In this challenging environment, we are seeing knock-on effects on the timely antitrust assessment of transactions as merger control authorities in Europe struggle to keep pace. At the same time, the European Commission (“Commission”) is strongly encouraging Member States to enforce existing Foreign Direct Investment (“FDI”) laws and introduce new laws, to protect EU companies from “predatory buying of strategic assets by foreign investors”, while the UK has already moved to strengthen its FDI laws.
The current crisis is also fueling what was already mounting political pressure on the EU, to avoid what some leading politicians perceive as merger control damaging efforts to protect European industry. Looking forward, the economic shock from the global pandemic will likely see some changes in approach to the substantive antitrust assessment of deals and these will need to be factored in to evaluating transactions which on their face raise antitrust issues. While the merger control rule book will not be thrown out of the window, investors need to consider, for example, the potential increased scope under EU and certain national laws to invoke the ‘failing firm defense’ to allow deals that might otherwise be considered anticompetitive – particularly acquisitions of distressed assets. Merging parties may also have more leeway, particularly for deals subject to review at national level, to put forward arguments around job-savings/job-creation and other benefits to help secure approvals for a deal which would otherwise be considered to damage competition. The Commission may also be more open to the so-called “efficiencies defense” in the current economic climate.
The Commission and certain national authorities are also continuing to look at whether and how they should adapt their assessment criteria for mergers, including the approach to definition of the relevant product and geographic markets, as well as the timeframe for a forward-looking assessment and the standard applied to evaluating the impact of potential competition. This may give greater scope for arguments that any reduction in competition in Europe would be offset by competition from players outside the EU. At the same time, traditional indicators of market power, such as combined market shares held over the last 3-5 years, may hold less weight depending on the economic impact of the current crisis on the companies involved. A realistic evaluation of whether a deal eliminates a strong actual or potential competitor needs to factor in the impact of the economic crisis on a company’s ability to retain or expand its market position.
Against this background we provide five key takeaways companies should consider in navigating European regulatory approvals for M&A.
Click here to view these takeaways.
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