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Merger review for multinational transactions, like Bayer AG’s bid to purchase Monsanto Co., has become so complicated that cross-border deals will fail if the parties don’t strategize early, antitrust lawyers said.
There are about 140 merger review agencies globally, with more countries planning to create their own agencies. “Multi-agency review is a monstrously complex process,” Tad Lipsky, director of the competition advocacy program at the George Mason Global Antitrust Institute, told Bloomberg Law.
An Allen & Overy analysis of merger activity across 26 jurisdictions shows 38 deals that were abandoned in 2017 because of complications with multiple-agency reviews. This marked a 23 percent increase in the number of mergers forgone since 2016, when only 31 deals were dissolved.
Individual competition agencies tend to draw conclusions based on unique jurisdictional characteristics, such as local unemployment rates, Lipsky said. Some of the newer competition authorities, such as Hong Kong and Chile, are in smaller countries that tend to focus their governing energies on regional concerns.
“It’s a system that is struggling with this huge mismatch between the global character of many of these transactions and the local regulations,” Lipsky said.
Multinational merger approvals are “an increasingly difficult problem going forward and damaging to international business given the plethora of agencies looking at these questions,” George Cary, partner at Cleary Gottlieb Steen & Hamilton said this month during the American Bar Association antitrust law spring conference in Washington.
The $66 billion Bayer-Monsanto deal is a prime example. It was initially under antitrust scrutiny by 30 countries but has recently received approval from key global regulators including the EU and Brazil. Bayer made an unprecedented concession last week to the Russian competition regulator, agreeing to share some of its technology with a state-run agricultural organization in exchange for being allowed to complete the transaction there.
In the EU, the deal is contingent upon both parties divesting major parts of their businesses. And the deal is still not in the clear because countries such as the U.S. and India haven’t yet given their blessing.
Companies and their counsel should draft coordinated defenses showing why their merger is beneficial in a way that appeals to all jurisdictions privy to the matter, Jesse Solomon, a partner at Davis Polk & Wardwell LLP specializing in antitrust and competition law, told Bloomberg Law.
“How each agency will react can be a really nuanced analysis,” he said. “Each agency may have different policy priorities and be reviewing different competitive realities. And there are meaningful differences in some countries antitrust laws, too.”
“It is critical to devise antitrust defenses that will be credible and persuasive in every jurisdiction, or that at least will not undercut or contradict positions taken in other jurisdictions,” he added. “If defenses are inconsistent, then defense counsel run the risk of losing credibility and backing their clients into a corner.”
Merger agencies around the world reviewing the same transaction can and do coordinate with one another, but the companies need to be responsive to smooth the process. “It’s a very difficult challenge to shepherd these multinational deals across many agencies. Cooperation works, but it is incumbent on the parties to help us make it work,” said Patricia Brink, the Justice Department’s director of civil enforcement, at the ABA conference.
Cross-border mergers are often contingent on future financing and, if they’re big enough, likely will involve divestitures that also have to clear several jurisdictions. Solomon said merging parties should identify the jurisdictions that are most important and factor in timing differences between agencies.
“Depending on the client’s timing and financing considerations, you may want to phase antitrust clearances and seek to get clear in several key jurisdictions first,” he said. “On the flip side, if you know some jurisdictions will be lengthy, you may want to get started with those agencies as quickly as you can.”
Merging companies have an added incentive to creating a detailed map of how they’ll complete their transaction. The Justice Department is imposing enforceable timelines on divestitures that are needed for a deal to go through. Noncompliance means penalties, said Barry Nigro, deputy assistant attorney general in DOJ’s antitrust division, at the ABA conference.
The timeline to close mergers continues to grow, as recently shown in the DowDuPont Inc. merger, which took nearly two years from its initial announcement in December 2015 to its closing in September.
In the still-pending merger between Bayer and Monsanto, the parties included the ability to extend the deadline to close the merger if delays were caused by antitrust review. The parties have postponed their close date multiple times. Bayer now said it expects to close the deal in the second quarter.
Inclusion of such a deadline extender is one way parties “can get around the uncertainty of matching up the outside date in the purchase agreement with how long antitrust clearances will take,” Solomon said.
Companies are getting better at addressing multi-jurisdictional reviews, but Lipsky said global merger review needs to be standardized. “This sort of ubiquitous spread of antitrust laws is almost unprecedented in world history aside from tax law,” he said. “There must be a more efficient way to do this.”
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