Merger Control. Increasing international scrutiny? John Davies leads the global interview panel covering 27 key economies

Transcription

1 Volume 2 Issue 1 Merger Control John Davies leads the global interview panel covering 27 key economies Increasing international scrutiny? Activity levels Enforcement priorities Keynote deals 2015 trends Europe North America Asia-Pacific Latin America

2 Helen Kelly MERGER CONTROL IN Helen Kelly is a partner and head of the EU, competition and regulatory law group at Matheson. Helen has particular expertise in EU and Irish merger control work and has experience in dealing with Phase I and Phase II cases under the EU Merger Regulation, most recently Three Ireland (Hutchison) Limited s acquisition of Telefónica Ireland trading as O2 Ireland as well as advising on Irish merger control issues including the 2014 Phase II investigation of Glanbia/ Wexford Creamery. Helen also advises on behavioural competition issues including cartels and abuses of a dominant position. Helen has experience in dealing with complex investigations including dawn raids by the European Commission, the CCPC (formerly the Competition Authority) and other sectoral regulators as well as witness summons procedures by the Competition Authority. Helen has written and spoken extensively on competition, state aid and regulatory issues. She is consistently recognised as one of the top Irish competition lawyers by directories including Chambers Global, the European Legal 500, Global Competition Review and Who s Who Legal. Eoin Kealy is an associate in the EU, competition and regulatory group at Matheson. Eoin has worked in both private practice and in-house on EU and competition law matters. Eoin advises on EU and Irish competition law, merger control and state aid, as well as regulatory law. He has made submissions and notifications to the CCPC (formerly the Competition Authority), the European Commission, and the UK Competition and Markets Authority (formerly the Office of Fair Trading and Competition Commission). GTDT: Market Intelligence Merger Control 63

3 The Competition Authority had a good track record in merger review and this is expected to continue under the newly formed CCPC. GTDT: What have been the key developments in the past year or so in merger control in your jurisdiction? Helen Kelly & Eoin Kealy: The main development in 2014 in the area of merger control was the entry into force of the Competition and Consumer Protection Act 2014 (the Act). The Act significantly amended the merger regime contained in the Competition Act 2002 (the 2002 Act) with new jurisdictional thresholds and timelines, it introduced a new media merger regime and it provided for the amalgamation of the Competition Authority and the National Consumer Agency to form the Competition and Consumer Protection Commission (CCPC). Non-media mergers or acquisitions now require prior notification where the aggregate turnover in the state of the undertakings involved is not less than 50 million; and the turnover in the state of each of two or more of the undertakings involved is not less than 3 million. The alteration to the financial thresholds represents a major change from the previous regime, in place since 2003, which required each of two of the undertakings involved to have worldwide turnover of 40 million with both undertakings carrying on business in the state and one undertaking having turnover of 40 million in the state. It is hoped that the new financial thresholds will only capture mergers that have a strong nexus to the state and eliminate the notification requirement for some foreign-toforeign mergers. The substantive test against which a merger or acquisition is reviewed remains unchanged (ie, whether it is likely to lead to a substantial lessening of competition in the Irish state). Parties now have greater flexibility as to when a merger can be notified. Mergers can be notified to the CCPC where there is a good faith intention to conclude an agreement or, in the case of public bids where there is an announced intention to make a public bid. Under the previous regime, a notification could not be made until a binding agreement had been entered into or a public bid made. The merger review timescales have also been extended. The Phase I review period has increased from one calendar month to 30 working days, essentially an increase of nine working days. The Phase II review period has increased from four months from notification to 120 working days, an increase of 36 working days. The Act has introduced new stop the clock powers in Phase II. The Competition Authority always had a power to stop the clock on its merger review in Phase I by making a formal request for information, a process used fairly frequently. The Act now allows the CCPC to exercise this power in Phase II. The Act has introduced a prohibition on the use of so-called warehousing provisions to avoid the requirement to notify a merger or acquisition where the acquisition of control is constituted by the undertaking holding on a temporary basis securities in another undertaking for the purpose of arranging for onward sale. 64

4 From a media merger perspective, the rules have changed significantly. All media mergers must be notified to the CCPC, regardless of whether the financial thresholds mentioned earlier are met. The Act defines a media merger as a merger or acquisition where two or more of the undertakings involved carry on a media business in the state, or a merger or acquisition where one or more of the undertakings involved carries on a media business in the state and one or more of the undertakings involved carries on a media business elsewhere. There is a new definition of media business requiring notification contained in the Act. The definition now includes publication of newspapers or periodicals consisting substantially of news and comment on current affairs including the publication of such newspapers or periodicals on the internet and making available on an electronic communications network any written, audio-visual or photographic material, consisting substantially of news and comment on current affairs, that is under the editorial control of the undertaking making available such material. The revised definition is significantly wider than the definition in the 2002 Act, which did not include online media. The Act introduced a new definition for carrying on a media business in the state, requiring undertakings involved to have either a physical presence in the state and make sales to customers located in the state, or to have made sales in the state of at least 2 million in the most recent financial year. There is a new requirement for the undertakings involved to make two notifications of a media merger. One notification is sent to the CCPC, which is responsible for carrying out the substantive competition review to determine whether the merger is likely to give rise to a substantial lessening of competition, and a separate notification to the Minister for Communications, each attracting a separate (as yet unspecified) fee. The Minister for Communications now has responsibility for consideration of media mergers in place of the Minister for Jobs, who retains responsibility for competition policy matters. The Act sets out a new substantive test for identifying a plurality of the media concern. The new test is whether the result of the media merger will not be contrary to the public interest in protecting the plurality of the media in the state and this includes a review of diversity of ownership and diversity of content. If the Minister for Communications initiates a second phase full media merger examination, the Broadcasting Authority of Ireland (BAI) must prepare a report for the Minister for Communications outlining its view on the new plurality of the media test. An advisory panel may be set up to assist the BAI in its review. The Minister for Communications will make the ultimate decision, taking into account the BAI report and, if applicable, the views of the advisory panel. Media mergers are now subject to an extended timetable. The Phase I review period by the Minister for Communications is now 30 working days, commencing 10 working days from the date of issue of the CCPC determination clearing the merger, or European Commission decision (if the merger is subject to the EU Merger Regulation) clearing the merger, as applicable. A Phase II review period may now take up to 130 working days from notification. GTDT: What lessons can be learned from recent cases to help merger parties manage the review process and allay authority concerns at an early stage? HK & EK: The CCPC predecessor body, the Competition Authority had a good track record in merger review and this is expected to continue under the newly formed CCPC. The Mergers Division of the CCPC is available for pre-notification discussions with parties that have expressed a good faith intention to notify a merger or acquisition. Such discussions can be helpful in potentially complex cases or where there is little market definition precedent. The CCPC can also be asked to waive completion of parts of the notification form premerger, thus reducing the notification burden in cases of minimal overlap. The CCPC has powers to stop the clock on the time limits for the investigation during Phase I and Phase II by making an information request. Accordingly, it is extremely important that a comprehensive and well-argued notification is GTDT: Market Intelligence Merger Control 65 Eoin Kealy

5 The CCPC will publish third-party submissions received and is obliged to consider all submissions made to it, whether from the undertakings involved or any third party. submitted so as to mitigate the risk of a formal information request stopping the clock. In addition, there may be informal contact between the undertakings and the CCPC throughout the review process with informal information requests during the investigation that do not have the effect of stopping the clock. The Act does not provide for an accelerated waiting period to apply in any circumstances. However, in practice, merging parties frequently request clearance by specific dates to enable completion. The Competition Authority has previously issued expedited clearance decisions in cases that involved strict insolvency procedure timetables, such as the HMV Ireland/Zavvi merger, which was cleared in nine days. GTDT: What do recent cases tell us about the enforcement priorities of the authorities in your jurisdiction? HK & EK: The vast majority of merger notifications to the CCPC are cleared in Phase I. One investigation proceeded into Phase II (Valeo/ Wardell/Robert Roberts) in 2014, which involved the FMCG sector where the relevant product markets concerned the distribution and sale of well-known consumer food brands. In February 2015, the CCPC announced that it had cleared the transaction subject to binding divestiture proposals. At present, the CCPC has not yet published the full rationale for its determination but has published the divestiture commitment, which provides for the disposal by Valeo Foods of the YR sauce business to an independent third party. The CCPC retains the power to approve the prospective purchaser and a trustee will be appointed to monitor Valeo s compliance with the divestiture commitment. The previous two mergers that proceeded to Phase II investigations also concerned relevant product markets involving consumer goods at different stages of the supply chain (Glanbia/Wexford Creamery and Top Snacks/KP Snacks). During 2014, the CCPC accepted a reference from the European Commission of a proposed acquisition that met the thresholds for European Commission review under article 4(4) of the EU Merger Regulation (Fitzwilliam/Wittington Canada/Arnotts). The reference was made on the request of one of the undertakings involved, following discussions between the undertakings, the European Commission and the CCPC, on the basis that the acquisition would significantly affect competition in a distinct market in Ireland (multicategory non-food retailing in the Dublin area). GTDT: Have there been any developments in the kinds of evidence that the authorities in your jurisdiction review in assessing mergers? HK & EK: It is common for the notifying undertakings to adduce expert economic evidence in cases where there are potential competition concerns arising from the merger, and where the CCPC is likely to scrutinise the effects closely, in particular where an investigation is likely to proceed to Phase II. The CCPC also tends to engage external economists or conduct market surveys where it identifies potential competition concerns. The CCPC tends to be very interested in reviewing parties internal documents in Phase II investigations including when arguments are adduced on issues of size of investments and costs and where efficiency arguments are adduced. It is mandatory for the CCPC to publish a notice of the notification of a merger or acquisition within seven days of receipt (under section 20(1)(a) (i) of the 2002 Act), and the practice of the CCPC is to give third parties 10 days to make submissions. The CCPC will publish third-party submissions received, subject to redactions where appropriate, and is obliged to consider all submissions made to it, whether from the undertakings involved or any third party. GTDT: Talk us through any notable deals that have been prohibited, cleared subject to conditions or referred for in-depth review in the past year. HK & EK: No deals were prohibited by the Competition Authority in To date all notifications made in 2014 were cleared in Phase I without conditions apart from Valeo/Wardell/ Robert Roberts, which was cleared subject to divestiture proposals in Phase II in February As mentioned earlier, the full text of the rationale for the CCPC determination has not yet been published, but the published divestiture proposal 66

6 THE INSIDE TRACK What are the most important skills and qualities needed by an adviser in this area? An effective adviser is skilled in identifying the issues most likely to be of concern to the CCPC taking into account the market context, prior merger treatment of similar issues and possible overlaps between issues likely to be considered by the Merger Division of the CCPC and other areas of the CCPC where similar issues are being or have been explored including in the context of non-public investigations in the areas of cartels, dominance and advocacy. It is important to design a strategy to ensure that all issues are fully considered by the notifying parties prenotification and effectively dealt with in the notification process. What are the key things for the parties and their advisers to get right for the review process to go smoothly? The onus is on the adviser to provide a comprehensive and well-drafted notification form dealing with all key areas of concern without imposing an unnecessary burden on the parties so that irrelevant information is not sought and expensive and unnecessary economist input is not procured where issues are straightforward. Dealing with the authorities concerns and information requests quickly and comprehensively is important for an expedient clearance. What were the most interesting or challenging cases you have dealt with in the past year? The most interesting merger case before the Irish authorities was Glanbia/Wexford Creamery, the only Phase II case determined in The case was challenging for the Competition Authority as it involved it needing to understand the recent changes to the Irish dairy industry and the likely impact on milk quota reform, which requires investments by producers and dairy companies and a degree of legal certainty over milk production, with a trend towards market consolidation. The review involved a focus on three theories of harm: (1) retail effects in the supply and sale of liquid milk including local effects; (2) national and local effects on dairy processing resulting from the possible blocking of an alternative acquirer or new entrant; (3) national and local effects on the procurement of milk on downstream markets resulting from a monopsony or near-monopsony of Glanbia in procuring milk in the Wexford area. The most challenging Irish merger case in was the merger of Hutchison Whampoa s Three Ireland and O2 Ireland, part of Telefónica in the Irish mobile communications market, reducing the number of mobile network operators from four to three. A Phase II investigation by the European Commission resulted in a merger approval subject to conditions on MVNO access to two new providers and the offer of network sharing to Ireland s third largest mobile network operator. This was the first ever European Commission Phase II merger clearance involving Irish-only business overlaps. Helen Kelly & Eoin Kealy Matheson Dublin provides for the disposal of the YR sauce business by Valeo Foods. While the competitive analysis of the CCPC has not yet been published, it appears that there was a horizontal overlap between the merging parties sauce brands which led to Valeo Foods proposing the divestiture commitment. The Competition Authority conducted a Phase II investigation into the acquisition by Glanbia of Wexford Creamery, an entity supplying liquid milk, cream and cheese under the Wexford brand to various Irish retailers and selling cheese by-product, whey, to Glanbia (Glanbia/Wexford Creamery). The Competition Authority s Phase II review appears to have been prompted by concerns about the consolidation occurring in Ireland s agribusinesses, in particular, the purchase of milk from dairy farmers and greater strength in procurement by Glanbia and possible knock-on effects on milk and cheese making. Consolidation in Irish agribusiness and milk and cheese processing in particular is likely to be subject to strict CCPC scrutiny in future. In January 2014, the Competition Authority cleared the acquisition by Sappho of the regional/ local radio stations Beat FM and WLR FM, as well as joint control of Red FM, subject to conditions. The deal was notified to the Competition Authority in November The merging parties submitted proposals in Phase I of the investigation in order to address concerns arising from the horizontal overlap between Beat FM and WLR FM in the targeting of local advertising in Waterford city and GTDT: Market Intelligence Merger Control 67

7 county. The proposals essentially set out that the sales and advertising teams of both Beat FM and WLR FM would be operated entirely separately, with a commitment that information on the sale of advertising and pricing policies of each radio station would not be shared with the other. The merging parties also proposed that (with one exception), no member of the management team of WLR FM would sit on the board of directors of Beat FM, and no member of the management team of Beat FM would sit on the board of directors of WLR FM. An independent observer was proposed by the merging parties to monitor and report to the Competition Authority regarding compliance with the proposals. The Competition Authority accepted the proposals and adopted them as conditions of the merger. GTDT: Do you expect enforcement policy or the merger control rules to change in the near future? If so, what do you predict will be the impact on business? HK & EK: The full impact of the Act on Irish merger control is yet to be seen, but we expect to see fewer international mergers with limited impacts on Irish markets being notified to the CCPC, reducing the administrative burden on businesses previously required to make multijurisdictional merger filings. We also expect to see longer periods for Phase I merger clearance as standard since the extension of the timeline for Phase I to 30 working days with the CCPC taking more time to reach its determinations. We do not expect the CCPC to avail of the extension of Phase II timelines by the 36 additional working days given to it under the Act on many occasions as most Phase II investigations tend to complete in less than three months in any case. The broader definition of what constitutes a media business under the Act means that more mergers or acquisitions are subject to the revised media merger notification regime, where two notifications must be made by the undertakings involved: one to the CCPC and one to the Minister for Communications. The new regime adds a significant administrative burden to transactions that would not have required notification to any Irish authority under the previous regime and now require approval from the CCPC and the Minister for Communications. We expect to see fewer international mergers with limited impacts on Irish markets being notified to the CCPC, reducing the administrative burden on businesses previously required to make multijurisdictional merger filings. 68

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