The average duration of significant U.S. merger investigations was 10.4 months during the RTM ending Q1 2018, the same average duration as in the prior 12 months. However, the average duration of significant U.S. investigations concluding during Q1 2018 was only 9.7 months, which was faster than the 10.8 month average for 2017.
The Average Duration of Significant EU Merger Investigations Was Down Slightly in Q1 2018 Compared to 2017 But Significantly Longer Than the “Fixed” Timetable
The four Phase II EU proceedings that concluded in Q1 2018 lasted an average of 14.0 months from announcement, about double the theoretical duration of the fixed timetable under the EU Merger Regulation. The single Phase I remedy case that ended in Q1 2018 lasted 6.3 months, more than triple the theoretical period under the EU Merger Regulation. While both figures have declined compared to 2017, they continue to reflect the significant duration of pre-filing talks and the frequent use of timetable extensions in Phase II.
Phase II Proceedings
The 14.0 month average duration for Q1 2018 EU Phase II proceedings represented about a 7% decrease from the 15.1 month average in 2017 but a slight uptick from the 13.4 month average in 2016. The average duration of Phase II investigations had been climbing steadily since 2011 when it was 9.4 months. This average compares to a theoretical formal timetable of six to seven months counting from the moment of notification. DAMITT data thus show that the average EU case proceeding to Phase II is taking about four months longer than the average duration of significant U.S. merger investigations.
The stand-out case in Q1 2018 in terms of duration was Bayer/Monsanto, which ran for 9.6 months from announcement until notification and a total of 18.4 months until clearance.
The time between announcement and notification of Phase II transactions that were concluded in Q1 2018 was 6.5 months, almost two months shorter than the 8.3 month average during 2017 but well above the 2011-16 average of 4.9 months. Merging parties invariably institute pre-filing talks with DG Competition staff very shortly after transaction announcement, if not before, and the growth of the period between announcement and notification is mostly explained by the intensity of staff demands for the inclusion of materials in the filing, before the formal timetable is triggered.
Three of the four Q1 2018 Phase II investigations (75%) entailed the use of “voluntary” extensions of time under Article 10(3) of the EU Merger Regulation. These Article 10(3) extensions are common practice in Phase II investigations, occurring in 88% of all Phase II investigations during the 2011-17 period analyzed by DAMITT and typically consuming the entire three weeks permitted. These extensions may be at the behest of the parties (for example, to create space for a remedy discussion), but are often conceded at the instigation of staff.
The Commission also used its powers under Article 10(4) of the EU Merger Regulation to “stop the clock” in three of the four Q1 2018 Phase II investigations. This power relates to parties missing deadlines to respond to information requests, and its use added an average 0.8 months to each of these investigations. By comparison, only 40% of 2017 Phase II investigations and 30% of 2011-16 Phase II investigations were hit with “stop the clock” orders, also adding an average of 0.8 months.
The overall duration of cases going to Phase II reflects the increased intensity of the examination. This may be defensive lawyering on the Commission’s part: the Bayer/Monsanto decision runs to more than 1,300 pages. But it also reflects an increased focus on internal documents, with EU proceedings in that sense aligning with U.S. “second request” practice. The pros and cons of this tendency may be debated, but on any basis it contributes to the reason why the average duration of cases that proceeded to Phase II is greatly exceeding the EU timetabling system.
Average Period from Announcement to End of EU Phase II Cases (2011 – Q1 2018)
Phase I Proceedings
Only one significant EU investigation was resolved in Phase I with remedies during Q1 2018. This investigation lasted 6.3 months, which was below the 7.0 month average duration for 2017 and the 6.6 month average for 2016. However, this Phase I investigation still required more than triple the formal EU timetable of about seven weeks.
The time between announcement and notification for this Phase I remedy case was 4.3 months, which was slightly faster than the 5.2 month average in 2017 and the 4.9 month average in 2016. During the pre-filing period, companies typically engage in extensive discussions with DG Competition staff over the scope and detail of the parties’ filing, which adds time to the formal schedule.
Average Period from Announcement to End of EU Phase I Remedy Cases (2011 – Q1 2018)
Percentage of U.S. Divestiture Consents Requiring Upfront Buyers Is Down Slightly But Consistent with Recent Years
The U.S. agencies’ consent orders generally continued to require upfront buyers. The percentage of divestiture consent orders requiring upfront buyers was 76% over the RTM ending Q1 2018 (including both of the divestiture consents during Q1 2018), down slightly from 84% in the same period in the prior year. The 76% statistic is still well above the 43% average during the 2011-13 period during which post-order buyer consents were more common, showing a continuation of the recent trend toward the agencies including upfront buyer requirements.
When an upfront buyer is required, before the merging parties can consummate their transaction, they must find a willing and able buyer, negotiate a purchase agreement with that buyer for the divested assets, and present that purchase agreement, the buyer’s business plan, and other information to the agency as part of the approval process. This process can add significant time to the investigation. Between 2011 and Q1 2018, DAMITT has observed that investigations ending with consents requiring upfront buyers lasted about two months longer than those with consents permitting the merging parties to find and negotiate with divestiture buyers after consummating their transaction.
U.S. Upfront vs. Post-Order Buyer Trend (2011 – RTM Ending Q1 2018)