Authorities have become more meticulous in Australia and around the world
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The regulatory landscape in cross-border M&A in Australia and beyond has become increasingly complex and burdensome, according to Allen & Overy.
In its “2019 Merger Control Enforcement Report,” the legal giant said that that there is a greater risk of intervention by antitrust authorities. Peter McDonald, Allen & Overy partner, said that the global trends identified in the report are reflected in Australia.
“Increasingly, our clients operate globally and their deals hit multiple jurisdictions. The big-picture trends we identify in global merger control routinely flow into the assessments made in smaller individual jurisdictions like Australia,” he said. “Intervention by competition agencies remains a material risk – we identified over 29 deals with a value of at least €46.3bn as prohibited or abandoned in 2018 as a result of regulatory action.”
In Australia, abandoned transactions rose from 22% to 38% of announced deals, Allen & Overy found. The main issue in Australia was timing, with merger reviews taking longer than expected and encroaching on long-stop dates, it said.
In 2018, several governments, including Australia’s, reconsidered powers that cover foreign investments. This has resulted in boosting existing regulatory toolkits. The trend happened even as governments clearly encouraged more inbound investments in recent years, the firm found.
McDonald, who heads Allen & Overy’s competition team in the Asia-Pacific region, said several factors are contributing to why regulators are increasingly examining deals. He also warned of coming changes to regulatory regimes.
“In Australia and elsewhere, regulators grappled with suggestions that a rise in concentration is contributing to social inequality and that under-enforcement could be a contributing factor. Several regulators, including those in the EU, UK and Australia, have also queried if the merger control toolkit is fit for purpose in the digital age. We are likely to see proposals to change the rules here to close perceived gaps,” he said.
McDonald said that increased regulatory scrutiny has resulted in increased regulatory sophistication, which likely leads to more work for dealmakers.
“In Europe, the US and in Australia, in-depth reviews routinely focus on the intentions of the parties, as evidenced in strategy documents and confidential emails. The size of these reviews can be surprising – for example, the European Commission (EC) reviewed 2.7 million documents when considering the Bayer/Monsanto proposal,” he said.
The more complex reviews are changing the outcomes of planned mergers, McDonald said.
“In Dow/DuPont, the EC used internal documents to show the transaction would dampen innovation incentives, resulting (in) the parties having to sell off DuPont’s entire global R&D business,” he said.
There were fewer remedies cases in 2018 than in 2017, Allen & Overy found. Intervention was most evident in the industrial and manufacturing, energy, and transport sectors, it said.
Intervention was below average in the digital and technology, media, and telecommunications sectors. More and more authorities are concerned that mergers in digital markets are not being overseen enough, particularly deals dubbed as “killer acquisitions,” where larger companies buy smaller companies that may become rivals.
