In merger investigations, the competition authorities are subject to strict, statutory time-limits within which the transaction must be unconditionally or conditionally approved or prohibited altogether. Due to the coronavirus pandemic (COVID-19), competition authorities in different countries are mostly working remotely and have adopted other exceptional arrangements to protect the personnel and other resources as well as to continue the operations of competition authorities as normally as possible. It is, nevertheless, clear that the coronavirus pandemic will affect merger investigations.
The European Commission (the Commission) and national competition authorities in different countries have communicated and issued guidance on the impacts of the coronavirus pandemic on the investigations of pending transactions as well as transactions planned to be notified. Operational guidelines differ somewhat between different competition authorities, which means that more detailed instructions and recommendations should be separately checked from each competition authority.
Is it possible to notify of a transaction to the competition authorities during the coronavirus epidemic?
Filing a notification to the competition authorities is, in principle, possible even in the prevailing circumstances. However, many competition authorities have strongly recommended postponing the notification until a later date.
The Commission recommends postponing the notification of the transaction if the notification can be postponed. If the notifier can provide very compelling reasons to proceed with a merger notification without delay, it is possible to file the notification. However, the Commission has unofficially stated that expediting the notification will lead to delays at the later stage. In the current situation, it is very important to discuss with the Commission before filing the merger notification also regarding transactions that usually do not require preliminary negotiations and in which the so-called simplified merger notification is used. In transactions that may impact or will impact competition, preliminary negotiations with the Commission and common understanding that the notification cannot be postponed are extremely significant in terms of a smooth merger control process.
In Finland, the Finnish Competition and Consumer Authority (FCCA) instructs companies planning to file a merger notification to contact the FCCA’s merger control unit at the earliest possible stage before filing the merger notification. The FCCA also recommends postponing the notification, if possible.
Many other competition authorities, for example in Germany and Austria, have also recommended postponing notifications until a later date.
In the current situation, transactions should not be notified to the competition authorities unless the filing of the merger notification has been separately agreed in unofficial negotiations with the competition authority in question.
Will merger investigations be prolonged?
Merger investigations must be completed within the applicable statutory time limits. However, provisions concerning merger control include the possibility to suspend and/or extend the time limits in certain situations even under normal circumstances. Competition authorities are currently exploiting these possibilities more frequently than usual.
Several competition authorities have also reported that merger investigations may be prolonged due to the coronavirus pandemic. Delays in investigations are naturally case-specific and may result from delays in the so-called pre-notification phase taking place before the filing of the notification or from the fact that the competition authority, for example, fails to obtain the requested information in due time or from a sample that is sufficiently representative.
The Commission has stated that it will make every effort to investigate transactions without delay, but it has emphasised, as mentioned hereinabove, the importance of postponing the notifications and preliminary negotiations in order for the ongoing investigations to progress without further delays. The Commission prioritises ongoing investigations, which means that the pre-notification phase of especially challenging transactions may be very long under these circumstances.
Several national competition authorities have issued similar statements. The FCCA has warned about the delays in investigations and reported its preparedness to suspend time limits on a case-by-case basis if it is otherwise unable to carry out the necessary investigations. It can be assumed that the unofficial pre-notification phase at the FCCA will also last longer than usually, since it is only possible to arrange preliminary negotiations through remote connections.
The competition authority in France has stated that companies must be prepared for delays and it cannot process transactions within normal deadlines. More robust actions have also been taken and in Spain, for example, all time-limits for authorities, including time-limits for competition authorities, have been categorically suspended.
Do the investigations differ from the normal investigations?
In merger investigations, impacts of the transaction on relevant markets are compared with a situation in which the transaction did not take place. What is investigated remains basically the same even in exceptional circumstances.
However, different transactions require different amount of investigation work. So far, simple transactions in which the parties are not operating on the same markets or overlaps are minimal have been approved, for example, in the Commission normally and within the normal schedule.
In challenging transactions, however, obtaining information from parties external to the transaction, which is an essential part of the merger investigation, has become a practical problem. In practice, the competition authority sends a great number of queries and requests for information to companies competing with the transaction parties as well as to the customers and suppliers of the parties. Received responses are considered when assessing the impacts of the transaction. Currently, competition authorities are faced with difficulties as regards the contacting of these parties or slow responses. This is only natural, since all companies are operating in exceptional circumstances and have limited resources to reply to the competition authority’s queries. This delays and complicates the investigations of the competition authorities.
Investigations are currently further complicated, since the competition authorities have been forced to adopt video conferences, digital platform and other similar tools more comprehensively. This is particularly relevant when the digital tools and other tools enabling remote work used by the authorities are not sufficiently modern and effective or function poorly through remote connections.
If anything good comes out of this coronavirus epidemic, it would be that the competition authorities will hopefully start using video conferences and electronically delivered documents more often in the future. It is highly desirable, for example, that the Commission would allow the electronic submission of the merger notification, at least as an alternative to a physical delivery.
Is it easier or harder to get a merger decision?
What is being investigated remains basically the same, so the exceptional situation as such will not affect the assessment of the impact of the transaction.
However, the coronavirus pandemic will have different sector-specific impacts. For example, the impacts on air traffic and the tourism sector are likely to be so extensive and significant that the whole market must be assessed against a different framework than before the coronavirus crisis.
Market shares may be higher than before if the coronavirus epidemic continues or after it, while the markets are concentrating on the consequences of the crisis. Therefore, in some cases, market shares that have seemed high may no longer be similarly critical for the approval of the transaction. It is also possible that the demand or ability to adjust the production must be assessed somewhat differently than a certain sector or market has assessed it before. Furthermore, the price that the buyers are willing to pay for a product or service can be considerably different from the price before the pandemic. This may mean that the assessment of the price effect of the transaction may differ from the assessment made under normal circumstances.
The competition authorities has nevertheless emphasised that the criteria for accepting the so-called failing firm defence will not be lowered. The failing firm defence means that, in certain situations, the transaction cannot be deemed to significantly impede competition if the absence of the transaction would result in the exit of the target of the transaction from the market due, for example, to bankruptcy. However, it is likely that the number of companies that can effectively invoke the failing firm defence as grounds for the approval of the transaction clearly increases in the course of the coronavirus crisis.
In merger investigations, the authorities must also assess how long-lasting the change in the markets actually is. In other words, the authorities must assess whether the companies can actually invoke the market impacts caused by the coronavirus epidemic as grounds for the approval of the transaction and, if they can, to what extent. It can be presumed that the competition authorities will assess the duration of the impacts carefully, which means the use of so-called coronavirus arguments will also be limited and cannot be seen as an easy shortcut to the approval of transactions.