Beware the risks of a merger review morphing into an antitrust investigation

 “As the complexity and intensity of competition authorities’ requests for information in merger reviews continue to escalate, so does the risk of unearthing evidence of past or ongoing coordination and triggering a civil or criminal antitrust investigation.

- Jonas Koponen

As the complexity and intensity of competition authorities’ requests for information in merger reviews continue to escalate, so does the risk of unearthing evidence of past or ongoing coordination. This, in turn, can trigger a civil or criminal antitrust investigation (which has the potential to quickly spread to several jurisdictions as authorities share this information). Businesses therefore need to be more careful than ever to check that their houses are in order before embarking on deals, particularly in overlap markets, to ascertain whether their internal documents or third-party complaints could come back to bite them.

In the U.S. (as noted above), many of the DOJ’s “no-poach” cases arose out of merger reviews, for example the antitrust investigation launched by the DOJ following the Wabtec/Faiveley merger in 2015, leading to a recent settlement deal. The DOJ is also understood to have uncovered evidence of a conspiracy to fix prices on canned seafood during another 2015 merger review, which led to a guilty plea and fine of $25m on Bumble Bee Foods last year and the indictment of its CEO in May of this year.

In Europe, we are aware of several such cases at Member State level. For example, in November 2016, the Belgian Competition Authority (BCA) carried out antitrust raids at the premises of several pharma wholesale distribution companies, suspecting them of engaging in illegal price fixing and market partitioning. What is notable is that the BCA took these steps after receiving suspicious responses from industry players during the market investigation of a deal that it subsequently cleared. The UK’s Competition and Markets  Authority (CMA) fined two laundry companies £1.71m at the end of last year for market sharing via a horizontal trade mark cross-licensing agreement, in a case that came to the CMA’s attention in the context of two related merger reviews.

The Bayer/Monsanto mega-merger may have been cleared conditionally by the Brazilian antitrust agency (CADE) in February, but the authority has also opened a preliminary abuse of dominance investigation into unilateral conduct by the parties which – according to competitors, customers and trade associations consulted by CADE during the merger review – may have had anticompetitive effects. In Australia's first gun-jumping case, the ACCC has instituted proceedings against Cryosite for alleged cartel conduct following an abandoned merger review and is also taking antitrust action against Pacific National and Aurizon for reaching an understanding during merger negotiations that would have led to Aurizon exiting the market. We also understand that African supranational regulator, the COMESA Competition Commission, has launched several antitrust investigations on the heels of its merger reviews, with a particular focus on distribution practices.

Finally, it is worth remembering that this trend can go both ways, i.e. mergers may be carefully scrutinised or even prohibited because they are taking place in industries under investigation or with a history of collusion. A number of competition authorities – including the DOJ, the European Commission and the CMA – have published guidance stating that evidence of past collusion, or of collusion in similar markets, may be relevant in assessing the likelihood of coordinated effects in a given merger. Indeed, no fewer than 12 mergers were prohibited primarily for these reasons by the South African Competition Commission between January and November 2017, with particular concerns raised about coordination relating to cross-shareholdings and directorships.