PREMERGER COORDINATION BETWEEN MERGING PARTIES:
COORDINATION OF INTERNATIONAL ANTITRUST FILINGS
Covington & Burling
ABA Section of International Law
5 April 2005
PREMERGER COORDINATION BETWEEN MERGING PARTIES:
COORDINATION OF INTERNATIONAL ANTITRUST FILINGS
Covington & Burling
The proliferation of jurisdictions around the world that have implemented merger
control regimes and the increase in cooperation between antitrust authorities have made early
coordination of international merger filings increasingly important. Failure to do so can result in
parties to a transaction being taken by surprise by the need to make premerger notifications or to
address substantive competitive concerns regarding a deal prior to its consummation. Proper
coordination of international merger filings can decrease the risk of a costly second phase
investigation, divestments that undermine the financial rationale for a deal, and the possibility
that a proposed deal is not allowed to proceed at all. For transactions involving parties that have
a presence in multiple countries, gathering the information that will enable the parties to identify
all jurisdictions where premerger filings are required, compile those premerger filings, and
address any competitive concerns that arise can be a time-consuming process. Therefore, it is
vital to include antitrust counsel in the early stages of the deal planning process in order to
ensure that international premerger filings do not delay the closing of the transaction.
I. Identification of Jurisdictions Requiring a Merger Filing
Understanding the Structure of the Transaction
The first step to obtaining merger control clearance for any multinational
transaction is to identify all jurisdictions where the antitrust authorities are capable of exercising
jurisdiction over the transaction. To do this, it is necessary to gain an understanding of the
overall structure of the transaction. This preliminary step is critical because, in most
jurisdictions, the parties will be required to file a merger notification if the transaction results in a
change of control for one of the parties. Jurisdictions vary as to how they define “control,” but
the definition of control often hinges on whether one party to the transaction will be able to exert
some degree of influence over the decision-making process of another party after the transaction
is consummated. In transaction where the buyer is acquiring all of the stock or assets of the
seller, there is invariably a change of control for the purposes of the merger control statute. In
cases where the buyer is only acquiring part of the seller’s stock or assets, however, the issue of
whether there is a change of control can be complex and require an analysis of the draft
shareholders’ agreement and other documents relating to control over the company.
Identification of Jurisdictions Where the Parties Have a Presence
Once counsel has an understanding of the structure of the deal, the next step is to
identify the jurisdictions where the parties have a presence, paying particular attention to those
countries where the parties generate turnover. While some jurisdictions require a filing even if
one of the parties does not have a presence as long as certain global turnover thresholds are met,
all jurisdictions require at least one of the parties to have a local presence. In those jurisdictions
where the parties have a presence, counsel should be sure to check whether foreign-to-foreign
transactions are exempt even if the jurisdictional thresholds are technically met.
Gathering Data for Jurisdictions Where the Parties Have a Presence
After generating a list of jurisdictions where the presence of the parties may
implicate a filing, the next step is to pinpoint the types of data that are relevant to the filing
thresholds in each of those jurisdictions. These thresholds invariably are based on either
turnover, asset values, market share, or some combination of the three. Because countries are
adopting merger control laws at a rapid pace and existing laws are being amended regularly to
provide for new thresholds, counsel should not assume that threshold tests which might have
applied in previous transactions involving their client are still the same when they are
determining the types of data that must be gathered.
As gathering some kinds of data can be quite burdensome for a client, particularly
when the client’s management is likely to be busy with due diligence and other deal-related
matters, antitrust counsel should consider how to make the information request as streamlined as
possible. In particular, an attempt should be made to limit requests for market share information
and asset values to those jurisdictions where it is absolutely necessary to have this information to
make a determination of whether a filing is necessary because, as a general rule, it is more
difficult for a client to produce market share information and asset values than data on turnover.
As it may be possible to eliminate a jurisdiction from the list of jurisdictions where filings must
be made on the basis of turnover data alone (such as those jurisdictions where both parties must
have turnover in the jurisdiction), it may make sense to request the turnover information in the
intitial request and only request other information if it turns out to be necessary.
Counsel should also determine whether notification is voluntary in any of the
jurisdictions where the parties have a presence. Parties generally will decide not to file in
jurisdictions where notification is voluntary, but it may be prudent to make a filing even when
this is not mandatory if the transaction gives rise to significant competitive issues that will no
doubt come to the attention of the competition authority. In those circumstances, it may make
sense to take the initiative to submit a notification so that the concerns of the competitive
authority are addressed sooner rather than later. In simpler cases, however, it may not be
advisable to make a voluntary filing.
Recognition of Penalties for Failure to File
Once the jurisdictions in which a merger filing is required have been identified,
the next step is to decide whether to make a filing in each jurisdiction. If the transaction is
capable of raising substantive antitrust concerns, it is almost always advisable to make a filing
because, otherwise, the parties may well run a risk of having the antitrust authorities challenge
the merger down the road. In jurisdictions where a merger does not raise substantive antitrust
concerns and the parties do not have a meaningful presence, however, the parties may decide not
to make a filing. In making this decision, the parties will need to taken into account possible
fines for a failure to file.
II. Analysis of Potential Substantive Antitrust Concerns
Identification of Substantive Antitrust
Once the jurisdictions where merger filings are required have been identified,
counsel for both parties to the transaction should determine whether there are any substantive
competition issues in those jurisdictions. Although jurisdictions have increasingly moved toward
similar standards for analyzing transactions, any differences that exist in the substantive analyses
that will be employed in the jurisdictions where the parties are required to make filings must be
addressed, and possible solutions for reconciling these differences must be considered.
When analyzing whether a transaction raises potential competitive concerns, some
of the primary aspects of the deal on which counsel should focus are:
business activities where the parties to the transaction overlap;
vertical links between the parties;
customer overlaps between the parties and possible customer reactions to the
potential product market definitions in light of the overlapping activities;
potential geographic market definitions in light of the overlapping activities;
market shares in each relevant geographic market
Based on these factors, counsel should assess the potential impact of the
transaction in each relevant product and geographic market. When performing this analysis,
counsel should be sure to consider possible mitigating factors such as:
potential for new entry;
number of competitors in the market and their relative market shares;
potential for substitution of similar products; and
potential impact of innovations on the market.
Consideration of Possible Solutions to Substantive Antitrust Concerns
To the extent that the parties identify substantive antitrust concerns, they should
consider whether there are any possible solutions that might be offered to antitrust authorities in
order to dispel those concerns. For both parties, identification of substantive competitive
concerns is important because the parties ultimately may not be willing to proceed with the
transaction if, for example, certain key assets would have to be divested in order to obtain
clearance from competition authorities.
At this stage of the merger coordination process, counsel may find it helpful to
engage an economist. Particularly for transaction that raise significant competitive concerns, an
economist may be able to help identify solutions that would alleviate the competitive concerns
that antitrust authorities are likely to have.
III. Contacts with Competition Authorities
Pre-Notification Contact with Competition Authorities
If counsel to the parties determine that the transaction raises substantive antitrust
concerns in one or more jurisdictions, the next step is to determine whether pre-notification
contact with the relevant competition authorities would be beneficial. Antitrust authorities vary
in their willingness to engage in discussions about a transaction prior to notification, but, in
many instances, it may be possible for the parties to seek the preliminary views of competition
authorities on a transaction. In merger control regimes where there is a short, fixed deadline for
the first phase of an investigation, pre-notification contact may help avoid a second phase
investigation by allowing the competition authority more time to consider complex issues, giving
the parties time to address concerns raised by the authority, and allowing adequate time to
identify potential solutions to competition concerns that the competition authority may be willing
to accept early in the investigation.
Pre-notification contact with competition authorities may involve submitting a
briefing paper to the staff or arranging for business persons to speak with the staff. In some
cases, it may be possible to submit a draft of the merger filing to the staff, which may be helpful
in avoiding costly delays that may result if the parties are forced to re-submit a filing because the
staff is not satisfied with the information provided the first time around.
Taking Consistent Positions with Different Competition Authorities
Because of the increasing cooperation between antitrust authorities in different
jurisdictions, counsel must make certain that the parties take consistent positions in all
jurisdictions where they are required to make filings. Thus, to the extent the parties decide to
contact competition authorities in advance of making merger notifications, the parties should be
sure that the positions they advance are consistent from jurisdiction to jurisdiction and are
consistent with the positions they will need to take down the road in the event of a second phase
investigation. Due to differences in merger review procedures from one jurisdiction to another,
the parties may need to make certain decisions on the substantive aspects of the filing, such as
the definition of the relevant market, in one jurisdiction before they need to do so in others.
Before making this decisions in any jurisdiction, the parties should be careful to consider how
they will play out in others.
For example, suppose a merger is likely to raise competition concerns in the
United States, but not in Europe. While the parties may not be particularly concerned about
market definition in Europe because the market is so competitive that the merger would not raise
significant issues under alternative market definitions, they should be careful not to accept a
narrow market definition in the context of European filings if this could cause problems in the
context of their U.S. filing.
Waiving Confidentiality Requirements
Cooperation between different antitrust authorities may be beneficial to the parties
in that it may reduce the likelihood that different jurisdictions arrive at divergent decisions
regarding how the transaction should be treated. Thus, the parties should consider whether to
waive confidentiality requirements in order to allow the competition authorities involved to
engage in a meaningful dialogue regarding the transaction. In some cases, the parties may
determine that cooperation is not essential because the transaction does not raise any competitive
concerns in certain jurisdictions. In those jurisdictions, the parties may want to refuse to waive
confidentiality requirements and take the position that the competition authorities should clear
the transaction without investigating what might be going on in other jurisdictions.
IV. Coordination Between Parties to the Transaction
Throughout this process, counsel for all parties to the transaction will need to
work together to ensure that the parties are able to identify where filings must be made, provide
accurate, complete filings to competition authorities, identify competitive concerns, and maintain
consistent positions in front of competition authorities. In order to accomplish this, the parties
may need to exchange turnover information or other sensitive company data. As a result,
counsel should consider the advisability of having both parties sign a joint defense agreement
and/or a confidentiality agreement. Moreover, counsel will likely want to restrict such
information exchanges to outside counsel only to avoid the potential for any violations of the
antitrust laws. Depending on the transaction, the parties may decide to enter into such
arrangements at the outset or they may decide to wait until the deal has progressed before
entering into any sort of agreement.
V. Role of In-House Counsel in Coordination of Multinational Merger Filings
Liaison Between Outside Counsel and Company Employees
In-house counsel plays a crucial role in the coordination of international filings.
In-house counsel has the responsibility of acting as liaison between outside antitrust counsel and
business people at the parties. In-house counsel is in the best position to put outside counsel in
touch with the business people who have access to the data and documents that are necessary in
order to conduct the jurisdictional analysis, put together any necessary merger filings, and
identify substantive competitive concerns. In-house counsel is also in the best position to
identify the business people who should participate in interviews with antitrust authorities in
jurisdictions that open an investigation into the proposed transaction.
Liaison Between Primary Outside Counsel and Local Counsel
In-house counsel can also play a key role in ensuring that primary outside
antitrust counsel and all local counsel are working together on any filings that are required. In-
house counsel can be helpful in selecting local counsel who are already be familiar with the
Liaison Between Deal Lawyers and Antitrust Lawyers
Finally, in-house counsel may also play a key role in facilitating communications
between the deal lawyers and antitrust counsel to ensure that everyone is working on the same
timeline in order to get the deal closed.
Checklist for Coordination of International Merger Filings
Gain an understanding of the overall structure of the deal.
Determine whether a joint defense agreement and/or confidentiality agreement with other
parties to the transaction is desirable.
Identify jurisdictions where parties to the transaction have a presence.
Review threshold tests in jurisdictions where parties to the transaction have a presence.
Make initial, limited request for data needed to identify whether transaction meets threshold
Follow-up with request for any further information needed in order to identify whether
transaction meets threshold tests.
Determine whether foreign-to-foreign transactions are exempt in any of the jurisdictions
where the threshold tests are technically met.
Determine whether notification is voluntary in any of the jurisdictions where the parties have
a presence, and whether there are reasons why the parties should file a notification in any
jurisdictions that are voluntary.
Become familiar with penalties for failing to file required notification.
Engage local counsel to assist with filings in multiple jurisdictions as needed.
Identify any substantive antitrust concerns raised by the deal.
Consider possible solutions to these substantive concerns that might be offered to
Engage outside economic consultants to assist with substantive analysis as needed.
Determine whether pre-notification contact with competition authorities would be helpful,
and what form that contact should take.
Coordinate positions taken with different competition authorities.
Consider whether to waive confidentiality requirements to facilitate coordination between
different competition authorities and encourage consistent decisions regarding how the
transaction is treated.