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

Europe

The Dutch Corporate Governance Code and The New Paradigm

Editors’ Note: This article was co-authored by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles and Sara J. Lewis of Wachtell, Lipton, Rosen & Katz.

Executive Summary/Highlights:

The new Dutch Corporate Governance Code, issued December 8, 2016, provides an interesting analog to The New Paradigm, A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, issued September 2, 2016, by the International Business Council of the World Economic Forum. The new Dutch Code is applicable to the typical two-tier Dutch company with a management board and a supervisory board. The similarities between the Dutch Code and the New Paradigm demonstrate that the principles of The New Paradigm, which are to a large extent based on the U.S. and U.K. corporate governance structure with single-tier boards, are relevant and readily adaptable to the European two-tier board structure.

Both the New Paradigm and the Dutch Code fundamentally envision a company as a long-term alliance between its shareholders and other stakeholders. They are both based on the notions that a company should and will be effectively managed for long-term growth and increased value, pursue thoughtful ESG and CSR policies, be transparent, be appropriately responsive to shareholder interests and engage with shareholders and other stakeholders.

Like The New Paradigm, the Dutch Code is fundamentally designed to promote long-term growth and value creation. The management board is tasked with achieving this goal and the supervisory board is tasked with monitoring the management board’s efforts to achieve it.

Click here to read the full article.

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 – Jumping the Gun: Marine Harvest Fined and Electrabel Appeal Rejected

Editors’ Note: Contributed by Nigel Boardman, a partner at Slaughter and May and a founding director of XBMA. Mr. Boardman is one of the leading M&A lawyers in the UK with broad experience in a wide range of cross-border transactions. Authored by Ingrid Lauwers and Nele Dhondt of Slaughter and May.

Executive Summary:   The European Commission has fined Marine Harvest, a Norwegian seafood company and salmon processor, €20 million for acquiring Morpol without prior clearance and not long before, the Court of Justice rejected an appeal against a General Court judgment which upheld a fine imposed, also €20 million, on Electrabel for its acquisition of Compagnie Nationale du Rhône. The recent fines indicate that the Commission takes the notification obligation and the ‘stand-still’ obligation very seriously and will penalise parties who fail to comply, even if failure to do so is due to negligence.

Main Article:

INTRODUCTION

The European Commission has fined Marine Harvest, a Norwegian seafood company and salmon processor, €20 million for acquiring Morpol without prior clearance.[1] The decision comes in the wake of the Court of Justice (“ECJ”) rejecting an appeal against a General Court judgment which upheld a fine imposed on Electrabel for its acquisition of Compagnie Nationale du Rhône (“CNR”).[2] The Electrabel fine also amounted to €20 million.

THE LAW

Under Article 4(1) EUMR, a concentration which falls within the scope of the EUMR must be notified to the Commission before completion.[3] This requirement is reinforced and completed by Article 7(1) which prohibits a concentration from being implemented until it has been declared compatible with the internal market. Implementing a merger before obtaining clearance is known as ‘gun-jumping’, and the prohibition on completion before clearance is often referred to as the ‘suspensory’ or ‘stand-still’ obligation.

The Commission can impose fines of up to 10% of the concerned undertakings’ aggregated turnover if these requirements are breached intentionally or negligently.[4] In setting the level of the fine, the Commission takes into account the nature, the gravity and the duration of the infringement.

On 18 December 2012, Marine Harvest acquired a 48.5% stake in Morpol, one of the largest salmon processors in the EEA. Marine Harvest only notified the acquisition to the Commission on 9 August 2013. On 30 September 2013, the Commission gave clearance on condition that Marine Harvest divest a number of Morpol’s assets, including salmon farming operations in Scotland.[5] The acquisition was therefore implemented eight months before the Commission was notified and nine months before clearance had been given.

Fining decision

On 23 July 2014, the Commission imposed a fine of €20 million on Marine Harvest for breach of the ‘stand-still’ obligation, which constitutes a serious infringement of the merger control rules. By acquiring a 48.5% stake in Morpol, it found that Marine Harvest had acquired de facto sole control. The Commission concluded that Marine Harvest had a stable majority at shareholders’ meetings due to the wide dispersion of the remaining shares and previous attendance rates. As Marine Harvest had completed the acquisition before notifying the Commission (and before the Commission gave clearance) it was found to have breached both Article 4(1) and Article 7(1) EUMR.

The Commission stated that, as a large company, Marine Harvest should have been aware of its notification obligations, and so it had been negligent by not seeking prior clearance. Further, Marine Harvest’s breach was deemed serious as the acquisition raised such concerns as to require significant divestment conditions. As such, completion of the acquisition before its conditional clearance could have given rise to competition problems.

The Commission also considered mitigating circumstances, which included the fact that Marine Harvest had not exercised voting rights in Morpol after acquiring control. In addition, the Commission recognised that Marine Harvest had informed it through pre-notification contacts shortly after completion of the acquisition.

The Commission clarified that its conditional clearance decision was not impacted as the breach related only to the ‘stand-still’ obligation and did not alter the Commission’s market analysis.

ELECTRABEL Facts

On 23 December 2003, Electrabel, a producer of electricity, natural gas and other energy services, acquired approximately 50% of CNR, another electricity producer. The acquisition gave Electrabel around 48% of the voting rights in CNR. Electrabel notified the Commission of the acquisition on 26 March 2008, some four years after completion had occurred.[6]

On 10 June 2009, the Commission decided that a serious breach of the ‘stand-still’ obligation had been committed and fined Electrabel €20 million.[7] The Commission found that Electrabel had become CNR’s main shareholder on 23 December 2003 and so had acquired de facto sole control which required prior clearance.

Electrabel appealed the Commission’s decision to the General Court. The appeal was dismissed on 12 December 2012,[8] and was made on grounds that the Commission had incorrectly characterised the acquisition as a concentration. Electrabel also alleged that the Commission had made a number of errors in its finding of sole control, and that the proposed penalty was time-barred.

In dismissing the appeal, the General Court held that breach of the ‘stand-still’ obligation was not merely procedural, and that, although the acquisition raised no competition concerns, this was not relevant to determining the gravity of the breach. Although the breach occurred through negligence, this did not reduce the penalty.

On 21 February 2013, Electrabel appealed to the ECJ.[9]

Judgment

On 3 July 2014, the ECJ also rejected Electrabel’s appeal, stating that Electrabel had submitted new arguments which the ECJ did not have jurisdiction to consider.

Electrabel’s further appeal had several grounds which included the allegation that the duration of its breach should not have been relevant to the General Court’s or Commission’s assessment. Further, Electrabel alleged that the General Court and Commission had applied the law retroactively in that it had erroneously applied the provisions of the EUMR, Regulation 139/2004, before it had come into force. Electrabel submitted that the EUMR’s predecessor, Regulation 4064/89, should have been applied instead.

Dismissing the appeal, the ECJ affirmed settled case law which establishes that it is not permitted to introduce new arguments in an appeal since this would inappropriately seize the appeal court of a wider ambit than had existed in lower tribunals.

CONCLUSION

The recent €20 million fines indicate that the Commission takes the notification obligation and the ‘stand-still’ obligation very seriously and will penalise parties who fail to comply, even if failure to do so is due to negligence. The Commission expects commercial entities to be aware of the notification obligations and will further expect the diligent performance of them.


[1]     Case M.7184, 23.07.2014.

[2]     Case C-84/13 P, judgment of 03.07.2014.

[3]     Concentrations will fall within the EUMR if they have an EU dimension, i.e. if they meet certain turnover thresholds (per EUMR, Article 1(2)).

[4]     EUMR, Article 14(2).

[5]     Case M.6850, 09.08.2013.

[6]     Case M.4994, 26.03.2014.

[7]     Ibid.

[8]     Case T-332/09, 12.12.2012

[9]     Case C-84/13 P, above.

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 – M&A in Poland: Eastern Gateway to the European Union

Editor’s Note: This update comes from Tomasz Wardyński, founding partner of Wardyński & Partners and a member of XBMA’s Legal Roundtable.  The author of this article is Weronika Pelc, partner, member of Wardyński & Partners Mergers & Acquisitions Practice and head of Energy Law Practice.

Executive Summary: Poland’s developing economy and entrepreneurial society with investor-friendly government policies create many interesting M&A opportunities.  There is a wide variety of companies which are directly or indirectly controlled by the state, or part of global corporations as well as small and medium firms owned by local or European entrepreneurs.  Except for privatisations, which are regulated separately and entail such requirements as concluding agreements guaranteeing employment to workers, M&A transactions generally follow accepted world standards.  Due diligences carried out on companies that have been in existence in Poland for more than 25 years, or have operated before the fall of the Iron Curtain, require an assessment of the risks associated with the change of the system.  The article below is a brief description of specific legal requirements and the typical procedure in a Polish M&A transaction.

Main Article:

M&A in Poland: Eastern Gateway to the European Union

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.

UK UPDATE – Pfizer’s Approach for AstraZeneca and the Outlook for UK Government Intervention in Takeovers

Editors’ Note: Contributed by Nigel Boardman, a partner at Slaughter and May and a founding director of XBMA. Mr. Boardman is one of the leading M&A lawyers in the UK with broad experience in a wide range of cross-border transactions. Authored by William Underhill and Jordan Ellison, partners of Slaughter and May.

Executive Summary:   Pfizer’s potential bid for AstraZeneca Plc provoked strong debate in the UK on the appropriate political oversight of corporate transactions, including concerns that the deal would result in research jobs and R&D investment being lost. This briefing outlines the main legal routes by which the assurances from Pfizer in respect of the UK science base might have been enforced and considers the outlook for possible future

Main Article:

On 26 May 2014 Pfizer Inc confirmed that it did not intend to make an offer for AstraZeneca Plc.  This followed the AstraZeneca board’s rejection of Pfizer’s “final offer” of £55 a share.  Pfizer will not be able to make any further approach for six months (unless there is a material change in circumstances or it is invited to do so by AstraZeneca).

Pfizer’s potential bid provoked strong debate in the UK on the appropriate political oversight of corporate transactions.  Some politicians and commentators were concerned that the deal would result in research jobs and R&D investment being lost and called on the Government to seek binding commitments from Pfizer to protect the UK science base.

Without prejudice to the political debate on whether or not the Government ought to take action in such circumstances, this briefing outlines the main legal routes by which the assurances from Pfizer in respect of the UK science base might have been enforced and considers the outlook for possible future Government intervention in takeovers.

STATUS OF COMMITMENTS UNDER THE TAKEOVER CODE

On 2 May 2014 Pfizer wrote to the Prime Minister setting out certain commitments it intended to comply with if the acquisition of AstraZeneca was completed.  These included commitments relating to R&D activity and jobs in the UK.  Pfizer stated that these commitments were legally binding because they were included in its proposed offer announcement.

Note 3 to Rule 19.1 of the Takeover Code (“Note 3”) deals with statements of intention of this kind in these terms:

“If a party to an offer makes a statement in any document, announcement or other information published in relation to an offer relating to any particular course of action it intends to take, or not take, after the end of the offer period, that party will be regarded as being committed to that course of action for a period of 12 months from the date on which the offer period ends, or such other period of time as is specified in the statement, unless there has been a material change of circumstances.”  (Emphasis added)

Note 3 clearly placed an obligation on Pfizer to comply with commitments made in its offer documentation or otherwise published in connection with the offer.  Failure to comply with such commitments would have amounted to a breach of the Takeover Code so it is correct to say that they should be regarded as “binding”.

However, Note 3 provides an “escape clause” if there is a material change of circumstances.  There is no guidance in the Takeover Code on what would amount to a “material change of circumstances” but it would be for the Takeover Panel to decide whether any particular change in circumstances was sufficiently material to allow the commitment to be avoided.

It appears that the Government may have been content to look to the Takeover Code to ensure the commitments were complied with.  However, the scope for the Government to engage in negotiations of the terms of such commitments is not unconstrained.  Any commitment seen as arising from a de jure or de facto Government requirement could raise EU law considerations of the type outlined below.  It would be more difficult to bring an EU law challenge against enforcement of unilateral statements voluntarily offered by the bidder.

PUBLIC INTEREST INTERVENTION BY THE SECRETARY OF STATE

The Secretary of State can intervene in mergers on certain public interest grounds by issuing an intervention notice to the Competition and Markets Authority.  Where the Secretary of State is able to make such an intervention, he has wide-ranging powers, including the power to make approval of the deal conditional upon commitments from the acquirer.  A public interest intervention could therefore have enabled the Secretary to State to obtain direct undertakings from Pfizer which would have been binding over the long term.

As a matter of UK law, currently the Secretary of State is only entitled to intervene in mergers on grounds relating to national security, various media issues and financial stability[1].  It seems unlikely that the concerns around erosion of the UK science base fall clearly within any of these existing public interest considerations.

However, it is open to the Secretary of State to intervene on the basis of a new public interest consideration (for example, scientific research capacity) so long as he obtains the appropriate approval for the introduction of the new public interest consideration.  In the Pfizer case the introduction of a new public interest consideration would likely have required:

  • Parliament to approve the Secretary of State’s order creating the new public interest consideration; and
  • the European Commission to recognise intervention under the new public interest consideration as being consistent with EU law (since scientific research capacity does not fall clearly within the grounds for intervention currently recognised by the EU Merger Regulation).[2]

If there were sufficient political support in the UK to intervene in the deal, obtaining Parliament’s approval for the secondary legislation should have been possible.  Obtaining European Commission recognition could have been more challenging.

The European Commission is keen to avoid individual governments introducing national measures that undermine the “one-stop shop” nature of EU merger control, especially if those measures could hinder the cross-border economic activity that underpins the single market.  It is rare for the Commission to approve Member State intervention on a new public interest ground.

The Government would have needed to convince the Commission that the new public interest consideration was consistent with EU law.  This would have required the Government to demonstrate that its public interest intervention would not, for example, have discriminated in favour of the UK over other EU Member States without justification.  This would have complicated proposals, for example, to require Pfizer to base its European headquarters in the UK or to ensure that a specified percentage of its R&D workforce is based in the UK.

Commitments that were non-UK specific would be less objectionable, but would still have been subject to intense scrutiny as to whether they constituted an unjustified restriction on the free movement of capital.

Therefore, the EU law position means that any commitments required from Pfizer under a public interest intervention may not have been as specific or robust in protecting UK science jobs and investment as some politicians would have liked.

The Secretary of State appeared to allude to these issues in an answer to a Parliamentary question on 6 May 2014 when he stated that “[w]e are operating within serious European legal constraints” as regards a public interest intervention.  Nonetheless, it was reported that the Government had preliminary discussions with the Commission and may therefore have been considering what form of commitments could have been secured while remaining compliant with EU law.

FRENCH DEVELOPMENTS

On 14 May 2014 the French government published a decree purporting to extend its jurisdiction to intervene in foreign takeovers in strategic sectors.  It has been reported that this move is linked to the political controversy surrounding the potential acquisition of Alstom’s energy assets by General Electric.

It is possible that the French government will argue that its law relates to issues of public security and that, since the EU Merger Regulation expressly recognises the right of Member States to intervene on public security grounds, it does not give rise to any EU law concerns.

Much will depend on the manner in which the French government seeks to implement the law.  However, the Commission will be monitoring the situation closely to ensure that public security grounds are not in fact used to pursue economic goals in a way that infringes EU law.  Indeed, European Commissioner Michel Barnier has warned against protectionism and said that the French measure will be “examined very thoroughly against the backdrop of European legislation.”

THE OUTLOOK FOR GOVERNMENT INTERVENTION IN TAKEOVERS

The failure of Pfizer’s approach on commercial grounds means it will not be necessary for the Government to consider intervention in this deal in the short term.  However, the debate is likely to be revived if Pfizer makes a new offer for AstraZeneca, or if another major UK company is subject to a foreign takeover bid.  Developments in France show that these issues are not unique to the UK.

Statements from the key players in the Pfizer/AstraZeneca and General Electric/Alstom transactions have demonstrated the importance of the EU law constraints on national governments.  In future much will depend on the attitude of the European Commission to enforcement.  In particular, it will be interesting to see whether the results of the recent European elections and the installation of a new group of Commissioners in November 2014 results in the Commission taking a less robust approach to national measures in this area.

Absent a dramatic change in approach from the Commission (and courts), the EU law position means that it may be difficult for the Government to use a public interest intervention to require undertakings from foreign bidders that achieve the objective of those who want specific safeguards in respect of UK jobs and investment.

Given these difficulties the Government may instead prefer to look to Takeover Panel enforcement of the commitments a bidder chooses to make.  This would involve less EU law risk but is untested in the courts and for some the material change “escape clause” will be seen as a major weakness in the comfort these commitments provide.


[1] The financial stability ground applies only where the merger is not subject to European Commission jurisdiction.  Given the parties’ size, it is likely that the European Commission would have had jurisdiction over the competition aspects of any Pfizer/AstraZeneca deal.  While the UK could have sought to have the competition issues “referred back” for review by the UK authorities, this would be unusual in a cross-border deal of this nature.

[2] The EU Merger Regulation expressly recognises Member States’ right to intervene in respect of public security, media plurality and financial prudential rules.

 

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 UPDATE – International Cooperation in Merger Control

Editors’ Note:  Contributed by Nigel Boardman, a partner at Slaughter and May and a founding director of XBMA.  Mr. Boardman is one of the leading M&A lawyers in the UK with broad experience in a wide range of cross-border transactions.  Authored by Ingrid Lauwers and Nele Dhondt of Slaughter and May.

Executive Summary:   Despite formal agreements for and increased emphasis on international cooperation, there are still significant areas of divergence in how different competition authorities review mergers.  This article discusses recent examples of mergers requiring review in multiple jurisdictions and the key practical messages arising therefrom.

Main Article:

Execution of a global deal can involve a challenging web of merger control regimes, as demonstrated by several high profile cases reviewed by multiple competition authorities across the world over the past year.

The key authorities are often the European Commission (“EC”), the Federal Trade Commission (“FTC”) or Department of Justice (“DOJ”) in the US[1]’ and the Anti-Monopoly Bureau of the Ministry of Commerce (“MOFCOM”) in China.  However, authorities in other jurisdictions (for example, Brazil, Russia, India, South Africa, Japan, South Korea and Australia) may also play a significant role in investigating international deals and their reviews can have an impact on deal timetables.

LEGISLATIVE FRAMEWORK FOR INTERNATIONAL COOPERATION IN MERGER CONTROL

Cooperation on merger control between the EC and the US agencies is particularly well established.  The 1991 US-EU Competition Laws Cooperation Agreement provides for cooperation and coordination of enforcement activities between the EC and the FTC/DOJ and the avoidance of conflicts by accommodating competing interests.  The Best Practices on Cooperation in Merger Investigations agreed between the EU and the US in 2011 provide a practical framework for cooperation, indicating specific points in the review process where contact between the EC and the FTC/DOJ can be useful.

While international cooperation with MOFCOM in China is less developed than that between the EU and the US, it is growing.  Cooperation between the EC and MOFCOM is based on the EU-China Competition Policy Dialogue reached in 2004, which provides for a structured dialogue to take place at least once a year between the EC and MOFCOM on the subject of competition policy and legislation.  In 2011, the US and China signed a Memorandum of Understanding on Antitrust and Antimonopoly Cooperation.  Guidance for Case Cooperation between MOFCOM and the DOJ and FTC on Concentration of Undertakings (Merger) Cases has also been agreed between the two jurisdictions.

While these agreements provide formal mechanisms for international cooperation, competition authorities also interact on an informal basis.  Highlighting international convergence on merger control analysis and process as an important policy objective, the EU Competition Commissioner Joaquin Almunia recently stated that international competition authorities “must learn to work together” to develop a “common understanding of the principles that must guide merger control reviews.”

RECENT EXAMPLES OF MERGERS REQUIRING MULTIPLE NOTIFICATIONS

Despite increased emphasis on international cooperation, there are still significant areas of divergence in how different competition authorities review mergers.  Practical differences in the review timetable were particularly evident in Glencore/Xstrata.  Glencore’s acquisition of Xstrata, forming the world’s largest commodities trader and fourth-largest mining company, was cleared unconditionally in the US in July 2012, followed by conditional clearance in the EU in November 2012.  Clearance was also obtained in Australia and South Africa.  However, the parties were not able to close the deal until MOFCOM had cleared it in April 2013 – three months after all other merger clearances had been granted.

Substantive differences can also arise in relation to the remedies imposed, as in Marubeni Corporation/Gavilon Holdings LLC.  The $5 billion acquisition of US-based grain trader Gavilon Holdings by Japanese trading house Marubeni was cleared unconditionally in the EU in August 2012 and the US in November 2012.  By contrast, the MOFCOM approval was subject to conditions, and was not granted until several months later, in April 2013.

A more complementary alignment of decisions by the EC and MOFCOM was seen in relation to US healthcare company Baxter International’s acquisition of Swedish dialysis equipment manufacturer Gambro for $4 billion.  The EC conditionally cleared the Baxter International Inc./Gambro AB transaction in July 2013, followed soon after by MOFCOM in August 2013.  Both the EC and MOFCOM required Baxter to divest its global CRRT business, in addition to other structural and behavioural remedies imposed.  The deal did not need to be notified in the US but was subject to review inter alia in Australia and New Zealand.

The $11 billion merger between US Airways and American Airlines’ holding company AMR Corporation, which was closed in December 2013, was reviewed in both the EU and the US.  While the deal was conditionally cleared by the EC in August 2013, the DOJ filed a lawsuit to block the merger the same month, and only reached a settlement with the parties on divestments in November 2013.

Thermo Fisher Scientific’s acquisition of Life Technologies for $13.6 billion has recently been cited as a “good example of international cooperation” by the EC.  The EC conditionally cleared the deal on 26 November 2013.  Unconditional clearances were obtained in Russia (8 October 2013), Canada (5 December 2013), Japan (19 December 2013) and Korea (7 January 2014).  Conditional clearances — broadly in line with the commitments developed with the EC and the FTC — were also obtained in Australia (19 December 2013), New Zealand (19 December 2013) and China (14 January 2014).  The final FTC clearance was issued on 31 January 2014.

The EC has highlighted the “mutual exchange of evidence, consisting mainly of internal documents of the Parties” as being central to its cooperation with international competition authorities in Thermo Fisher Scientific/Life Technologies.  Similarly, the FTC has emphasised that it worked closely with staff at the EC and MOFCOM, among other authorities, “on the analysis of the proposed transaction and potential remedies” and acknowledged the “exemplary work done by all agencies, which led to compatible approaches on a global scale”.  The continued development of this type of international cooperation between competition authorities would be to the benefit of the timely execution of global deals.

PRACTICAL MESSAGES

The key practical messages arising from these recent experiences of mergers requiring review in multiple jurisdictions are:

  • a longer time frame may be involved where multiple notifications are required – in most cases, the process in China typically takes at least six to nine months;
  • different approaches to the review by competition authorities are possible, as are divergent remedies;
  • agreeing to give confidentiality waivers in order to facilitate the exchange of confidential information between competition authorities is likely to facilitate cooperation; and

in order to mitigate the uncertainty about timing and outcome of reviews, contractual protections can be used to share the risks inherent in obtaining international merger control approvals between the parties.


[1] Whether the FTC or the DOJ reviews a merger depends on the industry involved.

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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