The combined market share of the parties involved equals to or exceeds 30 percent in the relevant market.
* Special thresholds apply to the transactions involving financial institutions and insurance companies.
Mexico Adjusts Notification Thresholds
In January 2019, the National Institute of Statistics and Geography updated the value of the Unit of Measure and Actualization ("UMA") that parties use to determine whether a transaction meets the financial notification thresholds in Mexico. The updated value of the UMA is MXN 84.49.
Accordingly, the notification thresholds in Mexico have been adjusted as follows:
- The value of the transaction in Mexico equals to or is higher than 18 million times the value of the UMA (MXN 1,520,820,000, approximately €69.8 million or US$79.6 million); or
- The transaction involves an accumulation of 35 percent or more of the assets or stock of an "economic agent" whose assets in Mexico or sales originating in Mexico amount to more than 18 million times the value of the UMA (MXN 1,520,820,000, approximately €69.8 million or US$79.6 million); or
- The individual or combined total sales or assets in Mexico exceed 48 million times the value of the UMA (MXN 4,055,520,000, approximately €186.1 million or US$212.3 million) and the transaction results in an additional accumulation of assets or capital stock in Mexico valued at more than 8.4 million times the value of the UMA (MXN 709,716,000, approximately €32.6 million or US$37.2 million).
United States Adjusts Notification Thresholds
As detailed in our prior Alert, the U.S. Federal Trade Commission ("FTC") announced revised thresholds for premerger notification under the Hart-Scott-Rodino ("HSR") Act. The FTC adjusts the thresholds each year based on the annual change in the gross national product. The new thresholds took effect on April 3, 2019.
Adjusted HSR Jurisdictional Thresholds
Size-of-Transaction Threshold. An HSR Act filing may be required if the acquirer will hold, as a result of the transaction, voting securities, non-corporate interests, and assets of the acquired person valued in excess of US$90 million (the 2018 threshold was US$84.4 million). If the size-of-transaction is between US$90 million and US$359.9 million, the transaction also must satisfy the size-of-person threshold. Transactions valued in excess of US$359.9 million may require a filing without regard to the size-of-person threshold.
Size-of-Person Threshold. 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 US$180 million (the 2018 threshold was US$168.8) and the other party to the transaction has at least US$18 million (the 2018 threshold was US$16.9 million) in annual net sales or total assets.
Gun Jumping Investigations on the Rise
In 2018, antitrust authorities in numerous jurisdictions, including Australia, Austria, Brazil, Chile, Denmark, European Commission, Ireland, Latvia, Lithuania, Romania, Slovakia, and the United Kingdom disclosed gun jumping investigations or sought fines for gun jumping violations. Gun jumping occurs when merging parties either fail to notify a transaction under a premerger notification regime or fail to observe a standstill obligation by coordinating their activities prior to closing. The numerous gun jumping fines demonstrate that a growing number of antitrust authorities aggressively enforce their merger control rules and/or standstill requirements. Below, we highlight three noteworthy developments in Australia, Chile, and the United Kingdom.
Australia Prosecutes Its First Gun Jumping Case
In its first gun -jumping case, the Australian Competition and Consumer Commission ("ACCC") instituted proceedings in Federal Court against Cryosite for gun jumping in July 2018. The parties abandoned the transaction, and, in February 2019, Cryosite settled with the ACCC. The ACCC alleged that Cryosite's asset sale agreement with competitor Cell Care Australia amounted to "cartel conduct" because, prior to closing, it required Cryosite to refer all customer inquiries to Cell Care, restrained Cell Care from dealing with certain Cryosite customers, and limited Cell Care's marketing to Cryosite customers.
As a condition of settlement, Cryosite admitted that the clause in its agreement was designed to restrict or limit, and to allocate potential customers. The court noted that "market sharing, including when it is undertaken in the context of a proposed or anticipated sale of business, is cartel conduct."
The Federal Court also ordered Cryosite to pay A$1.05 million (€657,164 or US$744,758) in penalties. While the penalties are at the lower end of the available maximum, the court observed that the penalties were significant considering Cryosite's size and financial position and designed to "render any risk/benefit analysis materially less palatable to other potential wrongdoers."
Australian merger control is voluntary and non-suspensory absent an ACCC request to suspend closing or a court injunction. Merging parties may nevertheless face gun -jumping liability under antitrust laws that prohibit certain competitor coordination (such as the Sherman Act in the United States) even if the merger itself is unlikely to substantially lessen competition and therefore will not contravene the merger prohibition.
Chile Requires Clearance Before Closing and Disapproves of Closing Carve-Out
In July 2018, the Chilean Competition Agency ("FNE") settled allegations that Minerva S.A. and JBS S.A. consummated their transaction prior to receiving merger clearance in violation of Chile's new merger review process. Chile amended its merger control law in June 2017 to require its clearance prior closing. Although the parties filed in Chile, they closed the transaction outside of Chile and attempted to carve out the Chilean business until FNE's clearance. FNE rejected this approach both in theory and in practice. According to the FNE, Minerva exerted control over JBS's Chilean business and had access to its competitively sensitive information prior to clearance. Under the settlement, each party must pay a US$1 million (approximately €882,000) fine.
This case (and the other updates) demonstrates that merger control regimes change frequently. And, once the rules change, antitrust authorities are likely to look for a case that helps them set new precedent.
UK Issues First Order Reversing Pre-Closing Integration
As detailed in our prior Alert, the UK Competition & Markets Authority ("CMA") issued its first order requiring parties to a completed merger to reverse pre-closing integration that the CMA believes prejudiced its ability to assess the deal's impact on competition in the United Kingdom. Both the CMA and its predecessor agency have unwound consummated mergers following Phase 2 merger reviews. However, this is the first time that the CMA issued an unwinding order during a pending merger investigation. Merging parties must weigh the risk of an unwinding order against the desire to integrate or consummate a transaction prior to UK clearance.
Key Developments and Expected Changes
Argentina Issues Draft Guidelines on Merger Notification
In February 2019, the Argentine National Commission for the Defense of Competition ("CNDC") requested public comment on draft guidelines that seek to clarify which transactions trigger notification in Argentina. This is a welcome development because the CNDC has provided limited guidance.
The guidelines propose, among other things, to introduce the concept of "full-function" joint ventures similar to EU merger control. If implemented, the guidelines explain that the creation of a joint venture that does not perform all the functions of an autonomous economic entity on a lasting basis will not trigger a notification in Argentina.
Ireland Proposes Introduction of Simplified Procedure
In November 2018, Ireland's Competition and Consumer Protection Commission ("CCPC") requested public comment about whether a simplified merger procedure for transactions that do not raise competition concerns could streamline Ireland's review process. The CCPC estimates that 55 percent of the notifications it received between 2016 and 2018 would have qualified for a simplified procedure.
Ireland is among the minority of EU Member States (including the European Commission itself) that do not offer a simplified notification and review procedure for transactions without competition issues.
France Plans to Revise its Merger Control Guidelines
The French Competition Authority ("FCA") announced that it will adopt new merger control guidelines in 2019. According to the FCA, the new guidelines will update the FCA's analytical framework for merger reviews by incorporating recent case law and the FCA's recent decision-making practice. The new guidelines also will incorporate the FCA's simplified notification procedure and streamlined electronic filings. Following a public comment period, the FCA plans to adopt the new guidelines in spring 2019.
The FCA also will release its position regarding new "ex post" merger control for transactions that are not in the jurisdiction of the European Commission and that would lead to "substantial competition concerns" in France. A number of antitrust authorities including the United States, United Kingdom, and Sweden have authority to review consummated transactions. To minimize the impact of uncertainty on companies, the FCA is considering whether to limit its ex post review to a time period (six to 24 months) following the transaction or to companies with revenue above a threshold.
Electronic Notification Becomes Mandatory in Mexico
In July 2019, electronic notification of mergers (known as "SITEC") to the Federal Economic Competition Commission of Mexico ("COFECE") will become mandatory following an 18-month trial period. Since December 2017, COFECE has allowed companies to submit electronic merger notifications through SITEC, 24 hours a day. SITEC is a COFECE effort to expedite its analysis of merger notifications and shorten its review period.
Nigeria Introduces New Competition Regime
In February 2019, President Muhammadu Buhari signed the Federal Competition and Consumer Protection Act into law. The law introduces a new competition law regime in Nigeria and establishes competition agencies—[MAG12] the Federal Competition and Consumer Protection Commission ("Commission") and the Competition and Consumer Protection Tribunal.
Under the new merger control regime, the Commission has authority to review and approve merger transactions notified to it, taking over the responsibility from Nigeria's Securities and Exchange Commission. Under the new law, a "large merger" will not be implemented unless it has first been notified to and approved by the Commission. A "small merger" does not need to be notified unless required by the Commission.
The Commission is expected to publish the new notification thresholds related to large and small mergers in the coming months.
Peru Contemplates Expanding Merger Control Regime
The Peruvian legislature is considering a measure that would introduce mandatory merger control. Currently, merger control in Peru applies only to companies involved in the generation, transmission, and distribution of electricity.
Ukraine Plans to Exclude Sellers from Notification Thresholds
The Antimonopoly Committee of Ukraine ("AMC") is considering amendments to its Merger Regulation to eliminate consideration of a seller's turnover (as distinct from the target's turnover) from its notification thresholds.
Ukraine is one of a small number of global jurisdictions that considers a seller's turnover for the purpose of establishing the AMC's jurisdiction. As a result of this threshold, many transactions with little or no effect in Ukraine trigger a notification. Under the AMC proposal, only the target's turnover will be relevant to the seller-side threshold.
The AMC's proposed amendments must be approved by the Ministry of Justice of Ukraine; however, it is not clear that the AMC has authority to amend the merger thresholds on its own. The Ministry of Justice may conclude that only the legislature has authority to modify the merger threshold.
United Kingdom Issues Draft Guidance on No-Deal Brexit
In January 2019, the UK Competition and Markets Authority ("CMA") issued draft guidance on the effects of the United Kingdom's "no-deal" exit from the European Union on the functions of the CMA. The draft guidance explains how the United Kingdom's exit from the European Union will affect the powers and processes of the CMA for antitrust and cartel enforcement, merger control, and consumer protection law enforcement after October 31, 2019 (Exit Day), or June 1, 2019, if the UK fails to hold elections to the European Parliament in May 2019.
- If the European Commission has issued a decision in a merger case prior to Exit Day, the CMA has no jurisdiction to review the case unless an appeal leads to annulment of any part of the decision.
- If the European Commission has not issued a decision in a merger case prior to Exit Day, UK merger control will apply and the CMA may assert jurisdiction over the merger and any effects in the United Kingdom.
The draft guidance can be consulted on the gov.uk website.
U.S. Antitrust Agencies Introduce Reforms to Speed Up Merger Reviews
The Trump Administration leadership at the U.S. Department of Justice and Federal Trade Commission announced reforms regarding merger reviews. This January 2019 Jones Day White Paper reviews these reforms and their strategic implications for merging parties. As described more fully in the White Paper, there is good, bad, and unknown. The agencies' reforms will improve some merger reviews by reducing document and data requests and provide at least a soft commitment to published time frames. The reforms may actually add burden in some circumstances, and they may have little impact for mergers with complex or significant competitive implications.
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