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Dow/DuPont Merger Cleared by EU Commission

By Maria E. Sturm

On March 27, 2017 the EU Commission cleared the merger of two U.S. chemical companies – The Dow Chemical Company (Dow) and E.I. du Pont de Nemours and Company (DuPont) according to the EU Merger Regulation. The Commission opened the investigation already in August 2016. The reason for the merger being cleared only now, were strong concerns of the EU Commission, which is the highest antitrust regulating authority in the EU. The EU Commission has the competence and duty to control mergers that exceed the thresholds laid down in Article 1 of the Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (EU Merger Regulation). The merger creates the largest crop protection and seed company in an already highly concentrated market. The field of business of Dow and DuPont is particularly sensitive, as farmers strongly depend on seeds and crop protection at affordable prices.

There were three main issues of concern: The EU Commission expected (1) higher prices, (2) less choice for consumers and (3) substantially less innovation.

Both companies operate in two areas: pesticides and petrochemical products.

 

Pesticides

Concerns:

Pesticides comprise herbicides, insecticides and fungicides. Due to the very high market share of Dow and DuPont, after their merger hardly any competitors would be left on the market. This development would most probably lead to higher prices and less choice for consumers. Furthermore, the merger would have detrimental effects on the innovation efforts in the pesticide branch. Globally, only five enterprises (BASF, Bayer, Syngenta, Dow and DuPont) participate in the research and development activity with regard to pesticides, because only those enterprises have the capacity to do large scale research on all three fields of pesticides. Other competitors in this area have no or only very limited research and development capacities and therefore cannot trigger innovation activity on the market. However, innovation is essential to develop pesticides that are less nocuous, more effective or can help when vermin have developed resistances.

Solutions:

Dow and DuPont agreed on selling the worldwide herbicide and insecticide production of DuPont, the worldwide research and development capacities of DuPont and the exclusive license for a DuPont fungicide for rice crop for the European market.

 

Petrochemical products

Concerns:

Dow and DuPont are both in the acid copolymers business. Their merger would reduce the number of competitors in this business from four to three. Furthermore, DuPont has a dominant position in the ionomers business.

Solutions:

Dow sells both its production facilities in Spain and the United States. Furthermore, it terminates its contract with a ionomer provider from whom Dow received the ionomers it sold to its customers.

Dow and DuPont were able to clear initial concerns of the EU Commission about nematicides and seeds. These areas are therefore not affected by the merger decision.

Further mergers are planned in the agro-chemical sector. However, due to the “priority rule” the commission assesses every merger in the order of its notification according to the current market situation. It will be interesting to see, how later mergers will be affected by the Dow/DuPont decision.

European Commission approves the acquisition of LinkedIn by Microsoft, subject to commitments

By Valerio Cosimo Romano

On 6 December 2016 the European Commission (the “Commission”) approved the acquisition of LinkedIn by Microsoft, conditional on compliance with a series of commitments.

Microsoft is an U.S. technology giant. LinkedIn is a company based in the US, operating a social network dedicated to professionals. The parties operate on complementary areas and have limited overlaps. In its investigation, the European Commission focused on professional social network services, customer relationship management software solutions, and online advertising services.

First, the Commission investigated whether, after the merger, Microsoft could have strengthened LinkedIn’s position by pre-installing and integrating the social network on its systems. The European watchdog came to the conclusion that such measures could significantly enhance LinkedIn’s visibility to the detriment of competitors. Second, the Commission investigated the area of customer relationship management software solutions and found that the networking service does not appear to be a must-have, and access to its database is not essential to compete on the market. The Commission therefore concluded that the transaction would not enable Microsoft to foreclose this market. Third, the Commission found that after the transaction a large amount of user data would still be available on the market. Thus, it concluded that there were few competition concerns arising from the combination of the parties’ online non-search service activities and data to be used for advertising purposes. Lastly, even though privacy concerns do not fall within the scope of EU competition law, the Commission analyzed the potential impact of data concentration on the market as a result of the merger. The European competition watchdog concluded that data privacy is an important parameter of competition between professional social networks, which could have been negatively affected by the transaction.

In order to address the competition concerns identified by the Commission, Microsoft committed to (i) ensuring that manufacturers and distributors would be free not to install the social network on Windows and allowing users to remove it from devices where pre-installed; (ii) allowing competing professional social network service providers to keep intact their current levels of interoperability with Microsoft’s products and (iii) granting them access to Microsoft’s proprietary application dedicated to software developers.

In light of these commitments, the Commission gave green light to the acquisition.

Gun-jumping: the French Competition Authority issues highest fine ever for premature engagement in post-M&A integration

By Valerio Cosimo Romano

On 8 November 2016 the French Competition Authority (FCA) imposed a whopping EUR 80 million fine on Altice Luxembourg and its subsidiary SFR Group for implementing two notified transactions before obtaining appropriate merger clearance.

In France, the effective implementation of a concentration is suspended until clearance by the FCA. Pending approval, the concerned parties must behave as competitors and not act as a single entity. Violation of the rule triggers the application of  Section II of Article L. 430-8 of the Commercial Code, which provides for a fine of up to the 5 per cent of the notifying parties’ turnover.

In 2014, Altice and its subsidiary Numbericable had notified the Authority about two distinct concentrations: the acquisition of SFR and that of OTL. Both transactions were approved. However, in 2015 the Authority started suspecting an early implementation of the two transactions and raided the companies’ premises. Evidence showed that the behavior implemented by Altice led to the exercise of decisive influence on its targets and allowed the company to access strategic information before getting the green light from FCA.

More specifically, Altice had repeatedly validated a number of SFR’s strategic decisions such as pricing and promotional policy, the participation in a tender, the renegotiation of a contract and the joint preparation of an offer. Further, the two companies had exchanged a large amount of strategic information concerning performances and forecasts at a very senior level.

In the second case, Altice had been involved in the OTL’s operational management, had set up a mechanism which allowed access to commercially sensitive information, and had allowed the participation of OTL’s CEO in the group’s decision-making and periodic reporting of commercial performance.

In the past, the FCA had already fined companies for failing to notify or for breach of commitments, but this is the first case in which it ruled on the early implementation of a merger prior to authorization (so called gun-jumping). The fine is also the highest ever imposed for a gun-jumping offence, and is four times higher than the highest sanction registered in Europe to date. According to the FCA, the high amount of fine is justified by the importance of the acquisitions in terms of purchase price and the impact on the telecommunications industry, the breadth, duration, reiteration and deliberate nature of the conduct. Remarkably, the FCA added that in setting the amount of the sanction it had taken account of the fact that the companies had not questioned the circumstances behind the fine and their legal characterization.

This sanction confirms an increased global attention by competition agencies in challenging the practice of gun-jumping. It also denotes a shift in the enforcement leadership on the matter from U.S. to European competition authorities. On a more practical ground, the judgment contributes to shedding legal certainty on the behavior to be avoided in the no man’s land between antitrust notification and clearance. Also, it opens up the debate on how to immediately achieve all the synergies expected from M&A transactions without violating competition law.

European Commission approves a joint venture between the third and fourth largest telecom operators in Italy, subject to structural remedies

By Valerio Cosimo Romano

On 1 September 2016 the European Commission approved a proposed joint venture between Vimpelcom and CK Hutchison, respectively the owners of Wind and H3G (the third and fourth largest telecom operators active in the Italian market). The approval was conditioned on a divestment of assets, which would enable a new operator to enter the market and roll out its own mobile network.

Earlier in 2016, the European Commission had halted the proposed acquisition of O2 by Hutchison in the UK, citing strong concerns that it would have led to less choice and higher prices for consumers, and that the deal would have harmed innovation in the mobile sector.

Currently, the Italian mobile market has four mobile network operators (MNOs) and a number of mobile virtual operators (MVNOs), which use the networks provided by MNOs at wholesale rates.

Vimpelcom and CK Hutchison notified the EU Commission of the proposed joint venture on February 5, 2016. After an in-depth phase-II review, the EU Commission came to the conclusion that the transaction would have reduced competition in the market. More in detail, the European Commission found that the three resulting operators (TIM, Vodafone and the Wind/H3G joint venture) would have had fewer incentives to compete, resulting in a lessening of choice and a decrease in quality of services for consumers, as well as higher retail mobile prices. Further, the Commission identified the possibility of coordination on a sustainable basis, likely to result in an increase in retail mobile prices for Italian consumers. The European Commission also expressed concern that, following the transaction, the incumbent and entrant MVNOs would have  less choice of host networks and hence a weaker negotiating position to obtain favorable wholesale access terms.

In order to address the Commission’s concerns, the concerned parties offered to divest and share sufficient assets (mobile radio spectrum; mobile base station sites, access to 2G, 3G and 4G, and newer technologies) to allow Iliad to enter the Italian market as a fourth mobile network operator and use the joint venture’s network to offer customers nationwide mobile services until the new mobile network operator has built its own mobile network.

The Commission found that the proposed structural remedies offered by Hutchison and VimpelCom fully address its concerns and will preserve effective competition, maintain incentives to invest in innovative technologies, and ensure that consumers will continue to benefit from effective competition. For the reasons above, the Commission approved the proposed transaction.

Impala criticizes EU decision approving Sony deal with the Michael Jackson estate

By Nicole Daniel

In August 2016 the trade body Impala heavily criticized the European Commission’s decision to clear a deal between Sony Corporation of America and the Michael Jackson Estate, arguing that the deal reinforces Sony’s market power.

Sony Corporation of America plans to buy the Michael Jackson estate’s half of the music-publishing joint venture Sony/ATV Music Publishing.

The Commission conducted a preliminary investigation during which it also examined the views of competitors and consumers. Accordingly, Impala raised concerns that this transaction might lead to a reinforcement of Sony’s market power, thereby creating serious competition issues. Impala even described the buyout as “transformative” and asked the Commission to impose tough remedies or open a Phase 2 investigation.

The Commission, however, was of the opinion that there would be no negative impact in any of the markets for recorded music and music publishing in the EEA from the transaction. Furthermore, the Commission found that compared to the situation prior to the transaction, the merger will not materially increase Sony’s market power as compared to other digital music providers.

U.S. DOJ does not challenge Expedia’s acquisition of Orbitz

By Gabriele Accardo

On September 16, 2015, following a six-month investigation, the U.S. Department of Justice antitrust division concluded that Expedia’s acquisition of Orbitz is not likely to substantially lessen competition or harm U.S. consumers. The DOJ was not concerned that that the transaction would lead to a duopoly in the market for online travel booking, the other main operator being Priceline.

First, the DOJ found no evidence the merger is likely to result in new charges being imposed directly on consumers for using Expedia or Orbitz.

Second, since Orbitz is only a small source of bookings for most of airlines, car rental companies and hotels, the DOJ considered that Orbitz actually has had no impact in recent years on the commissions Expedia charges.  Many independent hotel operators, for example, do not contract with Orbitz, and those hotels that do often obtain very few bookings from its site.  In addition, beyond Expedia and Orbitz, the DOJ noted that travel service providers have alternative ways to attract customers and obtain bookings, including Expedia’s largest online travel agent rival, Priceline.

Finally, according to the DOJ, evidence suggests that the online travel business is rapidly evolving.  In the past 18 months, for example, the industry has seen the introduction of TripAdvisor’s Instant Booking service and Google’s Hotel and Flight Finder with related booking functionality.

Online travel agencies have been under scrutiny by several competition authorities in Europe with regards to clauses in the contracts with hotels that obliged hotels to offer certain online travel agencies the same or better room prices and conditions as the hotels made available on all online and offline distribution channels (so-called “Most Favored Nation” or “MFN” clauses) (see, Newsletter 2/2015, p. 14 Newsletter 1/2015, p. 17 Newsletter 3/2014, p.12 Newsletter 1/2014, p.15, Newsletter 5-6/2013, p.9 and 11, Newsletter No. 4-5/2012, p. 15, for additional background).

Swiss Competition Commission approves merger of local.ch and search.ch

By Gabriele Accardo

On March 24, 2015, the Swiss Competition Commission (“COMCO”) approved (press release available in French or in Italian) the merger between Swisscom Directories Ltd (“local.ch”) and search.ch despite the fact that the concentration will result in the creation of a dominant position in the online directories market. Swisscom Directories, with its online directories platform local.ch and its Local Guide phone directories business, is a leading advertiser and provider of directories in Switzerland. search.ch is a leading search and information service in Switzerland. Amongst other things, it offers an electronic telephone directory, an interactive map, a route planner, local weather reports, and up-to-date TV and cinema listings.

Following an in-depth investigation, COMCO concluded that effective competition would not be impeded because the two companies will continue to operate as separate services to create strong Swiss alternatives to global providers of search engines, such as Google and social networks, such as Facebook.