Impact of the coronavirus pandemic on M&A transactions subject to merger control

Introduction

The M&A market is appreciably impacted by the coronavirus pandemic, and so is the regulatory review of prospective or pending transactions by many antitrust authorities. Issues stemming from home office requirements, IT problems, unavailability of critical infrastructure, re-allocation of resources, and limited access to market information must be balanced with the need to comply with statutory and/or administrative deadlines. The main implications for M&A activities shall be summarized as follows:

Practical challenges

The European Commission announced, that staff in “non-critical” roles will work from home as of 16 March 2020. The “critical” category is understood to include commissioners, cabinets, and directors-general, and within DG COMP, the directorate responsible for handling merger reviews at the Commission’s level, respective IT staff, and officials working on in-depth merger inquiries. Business continuity of the institution will be ensured with work in two shifts.

However, like in many other organizations, the sheer number of persons working remotely is understood to create IT issues, and the question arises whether the Commission’s services and other authorities are capable of handling cases at normal speed. But obstacles may not only arise from the authorities’ overloaded servers and remote connections, or overstrained IT helpdesks; similar challenges may be faced by notifying parties’ and third parties’ organizations.

Merger reviews are critically dependent on a great number of information and data regarding product markets, competitors, and the overall competitive conditions of the product markets under investigation. Hence, the notifying parties are obliged to gather and submit such information to the competent authorities, and the regulators regularly “market test”, i.e. double-check, the notifying parties’ submissions by reaching out to third parties, notably customers and competitors.

The (partial) shutting down, or ongoing restrictions of corporate and operative functions (business development, accounting, finance, sales, R&D) may therefore also impede the capacity of the notifying as well as of third parties to submit the required information to the regulators. Physical meetings in the context of informal pre-merger consultations or within the formal proceeding (e.g. state of play meeting with DG COMP or oral hearings) are unlikely to be scheduled for the foreseeable future. The German Bundeskartellamt has announced to cancel in-person meetings until further notice.

Allocation of resources

Against these practical challenges, we note that the Commission is expected to quickly handle imminent state aid applications to allow financial support for suffering businesses and industries be made available by Member States as soon as possible. Failed firm mergers may have to be assessed by DG COMP and national authorities as well as forms of co-operations amongst competitors aiming at jointly dealing with the economic effects of the coronavirus pandemic. Hence, leaving business continuity issues aside, authorities will need to prioritize tasks and allocate their resources, respectively. 

Consequences

Delay of merger notifications

The Commission has officially encouraged parties to delay merger notifications originally planned until further notice, where possible. We would expect that at Commission’s level, DG COMP will be keen to suspend notifications as much as possible in order to keep its human and technical resources available for critical investigations (besides the areas mentioned above, DG COMP is handling six in-depth merger investigations at the moment that partially have already been suspended). We note that the Commission, in general, has a great degree of discretion to request information within the customary pre-notification phase, and, hence, the ability to considerably delay formal notification. If despite this request for postponement, companies proceed with submitting a notification to start the “clock ticking”, the Commission may try to identify reasons for declaring the notification as incomplete in order to thwart the notifying parties’ attempt. At any rate, companies are well advised to carefully take into account any recommendation of DG COMP.

Where notification will be made, hand deliveries to DG COMP premises will remain possible (but increasingly difficult due to reduced staff present) for the time being, unless a curfew is imposed as, e.g. in France, Spain and Italy. Since the Commission temporarily also accepts and encourages all submissions in digital format, this alternative should be preferred as far as possible.

At national level in the EU, similar effects can be seen in Italy and Spain. The authority in Austria requests to delay formal filings until 20 March 2020 when the technical environment for accepting electronic filings will have been put in place. In Germany, (so far) no such limitations can be observed at the Federal Cartel Office (FCO). In a press release of 17 March 2020, the FCO confirmed the functioning of its administration, but requests companies to consider whether any project and contemplated transaction could be presented and notified at a later date. Again, companies are well advised to take such requests of the authorities carefully into account.

Fast track merger clearances of pending cases unlikely

Fast track decisions prior to expiry of the statutory waiting period appear less likely in the next weeks. Such early clearances are already less common at Commission level, and we expect a similar reluctance (or inability) by national competition authorities as well, including the FCO.

Suspension of decision deadlines in pending cases likely

Due to the challenges identified above, and the need for staff handling critical issues directly related to the coronavirus pandemic, the Commission and national competition authorities will likely suspend statutory deadlines as much as practically needed and legally possible. In that respect, the authorities can request parties to submit information (so-called request for information, RFI) which the parties may not be able to fully comply with; as a result, the proceeding may be put on hold for some time. As a general remark, information requests can be a means to buy time in any transaction where the authorities (and the parties) consider it beneficial to suspend the waiting period. If no such suspension is possible, the situation may force parties to consider withdrawing notifications if authorities do not feel confident to grant clearance to a transaction.

Conclusion

Companies need to carefully assess the timing implications for the closing of prospective transactions (notification date, waiting period, long-stop date etc.) created by the coronavirus pandemic. In relation to pending transactions, companies should engage in open communication with the regulators to ensure some predictability for the timing aspects of a proceeding.