The Achilles’ heel that can frustrate a global transaction: Voluntary merger notification regimes

The “voluntary” nature of non-mandatory merger notification regimes may not accurately reflect the expectations and potential exposure, both commercial and legal, in jurisdictions that do not enforce a notification requirement for competition clearance. However, where disregarded, non-mandatory regimes can have adverse consequences for a transaction, including frustrating completion and inviting heightened regulatory review. It is important to remember:

• voluntary notification regimes are best viewed as having quasi-mandatory notification requirements;
• a non-mandatory regime does not preclude an authority from commencing a unilateral merger review;
• voluntary notification regimes have the potential to disrupt or hinder a global clearance process and strategy to completion; and
• the interconnected nature of global competition regulators should be a key factor in deciding whether to notify a merger or acquisition in a voluntary merger notification jurisdiction.

A brief overview of the need for notification regimes

Pre-merger notification requirements are relatively commonplace in today’s commercial landscape. Corporations are alive to the fact that any proposed merger, acquisition, and in some instances a joint venture, may be subject to a jurisdiction’s merger control regimes, which seek to guard against potential anticompetitive consequences that might arise from the transaction. It is generally accepted that such regimes are necessary as they balance the need to protect competition in a market, whilst also seeking to accommodate the commercial objectives of merger parties. As such, a pre-merger notification or signalling requirement is considered an appropriate ‘middle-ground’ as the time and expenses involved in seeking to dissolve a merger post-completion can be significant, with restitution of the market to its state pre-merger near impossible.

Accordingly, various jurisdictions, most prominently, the United States and European Union (EU), operate mandatory notification thresholds in an effort to capture, and where necessary modify or prohibit, anticompetitive transactions, whilst other jurisdictions have implemented voluntary regimes. This approach is no surprise where a merger effectively amounts to a permanent arrangement between actual or potential competitors. 

Voluntary notification regimes should not be disregarded

Whilst an increasing number of countries have some form of pre-merger notification regime, those that operate on an informal or no pre-merger notification basis are often interlinked due to globalisation and global transactions.  Specifically, it is common for a global transaction to trigger notification thresholds in a number of jurisdictions, requiring pre-merger notification prior to completion. This can include instances where there is no impact on competition in a particular jurisdiction.  In contrast to this, jurisdictions such as the United Kingdom, Australia, New Zealand, and Singapore have voluntary notification regimes.

The term ‘voluntary’ tends to be a misnomer in that it suggests no adverse consequence where merger parties opt to not notify a competition authority of a proposed transaction, which is not the case. Indeed, it is important to note that a prohibition of anticompetitive mergers or acquisitions still exists in voluntary notification regimes, and lack of a pre-merger notification regime does not preclude those regulators from unilaterally commencing a merger review. This carries risks in its own regard, including frustrating or delaying completion, as well as inadvertently signalling to other regulators that the transaction gives rise to potential competition risks, thereby inviting heightened scrutiny, both from a public and regulatory perspective.  As such, voluntary notification regimes have the potential to disrupt or hinder the clearance process and the global strategy to completion where they are dismissed on the basis of being ‘voluntary’. 

Rather, voluntary notification regimes are more appropriately described as having quasi-mandatory requirements, where competition authorities recommend they be notified where particular thresholds are met (usually relating to the market shares of the merged entity exceeding a particular threshold).  To this end, it is important to note that just because a jurisdiction has a voluntary notification regime, does not mean it is inconsequential or will not adversely impact completion of a transaction.

Google/Fitbit: An instance where the mouse in the room transformed into an elephant

Google LLC’s (Google) proposed (now completed) acquisition of Fitbit, Inc. (Fitbit) generated significant public and regulatory scrutiny throughout the world, particularly as it concerned a data-driven merger; such mergers giving rise to novel and generally unexplored issues in the competition law and policy context. 

The proposed transaction was announced in November 2019, with the parties having filed with various regulators including in the US and EU. 

In early 2020 the Australian Competition and Consumer Commission (ACCC) updated its register to indicate that it was monitoring the transaction and was awaiting a filing from the parties (which may have been at the request of the ACCC). 

Whilst Australia has a quasi-mandatory pre-notification regime, encouraging merger parties to notify the ACCC where particular thresholds are met, it is important to note that the ACCC will commence a unilateral review where it considers that a proposed transaction gives rise to possible competition risks.  The ACCC subsequently commenced its public review of the proposed transaction in late February 2020 after having received filings from the parties.

Following a lengthy review process throughout 2020, with the ACCC issuing a Statement of Issues (and triggering a phase 2 review), the parties sought to alleviate the competition concerns identified by way of a remedial behavioural undertaking.  The undertaking mirrored remedies proposed in various other jurisdictions, including the EU, with the European Commission ultimately accepting the proposed remedies, clearing the transaction.

However, after further public consultation, the ACCC rejected the proposed undertaking on the basis that it was not satisfied the proposed remedies would sufficiently address the identified competition risks.  Naturally, the ACCC’s rejection of the proposed undertaking attracted significant press coverage, inviting heightened media scrutiny of the transaction, particularly as the rejection related to the same remedies deemed to sufficiently offset the competition concerns in the EU. The divergence in the regulators’ views called into question whether acceptance of the proposed remedies in the EU was ultimately the correct decision.

Notwithstanding that in this transaction, the parties completed without obtaining clearance from the ACCC (rendering the matter an enforcement investigation), this matter demonstrates how a seemingly insignificant regime (when compared to the likes of the EU and US) can serve to trip-up a global transaction. The interconnected nature of global competition regulators should not be ignored and the weight that can be given to the views of the ACCC on a global stage is not insignificant. Discussion on global mergers will continue and insights shared across jurisdictions, with waivers for the disclosure of confidential information provided by the parties’ commonplace, and global merger parties should be mindful of this interplay when focussing only on mandatory notification regimes.

Be wary of voluntary regimes

The Google/Fitbit transaction serves as a useful and recent reminder of the significant impact voluntary merger-notification regimes can have on a global transaction, particularly where other regulators are considering the same transaction in parallel.  Indeed, particularly in jurisdictions such as Australia, New Zealand and the UK, concerns raised by the relevant competition authority (as well as the commencement of a unilateral review) would serve as a clear signal to other jurisdictions that a proposed transaction requires heightened scrutiny from a competition risk perspective.  Parties need to be mindful that even where they are ultimately successful in defending a claim, the process can significantly impact the timing of a transaction.

A change in the wind for Australia’s voluntary regime?

The Chairman of the ACCC has recently “started a debate” advocating for amendments to the current merger laws in Australia, including the introduction of a mandatory notification regime, new rules for firms with existing market power, revision of the merger factors to be considered in a transaction, lowering the standard of proof, and digital platforms being subject to a separate merger test.

The push to introduce a mandatory notification regime further indicates the voluntary notification nature of Australia’s regime should not be taken lightly. Merger reform in Australia has been touted for some time, and the proposals by the ACCC will intensify this debate. Until then, the implications of not notifying in a non-mandatory jurisdiction should continue to be a key consideration by the parties in global merger clearance.