Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • CapitaLand Limited
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • Bank of America Merrill Lynch
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek Holdings
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • China Ocean Shipping Group Company (COSCO)
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • Royal Ahold (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • Nishimura & Asahi (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Mannheimer Swartling (Stockholm)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Rolf Watter
  • Bär & Karrer AG (Zürich)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: April 2013

U.S. UPDATE – The Corporate Governance Landscape, by Martin Lipton, Wachtell, Lipton, Rosen & Katz

Editors’ Note:  The attached presentation by Martin Lipton was made on April 23, 2013 at Northwestern University’s Kellogg School of Management’s 22nd Annual Corporate Governance Conference.

Topics covered include:

  • Key Issues Requiring Directors’ Focus
  • Purpose of Corporate Governance
  • Corporate Governance Trends
  • Director Duties and Risk Management
  • Executive Compensation
  • Board Structure
  • Director Elections
  • Takeover Defenses
  • Shareholder Activism
The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

AFRICAN UPDATE – New Multi-National COMESA Merger Notification Regime in Africa Requires Advance Planning for a Wide Range of International Merger Transactions

Editors’ Note: This article was submitted by I. Berl Nadler, a partner at Davies Ward Phillips & Vineberg LLP and a leading Canadian corporate lawyer who has been involved in numerous high-profile financing transactions and acquisitions worldwide on behalf of multinational corporate clients. Davies Ward partners John Bodrug, Jim Dinning and Hillel Rosen, experts in the firm’s Competition & Foreign Investment Review practice, co-authored this article.

Highlights:

  • In January 2013, a supranational organization of 19 African States known as “COMESA” implemented a new and potentially burdensome merger notification regime affecting parties with assets or sales in eastern or southern Africa.
  • Pre-merger notification is required for any merger where either the acquiror or the target operates in at least two COMESA member States. Arguably, notification may be required only if the merger will have an appreciable effect on trade between member States and restricts competition in COMESA.  The definition of “operates” in this context is unclear, as are the exemptions.
  • Under the Regulations, the test for CCC approval is whether the merger:
    a)  has lessened substantially or is likely to lessen substantially the degree of competition in COMESA or any part thereof; or
    b)  has resulted, or is likely to result in, or strengthen a position of dominance which is or will be contrary to the public interest.
  • A COMESA filing must be made within 30 days of the parties’ “decision to merge”.  The review period is 120 days, although the CCC may seek extensions from the Board of Commissioners of COMESA.  The Regulations and merger notification form (currently available only in draft) do not expressly prohibit closing a merger pending completion of the CCC’s review; it is unclear what is intended by this omission.

Main Article:

In January 2013, a supranational organization of 19 African States known as “COMESA” implemented a new and potentially burdensome merger notification regime that should be considered in the context of any mergers involving parties with assets or sales in eastern or southern Africa.  Some important questions remain unanswered at this time, but it appears likely that the regime will add uncertainty and require additional advance planning for transactions involving companies active in the region.  This perspective provides a brief overview of its potential application.

COMESA

COMESA stands for the Common Market for Eastern and Southern Africa, and comprises the following member States:  Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.

Merger Notification Thresholds

Pursuant to the COMESA Competition Regulations (“Regulations”) establishing the COMESA Competition Commission (“CCC”), a pre-merger notification is required for any merger where either the acquiror or the target operates in at least two COMESA member States.  The CCC recently set the financial threshold for notification at $0 in assets or revenues, and the definition of “operates” in this context is unclear.  For example, it remains to be seen whether the CCC will take the position that a company that merely owns land or mineral rights in two or more member States, but otherwise has no other assets or operations in COMESA, would satisfy the notification threshold.

The Regulations apply only to mergers that have an appreciable effect on trade between member States and which restrict competition in COMESA.  This requirement may exempt transactions from notification where only the acquiror has operations in the region, although the scope of the exemption is unclear.

The Regulations define a “merger” as the acquisition or establishment of a controlling interest in the whole or part of the business of another person.  However, the definition of a “controlling interest” is unclear and includes any interest that enables the holder to directly or indirectly exercise “any control whatsoever” over the activities or assets of an undertaking.  It remains to be seen whether the CCC will broadly interpret this provision and whether the acquisition or establishment of a minority interest, board representation or even contractual rights could amount to a “controlling interest”.

Interaction with Filing Obligations in COMESA Member States

Where a COMESA notification is required, the CCC intends for the COMESA regime to operate to the exclusion of individual notification regimes in COMESA member States.  (Currently, eight of 19 COMESA member States have their own notification regimes.)  However, recent media reports indicate that in some circumstances both COMESA and the Kenyan competition authority have asserted jurisdiction (and notification obligations) over the same transaction.  Until there is more clarity in this regard, merging parties may be wise to approach both the CCC and applicable State-level regulators in transactions subject to notification in the region.

Substantive Test for Approval

Under the Regulations, the test for CCC approval is whether the merger:
a)  has lessened substantially or is likely to lessen substantially the degree of competition in COMESA or any part thereof; or
b)  has resulted, or is likely to result in, or strengthen a position of dominance which is or will be contrary to the public interest.

This test is generally consistent with tests for approval in other jurisdictions.

Timing of Review

If a COMESA filing is required, it must be made within 30 days of the parties’ “decision to merge”.  (We understand that the CCC is of the view that “days” in the Regulations means business days and not calendar days.)  While unclear, it appears that the CCC may be taking an expansive view of when the “decision to merge” has been made and may have in mind that the filing requirement could be triggered by a board decision even before a merger agreement is entered into.

The review period is 120 days, although the CCC may seek extensions from the Board of Commissioners of COMESA.  At present, the CCC does not appear to have provided for an accelerated timetable for mergers that raise no substantive issues.

The Regulations do not expressly prohibit closing a merger pending completion of the CCC’s review.  While the merger notification form (currently available only in draft) notes that mergers implemented in contravention of the Regulations will be of no legal effect, the draft form no longer includes a statement (found in the prior draft) that parties cannot close their transaction until CCC approval has been received.  Accordingly, the change in the draft form may signal a position of the CCC that the parties may complete a merger before the CCC has completed its review (absent an injunction or other enforcement action).

Notification Form

A notification form must be submitted by each party to a transaction (except in the case of an unsolicited bid, where only the acquiror must submit a notification).  Unless significant changes are made or exceptions permitted, the form will necessitate the provision of extensive information regarding, among other things, sales, customers and competitors.

Notification Fees and Penalties

If a filing is required, the notification must be accompanied by a filing fee equal to the lesser of:  (a) US$500,000; or (b) the lower of 0.5% of the parties’ combined turnover or 0.5% of the parties’ combined assets in the COMESA region.  (Although the CCC has stated that the lower of these two figures is intended to apply, the Regulations themselves are somewhat unclear.)

If the parties to a transaction fail to file within the required timeframe, they may be subject to a penalty of up to 10% of their combined annual turnover in COMESA.  In addition, as noted above, a merger implemented in contravention of the Regulations will be of no legal effect in COMESA.

Summary

Compliance with the COMESA merger notification regime may need to be added to the competition approval checklist for a merger involving a party with operations in two or more COMESA member States.  This approval, if required, could result in significant costs and potential delay.  A significant amount of uncertainty about the application of the COMESA merger notification regime remains and further clarification from the CCC is needed.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

GLOBAL STATISTICAL UPDATE – XBMA Quarterly Review for First Quarter 2013

Editors’ Note: The XBMA Review is published on a quarterly basis in order to facilitate a deeper understanding of trends and developments.  In order to facilitate meaningful comparisons, the Review has utilized consistent metrics and sources of data since inception.  We welcome feedback and suggestions for improving the XBMA Review or for interpreting the data.

Executive Summary/Highlights:

  • Global M&A volume in Q1 was US$546 billion, up 10% from the same quarter last year but down from last year’s strong finish in the fourth quarter.
  • Q1 saw a number of transformative transactions across the globe, including four transactions exceeding US$15 billion in value (Berkshire Hathaway/3G Capital – Heinz, Michael Dell/Silver Lake Partners – Dell, Liberty Global – Virgin Media, and Comcast – NBC Universal Media).
  • The United States had an unusually strong quarter compared to other regions, with eight of the 10 largest deals and over 50% of global M&A volume.
  • Cross-border deal activity fell, accounting for just 25% of global M&A volume as compared to 37% of 2012 volume.
  • Energy & Power continued to produce the most M&A volume of any sector, but barely edged out the High Technology and Real Estate sectors, each of which had relatively strong quarters.  Interestingly,  none of the five largest deals of Q1 were Energy & Power deals.
  • Notwithstanding the decline in M&A volume from Q4 2012, growing stability in US markets, rising corporate confidence (together with strong corporate earnings and cash stockpiles), and the continued availability of cheap financing for certain borrowers should continue to fuel global deal activity, despite uncertainty in Europe, exemplified by the quarter’s crisis in Cyprus, and the slowing growth of markets such as China, India and Brazil.
  • Financial sponsors have reemerged, playing a leading role in some of the largest transactions.  In addition to buyouts and traditional strategic M&A, spinoffs, divestitures, and other corporate restructurings continue to present attractive opportunities for many companies.

Click here to see the Review

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

POLISH UPDATE – Global Risks, Local Remedies: Cross-border M&A Issues in the New Europe

Editors’ Note:  This article was contributed by Tomasz Wardyński, founding partner of Wardyński & Partners and a member of XBMA’s Legal Roundtable, and Izabela Zielińska-Barłożek, co-head of Wardyński & Partners’ Mergers & Acquisitions Practice.  Ms. Zielińska-Barłożek co-authored this article with Anna Dąbrowska, a member of the firm’s Mergers & Acquisitions Practice.

Executive Summary:  The authors report from the IBA European Regional Forum conference in Warsaw on a discussion among lawyers from throughout Central & Eastern Europe on the best ways to minimise common risks encountered in international transactional practice.

Main Article:

The expanded membership of the EU and the growing number of cross-border transactions in Europe have naturally led to the standardisation of M&A procedures within the member states through use of similar documentation and action lists across various EU jurisdictions. But every international project includes elements of local law that require special attention. Cultural differences can also have a bearing on the transaction.

An opportunity to exchange views on this subject was provided during the International Bar Association European Regional Forum conference in Warsaw in November 2012. Lawyers attending the conference from almost 30 different countries in CEE and elsewhere in Europe debated the opportunities and challenges for growing businesses in the new EU member states. A more detailed analysis of the issue of risks in multinational projects took place at a workshop entitled “Assessment of Risk in Cross-Border M&A Transactions.” The discussion was led by a panel of lawyers practising in Bulgaria, Hungary, Poland, Russia and Sweden.

Common risks

Knowing how to identify and deal with the risks that may arise in a given jurisdiction is vital to achieving the desired effect of an international transaction. Success depends on skilful and efficient handling of all features of the project.

There are certain risks that are common across jurisdictions, but the same risk may bear different consequences and be treated differently depending on where it arises. Indeed, as became apparent at the workshop, different approaches to a specific risk may be found even within a single country, as transactions vary and local practice does not always provide a common approach to legal problems.

For example, some of the typical risks in almost any jurisdiction concern proper title to shares (for share deals), the effect that debt of the target company may have on the transaction, proper title to real estate and the effect of disclosure in the land register, and labour law issues such as the risks connected with the use of traditional employment contracts versus alternative forms of employment. Another interesting aspect is the approach to certain information about the target company gleaned from due diligence that may pose a risk for the transaction, in the form of “sandbagging” provisions existing in various jurisdictions.

Title to shares

An assessment of whether the sellers of a limited-liability company (or equivalent in the specific European jurisdiction) hold proper title to their shares may often necessitate looking at the effect of entry of the shareholders in the commercial register or equivalent and the required form of transfer documents in the given jurisdiction.

This is especially important in some European countries, such as the Czech Republic, Germany, the Netherlands and Poland, where transfer of shares requires a more rigorous form, with notarised signatures or the form of a notarial deed. In other countries, such as Belarus, Lithuania, Romania and Switzerland, ordinary written form is sufficient to convey title to shares.

Most of the European practitioners at the workshop stressed the need to examine the source documentation behind past share transfers. This is a necessity in countries, such as Poland, where the commercial register does not provide a warranty of public reliance on the register. But also in other jurisdictions, for example Russia, where entry of the holders of title to shares is deemed to provide security to third parties, potential buyers are nonetheless encouraged to review past transactions closely.

A panellist from Budapest explained at the IBA workshop that although in the case of a Hungarian limited-liability company (Kft) shares are transferred upon entry in the commercial register, the entry is made by the court on the basis of the list of shareholders provided by the managing director of the company, who, in turn, acquires information on the transfer directly from the new shareholder. Presentation of the document which was the basis for the transfer of shares is not mandatory. In consequence, it is not possible to rule out a risk of false or inaccurate information being entered in the company register without the court being able to verify it—hence checking the source documents for prior share transfers in the course of due diligence might be advisable.

Too much debt

It is commonly indicated that excessive debt of the target company, a situation disadvantageous for the entity itself, may also pose some risk for the buyer. Therefore certain measures should be undertaken before the transaction in order to improve the financial standing of the company, or the transaction should be structured to deal with this risk optimally.

If the target company is insolvent, the law usually requires the management board of the company to file for commencement of insolvency proceedings within a certain period. For example, in Poland there is a time limit of 2 weeks, or 30 days in Bulgaria, as pointed out by a panellist from Sofia. Creditors may also file bankruptcy petitions.

The panellist from Bulgaria went on to explain that if the target is in poor financial condition, its position may be made more secure before carrying out the sale of shares, for example by increasing the share capital through a capital increase or conversion of debt to equity, or restructuring the existing debt.

An asset deal may also be considered—provided that the assets have not been pledged as collateral, or the consent of the secured creditors is obtained. The risk of anyone challenging the transfer of assets by a distressed company may be mitigated to some extent by obtaining an independent valuation of the assets to ensure that they are being sold at fair market value.

Participants representing most of the CEE countries present at the workshop shared a common perspective in this matter.

Sandbagging

Due diligence is designed to provide the potential buyer an opportunity to identify certain risks related to the target. Once the risks have been identified, the parties can make an informed decision on whether to proceed with the transaction, and if so, how to address any risks that are identified in due diligence.

As the participants at the workshop pointed out, some risks identified in due diligence cannot be eliminated prior to the transaction, but the parties may nonetheless decide to proceed with the deal anyway, making relevant provisions to cover the risks in the transaction documents.

This raises the issue of “sandbagging.” Depending on the applicable regulations in the specific jurisdiction, the buyer’s knowledge of risks acquired prior to signing the agreement may be an obstacle to effective assertion of a claim under the contractual representations and warranties. With “pro-sandbagging” provisions, the buyer may be given the right to seek indemnity regardless of its knowledge of the risk, while “anti-sandbagging” provisions make the buyer’s right to seek indemnity dependent on the state of the buyer’s knowledge.

For example, in Sweden, according to an M&A practitioner from Stockholm, under statutory law a buyer may not assert an effective claim for an inaccuracy which the buyer had knowledge of at the time of signing. Under the principle of freedom of contract, however, the parties often include provisions in the transaction documents determining what effect the buyer’s knowledge will have on the parties’ rights. More often than not, anti-sandbagging provisions are used.

According to studies cited at the conference, in European jurisdictions anti-sandbagging provisions are perceived as more common (51% anti-sandbagging v 7% pro-sandbagging), while in the United States, pro-sandbagging provisions are more common, meaning that the representations and warranties are absolute and unaffected by the buyer’s knowledge (41% pro-sandbagging v 5% anti-sandbagging).

The participants at the workshop were evenly split on whether their home jurisdictions governed this issue by statute. There was also a split, although a positive answer seemed to be more common, on whether it was customary across different jurisdictions to include provisions in the transaction documents limiting the seller’s liability based on knowledge obtained by the buyer during due diligence.

In the case of Poland, the statutory provisions generally exclude the seller’s liability under the warranty for defects if the buyer was aware of the defect at the time of the sale. However, it is generally possible to extend, limit or exclude liability under the warranty for defects, and therefore the parties will usually address this issue in the share sale agreement.

As was clear from the discussion at the IBA conference, ultimately the success of any international transaction, large or small, will depend on proper identification of current and potential risks at the local level and the ability to deal with the risks appropriately. An issue regarded as immaterial in one jurisdiction may turn out to be a deal breaker just across the border.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

EU UPDATE – European Commission Proposes Amendments to Premerger Notification Regime

Editors’ Note: This article was authored by Franco Castelli of Wachtell, Lipton, Rosen & Katz.  Mr. Castelli focuses on antitrust aspects of U.S. and cross-border mergers, acquisitions, and joint ventures.

 

Executive Summary: The European Commission has proposed amendments to the notification forms that companies must complete to report mergers subject to antitrust review in the EU. If adopted, the proposed changes would reduce the amount of information merging parties must provide in transactions that are unlikely to raise competitive concerns.  However, for many transactions, the proposed changes potentially add burdensome document productions for merging parties.  The article briefly discusses the proposed changes and considers the strategic implications for mergers subject to review by the European Commission.

Main Article:

Last week, the European Commission announced proposed amendments to the notification forms that companies must complete to report mergers subject to antitrust review in the EU, with the stated intention of reducing burdens on filing parties.  If adopted, the proposed changes would reduce the amount of information parties must provide in transactions that are unlikely to raise competitive concerns.

The EC proposes to expand the categories of mergers that are eligible for review under a simplified procedure that allows companies to file “short form” notifications with more limited information requirements.  Under the proposed changes, the simplified procedure would apply to all mergers that result in the combined firm holding a market share of less than 20% in any market in which both parties are active, up from the current threshold of 15%.  In addition, at the EC’s discretion, filing parties would be permitted to use the “short form” when a merger results in a small market share increase, even if the combined firm’s market share exceeds 20%.  For vertical mergers, the market share threshold for the simplified procedure would increase from 25% to 30%.  The EC estimates that, as a result of these changes, an additional 10% of all reportable mergers could be reviewed under the simplified procedure, with significant benefits—in terms of both time and costs—for companies no longer required to complete the full notification.

The EC also proposes to reduce the burden on filing parties in transactions that do not qualify for the simplified procedure, by raising the market share thresholds that trigger requirements for detailed market information.  For these “long form” transactions, however, the proposed changes also add a new category of documents that must be submitted with the notification form.  Filing parties are already required to submit certain documents related to the notified transaction.  The proposed revision would additionally require submission of all documents prepared for any director in the past three years that analyze competitive conditions in markets affected by the merger—whether or not the documents were prepared in connection with the transaction at issue.  Such a requirement could result in burdensome document productions for merging parties.

Premerger filings in the EU can add significantly to the time necessary to complete mergers and acquisitions.  Broader availability of the EC’s simplified procedure is a welcome development, as experience shows that merging parties benefit from the reduced time and expense of “short form” filings.  The addition of a burdensome document requirement for “long form” transactions serves as a reminder that internal planning documents play a large role in merger investigations, and that parties must at all times be mindful of what their documents say about industry competition.  Whether under the simplified procedure or not, the time and effort required to prepare merger notifications and obtain European antitrust clearance will remain considerable, and careful strategy and planning will remain critical to the expeditious approval of transactions in the EU.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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