Merger control enforcement continues to surge around the world and reaches well beyond the largest and traditionally most active enforcers (e.g., United States, European Commission, China, and Brazil). Beyond these countries, the extent to which antitrust merger enforcement is a priority in any given jurisdiction can change with some frequency, but overall it trends toward more rather than less oversight. Companies involved in cross-border M&A activity should consider these developments when evaluating antitrust risk and transaction timeline, and develop a comprehensive plan for cross-border filings and approvals.
In this Update, we review: (i) changes to merger regimes in Belgium, Costa Rica, Finland, France, India, Indonesia, Japan, Peru, Saudi Arabia, Vietnam, and Ukraine; (ii) adjustments to the current notification thresholds in Chile and the United States; and (iii) proposed changes to merger control rules in Ireland, Israel, Italy, and Malaysia.
KEY CHANGES TO EXISTING MERGER CONTROL REGIMES
Belgium Revises Merger Control Procedural Rules
Amendments to the Belgian Economic Code, which introduced changes to Belgian competition law, took effect in June 2019. The new rules streamline merger control and other proceedings before the Belgian Competition Authority ("BCA").
Notable changes related to merger control include:
- The BCA can now "stop the clock" on its statutory review period at any stage of its review. Prior to this change, the BCA could pause its deadlines only in Phase I. This change may substantially lengthen BCA investigations.
- The prosecutor leading a merger control investigation will have five additional working days to pass its recommendations to the Competition College, a decision-making body, in cases where the notifying parties submit a remedy proposal.
- Parties can now submit remedies to the Competition College even after the investigation phase and can modify the structure of the transaction until the end of the oral hearing.
Costa Rica Issues Act to Strengthen Competition Authorities
In September 2019, Costa Rica passed the Act to Strengthen the Competition Authorities ("ASCA"). The key change in merger control is introduction of a suspensory pre-closing filing that requires parties to notify transactions and obtain clearance prior to their closing. However, parties may apply to the Costa Rican authority for a waiver to this requirement. The authority will have discretion about whether to relieve the filing obligation in exceptional circumstances.
Further changes to the regime include the following:
- Introduction of a two-stage procedure. The newly established suspensory regime involves a two-stage procedure similar to that used by the European Commission, in which there is an expedited process for transactions without competition concerns (Phase I) that may be followed by an in-depth review with the possibility of remedies for complex transactions (Phase II).
- Amendments to the standard of review. The ASCA shifts merger analysis away from structural concerns about shares and market power toward a focus on the competitive effects of the transaction. This is similar to merger analysis in the United States and other leading competition regimes.
The ASCA also modifies the merger notification thresholds, implementing mandatory notification for transactions in which:
- The sum of sales or the sum of the merging companies' productive assets in Costa Rica amounts to at least 30,000 base salaries (approximately US$23 million or €20.8 million); and
- During the last fiscal period, at least two of the merging companies individually generated sales or possessed productive assets in Costa Rica worth at least 1,500 base salaries (approximately US$1 million or €0.9 million).
Finland Amends Notification Deadlines
June 2019 amendments to the Finnish Competition Act modified the agency's merger review deadlines. A Finnish Competition and Consumer Authority ("FCCA") Phase I investigation now lasts a maximum of 23 working days (instead of one month). A Phase II investigation is limited to a maximum of 69 working days (instead of three months). In exceptional cases, the Finnish Market Court can extend the Phase II deadline by a maximum of 46 working days. Under these new deadlines, an FCCA investigation can last for more than nine months.
France Continues to Modernize Its Merger Control Rules
In April 2019, France issued a decree that simplified its national merger control procedure before the French Competition Authority ("FCA"). The reforms ease the burden of notification for transacting parties.
Going forward, parties need to submit only one hard copy of the notification to the FCA, and the volume of financial data in the notification has been reduced considerably. In addition, the FCA launched an online notification form for simplified procedures. Despite growing attention to vertical transactions, the decree increases the threshold for finding an effect in a vertically related market requiring a filing from 25% to 30%
The FCA also plans to adopt new merger control guidelines. The new guidelines will update the FCA's analytical framework for merger reviews by incorporating recent case law and the FCA's recent decision-making practice. The new guidelines also will incorporate the FCA's simplified notification procedure and streamlined electronic filings.
India Issues Second Amendment Regulations
In an effort to facilitate M&A activity in India, the Competition Commission of India ("CCI") introduced several changes to its merger control regulations. Historically, merger reviews in India were lengthy and sometimes opaque, even for transactions without competition concerns.
The following changes went into effect in August 2019:
- "Green Channel" fast-track approval route. The amendment allows the CCI to issue on-the-spot approval for combinations that have no appreciable adverse effects on competition. Historically, parties had to wait at least 30 working days before clearance in such transactions.
- Simplification of short form (Form I). If there are no horizontal or vertical overlaps, parties are not required to offer detailed information on the markets involved.
- Removal of additional summary. The CCI has removed the obligation to provide both a long and a short summary of the merger at the time of filing. Only one summary is required and published on the CCI website.
- Submission of remedies. Parties may now offer remedies during Phase I of the CCI's investigation, though parties may submit voluntary commitments at any time before the CCI issues its decision.
Indonesia Amends Merger Control Regime to Include Asset Acquisitions
In October 2019, Indonesian Regulation Number 3 of 2019 (KPPU Regulation 3/2019) went into effect, expanding the types of transactions that parties must file under Indonesia's merger control rules. KPPU Regulation 3/2019 also revoked all prior Indonesian Competition Commission ("KPPU") guidelines on merger control. Key elements of the new regulation are set forth below.
- Asset acquisitions are now subject to KPPU notification. Parties must notify asset acquisitions (including both tangible and intangible assets) to the KPPU if the following thresholds are met: (i) the combined Indonesian asset value of the parties exceeds IDR 2.5 trillion (approximately US$176 million or €160 million); or (ii) the combined Indonesian sales value of the parties exceeds IDR 5 trillion (approximately US$352 million or €319.5 million). Previously, only share acquisitions were subject to KPPU notification.
- Timing to declare a notification complete. In Indonesia, once parties make a filing, the KPPU's review deadlines do not start until the KPPU deems the parties' filing complete. The new regulation established a 60-working-day period following notification in which the KPPU may request clarification or additional information. In practice, it could take months for the KPPU to declare a notification complete, which only serves to start its 90-day review period.
- Additional scope of assessment. KPPU Regulation 3/2019 introduces additional factors for the KPPU to consider in evaluating a transaction: (i) competitive and national industry-strengthening policy; (ii) development of technology and innovation; (iii) protection of small and medium enterprises; and (iv) impact on labor and/or implementation of laws and regulations.
Japan Revises Merger Guidelines
The Japan Fair Trade Commission ("JFTC") revised its Merger Guidelines, known as the Guidelines for the Application of the Antimonopoly Act Concerning Review of Business Combination, and its Merger Policies, known as the Policies Concerning Procedures of Review of Business Combination. According to the JFTC, the changes are expected to enhance its merger enforcement tools in digital markets. The changes went into effect in December 2019 and significantly expand the JFTC's jurisdiction. The modifications include:
- Even if a filing in Japan is not required, the JFTC may launch review where the target has limited sales in Japan, the total transaction value is large, and the transaction will "affect" consumers in Japan. "Affect" is broadly defined and could include, for example, use of a Japanese website or Japanese pamphlet.
- The JFTC recommends that parties consult with it on transactions falling below the notification thresholds that: (i) have a transaction value more than JPY 40 billion (approximately US$370 million or €330 million) or (ii) concern a business located in Japan, or a target that conducts business in Japan or has sales in Japan that exceed JPY 100 million (approximately US$920,000 or €830,000).
- The updated JFTC guidelines describe new theories of harm from both vertical and conglomerate mergers, drawing on European Commission guidelines. Vertical mergers combine two or more companies operating at different levels of the same supply chain—for example, a merger of a tire manufacturer and a bicycle manufacturer. In contrast, a conglomerate transaction combines unrelated businesses—for example, a merger between a food delivery app company and a company that develops electronic health record software for hospitals.
- The revised guidelines include input foreclosure and customer foreclosure theories of harm, according to which firms use their vertically or horizontally integrated position to prevent competitors from having access to necessary input or key customers.
- The JFTC guidelines also describe how a combination of merging parties' data or R&D operations may harm competition.
Peru Introduces Merger Control Regime
In November 2019, Peru published the final version of its Peruvian Merger Control Act, which introduces mandatory merger control. All transactions that meet certain thresholds must be notified to the Competition Commission at Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual ("INDECOPI"). The law requires parties to submit mandatory notifications to INDECOPI beginning in August 2020 if the following thresholds are met:
- The parties' aggregate turnover in Peru exceeds PEN 495.6 million (approximately US$147 million or €132.5 million); and
- At least two of each of the parties' turnover in Peru exceeds PEN 75.6 million (approximately US$22.4 million or €20.2 million).
A party that fails to properly notify a transaction or consummates a transaction prior to obtaining required clearance from INDECOPI is subject to a fine of up to 12% of its total annual turnover. INDECOPI also has authority to unwind any unauthorized transaction.
Saudi Arabia Adopts New Merger Control Regime
In October 2019, the new Saudi Arabian Competition Law (Royal Decree M/75) went into effect. Parties to a transaction must submit a notification to the Saudi Arabian Competition Authority if the total global aggregate turnover of the parties exceeds 100 million Saudi Riyals (approximately US$26.7 million or €24 million). The rules require notification even if just one party meets the turnover threshold in Saudi Arabia. The rules therefore may require a filing even though there is little or no local effect in Saudi Arabia. The law also introduces a 90-day review period that the authority can extend. Prior to these changes, Saudi Arabia had a high market share threshold for merger notifications, which led to few notified transactions and little enforcement. That is expected to change under the new law.
Closing a transaction prior to obtaining the required clearance may result in a fine of up to 10% of total annual sales but not to exceed 10 million Saudi Riyals (approximately US$2.7 million or €2.4 million).
Vietnam Revises Its Merger Control Regime
In July 2019, Vietnam replaced its existing competition law with its new Law on Competition. The new law creates a National Competition Commission ("NCC") and significantly changes Vietnam's merger control regime. As of February 2020, the NCC has not issued most of the necessary implementing decrees, leading to much uncertainty about how it will apply the law in practice.
Key merger control changes include:
- Expanded jurisdictional criteria. The law expands the notification threshold to include the assets and revenue of the parties involved, as well as the value of the transaction. The NCC has not yet established the amount of the thresholds, but the proposed thresholds are: asset value (≥ VND 500 billion, (approximately €20 million, US$22 million)), revenue in Vietnam (≥ VND 1,000 billion (approximately €40 million, US$44 million)), and transaction value (≥ VND 500 billion (approximately €20 million, US$22 million)). Prior to these changes, Vietnam required a notification if the combined share would exceed 30%.
- Prohibition based on effects. Under the prior rules, Vietnam prohibited transactions in which the parties' combined market shares exceeded 50%. Under the new rules, the NCC will base its decision on the effect of the transaction. It will also consider factors such as the transaction's impact on the development of industries, small and medium enterprises, and Vietnam's competitiveness in the international market.
- Clarification over extraterritorial jurisdiction. The legislation clarifies that even transactions between companies that are not based in Vietnam can fall under the NCC's jurisdiction.
Ukraine Issues Guidelines on Notification of Joint Ventures
In September 2019, the Antimonopoly Committee of Ukraine ("AMC") issued guidelines clarifying the applicability of merger control rules to joint ventures. The guidelines, which largely mirror European Union rules, provide that the formation of a joint venture requires AMC notification and clearance if:
- The joint venture is a newly created entity (i.e., it does not result from the acquisition of shares in an existing entity);
- The joint venture can perform all functions of an autonomous economic entity (full-function criteria);
- The joint venture is intended to operate on a lasting basis; and
- The joint venture does not lead to coordination of the competitive behavior of the parent companies.
ADJUSTMENTS TO NOTIFICATION THRESHOLDS
Chile Adjusts Notification Thresholds
As of August 2019, notification of a transaction to Chile's National Economic Prosecutor's Office ("FNE") is mandatory if:
- The total amount of the parties' sales in Chile during the year prior to the notification equals or exceeds approximately US$108 million or €98 million (which constitutes an increase of almost 45% compared to the previous threshold of approximately US$77.5 million or €70 million); and
- At least two of the entities intending to merge have sales in Chile that individually equal or exceed approximately US$19 million or €12 million (which constitutes an increase of 55% compared to the previous threshold of US$12.5 million or €11.3 million).
- The FNE established a new FNE Supervision Division that will oversee parties' compliance with merger conditions and remedies, judicial rulings, and settlements. The FNE also launched a public consultation regarding its merger control procedures and is considering amendments to reduce the burden of excessive information requests.
United States Adjusts Notification Thresholds
As detailed in our prior Alert, the U.S. Federal Trade Commission ("FTC") announced revised thresholds for premerger notification under the Hart-Scott-Rodino ("HSR") Act. The FTC adjusts the thresholds each year based on the annual change in the gross national product. The new thresholds take effect on February 27, 2020.
The adjusted HSR jurisdictional thresholds are:
- Size-of-transaction threshold. An HSR Act filing may be required if the acquirer will hold, as a result of the transaction, voting securities, noncorporate interests, and assets of the acquired person valued in excess of US$94 million (the 2019 threshold was US$90 million). If the size-of-transaction is between US$94 million and US$376 million, the transaction also must satisfy the size-of-person threshold. Transactions valued in excess of US$376 million may require a filing without regard to the size-of-person threshold.
- Size-of-person threshold. A transaction meets the size-of-person threshold if either the acquired or acquiring person has annual net sales or total assets of at least US$188 million (the 2019 threshold was US$180 million) and the other party to the transaction has at least US$18.8 million (the 2019 threshold was US$18 million) in annual net sales or total assets. If the acquired person is not "engaged in manufacturing," the threshold is crossed only if it has at least $18.8 million in total assets or $188 million in annual net sales.
Ireland Invites Comments on Draft Guidelines
In October 2019, the Irish Competition and Consumer Protection Commission published draft guidelines regarding its simplified merger notification procedure. The document sets forth the conditions under which a transaction would be eligible to be reviewed under the truncated procedure.
Israel Invites Comments on Draft Merger Regulation Amendments
In July 2019, the Israeli Competition Authority ("ICA") requested public comments on draft merger regulations that would increase the individual threshold for notification from a turnover in Israel of ILS 10 million (approximately US$2.9 million or €2.6 million) to ILS 20 million (approximately US$5.8 million or €5.2 million) for each of at least two parties involved in the transaction. Israeli merger control features three alternative tests that trigger a filing if any one condition is met. The other two tests—combined market share exceeding 50% or either party having a monopoly—rarely trigger a filing.
The ICA proposal also expands the definition of "control," aligning it with Israeli Securities Law. According to the revised definition, a party has control over another entity when it has "the ability to steer the business activity of the corporation," even if it has less than 50% of the shares of that entity. This change would introduce more complexity in determining whether turnover-based thresholds are met.
In addition, the proposed regulations would abolish the simplified notification procedure and expand the scope of information required in the notification form. Notifying parties would need to provide detailed information across the full range of their activities, not just overlapping businesses, which would significantly increase the burden of a filing.
Italian Competition Authority Takes on So-Called "Killer Acquisitions"
In July 2019, the Italian Competition Authority ("ICA"), the Italian Communications Authority, and the Italian Data Privacy Authority published guidelines and policy recommendations for "big data." Amid some calls for more enforcement related to so-called "killer acquisitions," the ICA recommended changes to its review standards. A "killer acquisition" occurs when a company acquires a product in development that could compete with its own product and then terminates development of the newly acquired product to prevent competition with its existing product.
The ICA's proposed changes to Law no. 287/90 would permit it to review "killer acquisitions" under its "significant impediment to effective competition" test ("SIEC"). The SIEC test, adopted by the European Commission in 2004, would allow the ICA to block such an acquisition if it would lead to significant anticompetitive harm.
The ICA guidelines also recommend adopting a value-based threshold to determine the ICA's jurisdiction to review a transaction. This change would allow the ICA to review smaller transactions that fall below the current revenue thresholds, as is sometimes the case in the digital sector. Other jurisdictions, including Germany, Austria, and Japan, have modified their merger control rules in recent years to capture similar transactions that might not otherwise require a filing.
Malaysia to Introduce Merger Control Regime
Malaysia's Competition Commission ("MyCC") recently indicated that it is likely to introduce a merger control regime in mid-2020. Malaysia is one of the few remaining jurisdictions without a general merger control regime. Public statements from MyCC officials indicate that it is likely to adopt a mandatory notification regime that will prohibit consummating a transaction before the parties receive MyCC clearance.
Malaysia currently features only sector-specific merger control, notably in the telecommunications and the aviation industries. Mergers in these sectors are subject to voluntary notification. Malaysia exempts any commercial activity in the telecommunications and aviation sector from the general provisions of the Competition Act 2010, but instead subjects those industries to sector-specific competition rules.
U.S. FTC Proposes Changes to Definition of "Foreign Entity"
In December 2019, the FTC released for public comment proposed changes regarding its definition of a "foreign entity." Under existing HSR rules, an entity is foreign if it: (i) is not incorporated in the United States; (ii) is not organized under the laws of the United States; and (iii) does not have its principal offices in the United States. The proposed amendments to the HSR rules attempt to clarify the location of an entity's "principal offices." Some exemptions in the HSR rules require one or more entities to be foreign.
There is little guidance about how to determine a company's principal location, except the FTC has said that "principal offices refers to that single location which the person regards as the headquarters office of the ultimate parent entity." The proposed rules would define a company's principal offices as located in the United States if 50% or more of the officers reside in the United States, 50% or more of the directors reside in the United States, or if 50% or more of the company's assets are located in the United States. The public comment period has closed, but the FTC has not released more information about when or whether it will adopt the proposed rules. The revised definition, if implemented, will change whether certain transactions are reportable in the United States.
U.S. Issues Draft Vertical Merger Guidelines
As detailed in our prior Alert, the Federal Trade Commission ("FTC") and U.S. Department of Justice ("DOJ") (together, "Agencies") jointly released for public comment draft vertical merger guidelines in January. The comment period ends February 26, 2020, and the Agencies plan to hold two public workshops in March.
Although vertical mergers comprised about five percent of Agency merger enforcement over the last 25 years, they have received increased attention in recent years. The guidelines follow the first litigated vertical merger challenge by either agency since 1979. In 2017, the DOJ unsuccessfully attempted to block AT&T's acquisition of Time Warner, Inc. Since then, senior officials at DOJ and FTC have identified vertical mergers as an enforcement priority.
The guidelines summarize theories of competitive harm from vertical mergers that antitrust enforcers consider when deciding whether to seek a remedy in or block a vertical merger. They replace the DOJ's 1984 Non-Horizontal Merger Guidelines, which do not reflect current economic learning or recent agency enforcement. Unlike DOJ's 1984 guidelines, the FTC had not issued guidelines on vertical mergers prior to this development. Although the guidelines do not offer a great deal of specifics on the ultimate threshold for enforcement in this area, they are welcomed as greater insight into how the Agencies plan to evaluate vertical transactions.