ICC Recommendations on Pre-Merger Notification Regimes_final for distribution

ICC Recommendations on Pre-Merger Notification Regimes

This policy statement highlights a number of specific issues, based on feedback from ICC members which have been identified and encountered with pre-merger notification regimes. The policy statement divides these issues into two broad categories: i) issues with the current pre-merger notification regimes; and ii) longer term perspectives and issues with multi-jurisdictional pre-merger notification.

The introduction of pre-merger control regimes in the United States and later in Europe and other countries created a framework which companies must consider when they are contemplating mergers, acquisitions, or joint ventures. Scrutiny must be applied in order to determine whether the proposed transaction must be notified to the relevant competition authority. For jurisdictions where the notification is mandatory and a standstill obligation exists, the transaction must be suspended until an authorisation is granted.

This process can take some time (depending on the difficulty of the project from a competition law point of view). After a reasonable period an authorisation is generally obtained, except in the most difficult cases, and sometimes at the cost of commitments to divest part of the acquired company or restrict the behaviour of the combined post-merger entity.

The International Chamber of Commerce (ICC) Commission on Competition conducted a survey (hereinafter “ICC Survey”) with the aim of understanding the views of business on the subject of merger control regimes around the world. The results to the ICC Survey set forward a number of concerns expressed by ICC members that will later be discussed in this policy statement.

The business community has recognised the importance of such regimes because they ensure that no company will acquire a monopoly or other kind of excessive market power. However, the business community has also insisted that merger control regimes increase transaction costs and potentially delay transactions. These costs and delays make it necessary to balance the upsides and downsides of merger control regimes by carefully drafting their processes and requirements.

During the last decade, two trends have strongly impacted the way companies have to deal with merger control regimes: first, an increasing number of countries have created their own regimes; and second, as a result of globalization, mergers and acquisitions are impacting far more countries than in the past. As a result, transactions are now impacted by merger control in a way that was difficult to anticipate only a few years ago.

More than 146 jurisdictions around the world currently have some form of merger control regime under their antitrust laws. This proliferation increases transaction costs in itself but this is exacerbated by the lack of convergence and the resulting “patchwork” of review, (because multiple analyses must be performed under separate methodologies.) Not only are merger control regimes heterogeneous, in many countries they have particular features that make notification mandatory even if the transaction has no visible impact on the particular territory; this trend contributes to increasing transaction costs. Costs are incurred even if the project does not threaten in any way the functioning of the local market, which is an unfair additional burden on companies engaged in welfare-enhancing mergers.

This dynamic is also important because it creates legal uncertainty, which itself causes an increase in transaction costs. This legal uncertainty has two origins. First, when a company is verifying in which jurisdiction a particular project should be notified, it is practically and financially challenging, in particular for mid or small cap operations, to instruct dozens of local law firms in order to conduct this verification. Second, some regimes have special features, like the unpredictability of their timeline or the lack of precedent allowing for a legal assessment, that render the whole process uncomfortable, uncertain, and thus costly.

Finally, many regimes impose notification fees which can be very significant (especially when added to the fees also imposed by other jurisdictions) in particular for small or middle cap operations. In aggregate, excessive filing fees could discourage potentially procompetitive deals from moving forward. Large filing fees also may have the effect of dissuading notification where the companies are able to voluntarily decide whether to notify.

The ICC Competition Commission considers that the current trend not only introduces delay, it also discourages, undermines, or prevents welfare-enhancing mergers,7 thus threatening to hurt the global economy. Since there is no global authority responsible for international merger control, ICC thought it would be useful to prepare a policy statement on these topics. ICC is in no way opposed to the existence of merger control regulations but expresses the view that continued convergence towards minimal common standards and best practices could dramatically improve the current situation, without precluding each jurisdiction from determining the attributes of its particular regime.

The ICC Competition Commission’s membership is global, which means that its views are not biased towards one particular approach. Its recommendations favour efficiency and legal certainty rather than alignment with any particular tradition of merger control.

This policy statement highlights a number of specific issues, based on feedback from ICC members which have been identified and encountered with pre-merger notification regimes. The policy statement divides these issues into two broad categories: i) issues with the current pre-merger notification regimes; and ii) longer term perspectives and issues with multi-jurisdictional pre-merger notification.

ISSUES WITH CURRENT PRE-MERGER NOTIFICATION REGIMES

  1. Expansive Definitions of Concentration Must Be Avoided
  2. Threshold Type – Market Share vs. “Minimum Turnover” or Assets
  3. Threshold Level – “Materiality”
  4. Notification Should Be Based on Activity Within Jurisdiction by Both Parties
  5. Timing and Length of Process Should Be Efficient and Reasonable
  6. Merger Review Processes Should Converge Towards Best Practices
  7. Transparency and Procedural Fairness
  8. Transparency Must Be Appropriately Balanced with Confidentiality

LONG-TERM PERSPECTIVES ON MERGER NOTIFICATION REGIMES

  1. Interagency Cooperation and Supranational Solutions
  2. Pre-Notification Models – Towards non Compulsory Notification Requirements?
  3. Post-Merger Assessment Models