'Dealing' with merger control
Parties to any corporate transaction should be on the lookout for possible risks under the EU and UK merger control regimes (and, indeed, those in other jurisdictions affected by the deal). The stories we cover below highlight the importance of seeking up-front expert advice on the possibility of your transaction being caught by one or more merger regimes and then ensuring the rules of any applicable regime(s) are complied with thoroughly. Notably, although the UK regime (unlike that of the EU and others) makes notification to the regulator voluntary, this is not to say it does not have considerable teeth. Penalties can be imposed for failure to provide requested information, and it is an offence to provide false or misleading information; moreover, as we explain further below, deals are not just ‘waved through’, and can be held up and even unwound if they are found to have been pursued unlawfully…
Don’t ‘just eat’ up your competitors: M&A deals are NOT just ‘waved’ through…
In a reminder to all businesses considering a corporate sale or acquisition, the UK Competition and Markets Authority (“CMA”) has increasingly been stepping in to prevent mergers which it is concerned could hamper competition in the marketplace.
On 19 May 2017, the CMA announced that it has referred the proposed purchase by JustEat.com of rival online takeaway ordering service, Hungryhouse for an in-depth ‘phase 2’ investigation. Under the current system, mergers notified to the CMA (or which it otherwise discovers trip the £70 million turnover or 25% share of supply thresholds to qualify for review) are initially investigated for a 40 working day period known as ‘phase 1’. If this initial review reveals concerns that the proposed acquisition will result in a “substantial lessening of competition’ then the deal will be referred to a dedicated independent team for in-depth review.
The CMA is concerned that if JustEat acquires Hungryhouse then the resultant business will be too powerful, since the companies are already close competitors and provide a similar service over a similar geographic area (whereas recent entrants such as Deliveroo, UberEATS and Amazon Restaurants have been targeting restaurants which do not offer delivery and have a different geographic spread). This, the CMA believes, could potentially lead to the merged JustEat / Hungryhouse business imposing more stringent terms on subscribing restaurants (in turn, affecting consumers in terms of the price and quality of online delivery services). The CMA invited JustEat to make proposals for how to address its concerns, but it did not offer any so-called ‘undertakings’ which the CMA was prepared to accept. Notably, such undertakings often include divesting part of the target business or promising to operate the business under certain restrictions – the latter of these would appear more feasible and more likely to safeguard competition in this case, given the online nature of the business.
Subsequently, the CMA also announced on 19 May 2017 its intention to refer the proposed acquisition by David Lloyd Health Clubs of 16 of Virgin Active’s gyms, owing to acute concerns about the Brentwood (Essex) and Brighton (East Sussex) areas, in which the parties’ gyms are located close to one another and would face only minimal competition post-merger. On 26 May 2017, the CMA announced that David Lloyd has offered to exclude the VirginActive gyms in these two locations from the transaction, which the CMA then indicated would be sufficient to address its concerns, subject to consultation (which ran until 10 June 2017). On 13 June, the CMA announced that nothing had arisen in the consultation to lead it to alter its position on the proposed undertakings, which it thus confirmed it had decided to accept in the un-amended form proposed by the parties.
Honesty pays and patience is a virtue – EU merger enforcement hits parties to major acquisitions
Below we provide an update on a pair of fines handed down in the midst of merger investigations by the EU Commission, which serve to reiterate the importance of ‘playing ball’ and cooperating with the regulatory procedure in the event your M&A deal is under review.
a) Facebook fined millions for providing misleading information to regulators investigating WhatsApp acquisition
It is often forgotten that the Commission can fine parties to a merger up to 1% of group global turnover if they provide false, incorrect or misleading information during an enquiry, regardless of whether that information may or may not have influenced the Commission towards approving the proposed transaction. Well, this is exactly what Facebook has faced in its acquisition of WhatsApp. Having told the Commission in its notification (and, again, following a request for information) that it was not possible to automatically match data between Facebook and WhatsApp user accounts, it later emerged that such auto-matching had been technically possible since 2014 and that Facebook had been aware of this. The Commission had been alerted to a potential infringement when WhatsApp announced to users in August 2016 that they would be able to link their telephone numbers with their Facebook user identities.
Facebook has been fined €110 million – this is around half the maximum financial penalty the Commission could have imposed, and only was not higher on account of Facebook’s cooperation with its investigation into the suspected issue.
b) EU Commission fines merger parties for ‘gun jumping’
Separately, the Commission has also issued a stern warning about ‘gun jumping’ in regulated merger situations – i.e. taking steps to implement a proposed transaction prior to obtaining formal clearance. Whether such steps (which need not amount to actual completion of a deal) are taken intentionally or just negligently, the Commission can fine the parties up to 10% of global group turnover for a breach of this nature.
The Commission suspects that Altice, a Netherlands-based multinational telecoms company, took steps to partially implement its takeover of PT Portugal prior to the Commission formally clearing the deal (subject to conditions) in April 2015. Precise details of how it is alleged to have ‘jumped the gun’ are as yet unknown, but it seems that evidence has been obtained by the Commission of it having ‘decisive influence’ or control over PT Portugal pre-clearance, and also of being given access to sensitive information about PT Portugal prior to formal approval, without the usual pre-completion safeguards over the confidentiality of that information and thus how Altice could then use it.
The Commission is intent on coming down hard on any suspicions of ‘gun jumping’, with Vice-Commissioner Margrethe Vestager declaring that, “if companies jump the gun by implementing mergers prior to implementation or clearance, they undermine the effective functioning of the EU merger control system”.
This article was written by Paul Henty.