The UK, German and Australian competition authorities have issued a joint statement highlighting their common understanding of the need for rigorous and effective merger control enforcement in supporting economic growth ‘in weakened economic conditions’ post-pandemic. The statement underscores the willingness of these authorities – and authorities more broadly – to scrutinise deals more closely and impose structural remedies or prohibition orders, even in circumstances where:
- there are significant uncertainties about future market dynamics or potential consumer harm; and
- other authorities have already cleared the deal based on similar standards of review, market conditions and evidence.
The joint statement reflects a concern that some markets have become too concentrated at the expense of consumers (a trend they suggest has been accelerated by the pandemic) and that authorities taking decisions based on future market conditions face particularly acute challenges when those conditions are rapidly evolving and uncertain.
Such challenges have been on the radar of antitrust authorities for a while. Some authorities have responded to them by adapting their rules and policies to ensure they are catching more deals which may give rise to future concerns – including those involving low-turnover targets active in rapidly evolving markets; others have focused on giving themselves more flexibility when it comes to the substantive assessment of such deals when they are notifiable. Recent examples include the European Commission’s new policy on referrals (see our blog post), the new UK Competition and Markets Authority (CMA) merger assessment guidelines (see our blog post) and Germany’s recent amendments to its competition laws (see our blog post).
This joint statement is a timely reminder – from three competition authorities with different systems, including one from inside the EU – that companies involved in cross-border deals should pay close attention to rapidly developing policies within (and among) individual authorities, and ensure that deal planning and global merger control strategies take full account of potentially divergent approaches and higher levels of intervention in certain countries and/or regions.
Key messages for parties planning deals which may impact markets in these jurisdictions (even where that impact is uncertain) are set out below.
1. Prepare for more intervention in deals involving dynamic and fast-paced markets
Reflecting a growing trend for heavier intervention in so-called ‘killer acquisitions’ (deals involving smaller, innovative targets that may be potential or nascent competitors), the authorities urge even closer scrutiny of such deals on the basis that incumbents are inherently incentivised to protect and strengthen their own market positions by acquiring potential rivals. Those positions may then become entrenched and result in tipping.
The authorities stress that any uncertainties in relation to future market conditions should not be a basis for clearance. Instead, authorities should view long-term protection of innovation as an essential part of merger control and test alternative theories of harm thoroughly before clearing deals which result in (potentially irreversible) structural changes to a market.
These three authorities may regard themselves as particularly well-suited to lead the way in reviewing such ‘killer acquisitions’ (in particular but not limited to the digital economy and the pharma sector) given the specific characteristics of their jurisdictional thresholds, namely:
- a flexible share-based test in the UK (see our blog post);
- broad discretion for the authority to commence a merger investigation in Australia; and
- a specifically targeted transaction value test paired with specific experience in dynamic markets in Germany.
2. Expect closer scrutiny – and scepticism – of statements about the benefits of a deal
The authorities will test parties’ claims that a merger will result in efficiencies or other procompetitive benefits against an assumption that a loss of rivalry (potential or actual) will result in a long-term structural change to a market that is difficult to correct and may lead to increased market power and consumer harm. Growing levels of scepticism of parties’ claims are particularly likely in markets that are dynamic (where outcomes are uncertain) or where complainants (suppliers, competitors or customers) are less vocal.
3. Anticipate some authorities blocking deals which have been cleared elsewhere
The authorities clearly recognise the importance of international convergence on how to approach the challenges involved in reviewing deals in the 2020s. However, they also accept that different regimes and policies may result in different outcomes, with deals being cleared in some countries where others have strong objections.
Recently, the CMA has gained a particular reputation for challenging deals that have been cleared in the US (see our blog posts on Taboola/Outbrain and Sabre/Farelogix). Merging parties should expect this approach to continue, particularly in a post-Brexit environment where the CMA aspires ‘very much to be at the top table discussing international mergers’.
Where they have jurisdiction to do so, it will be interesting to see if Australia’s ACCC and Germany’s Bundeskartellamt take inspiration from the CMA’s particularly aggressive approach in this regard – or, indeed, whether the fact of this joint statement may imply a heightened level of co-operation and alignment between these three authorities in cases involving parallel Australian/German and/or UK review.
4. Assume structural remedies will be required if competition concerns arise in all but exceptional cases
The authorities express a long-standing preference for structural remedies (prohibition or divestments) over behavioural remedies. Concerns include whether behavioural remedies are capable of re-creating pre-merger competitive pressures and the burdens placed on agencies having to monitor compliance.
The assumption appears to be that structural remedies are likely to be in the best interests of consumers, and that behavioural remedies rarely deliver the intended solutions. That concern in relation to behavioural remedies seems likely to be particularly relevant for complex industries where the authorities perceive there to be a significant information asymmetry that places them at a clear disadvantage vis-à-vis the merging parties when it comes to negotiating undertakings or commitments.
While behavioural remedies may continue to be acceptable to address certain types of conglomerate or vertical concerns, it is now even more unlikely than in the past that authorities will accept them as sufficient where a merger raises significant horizontal concerns.
5. Expect the authorities to keep up the pressure on courts to maintain a firm line
Judicial checks and balances are an essential feature of merger regimes worldwide. Most regimes either require agencies to prove their case in court or allow parties to appeal prohibition decisions. Increased litigation has been a notable trend in recent years with ground-breaking cases in the EU, US and UK (see the deal disputes section of our Global antitrust in 2021: 10 key themes report). However, parties should expect authorities to maintain pressure on the courts to support their drive for strong and consistent merger enforcement and closer scrutiny of the parties’ claims.
The joint statement emphasises the importance of early planning and proper engagement with all relevant authorities on the issues and concerns that may arise on cross-border deals, which are becoming increasingly difficult to predict.