Antitrust Risk and M&A Strategy
Oxford, England
23 February 2004
Hosted By: Oxford University's Said Business School
NERA Director Dr. Mark Williams spoke at Oxford University's Said Business School on "Antitrust Risk and M&A Strategy" on 23 February 2004. Dr. Williams began by observing that over the last five years, a range of high-profile mergers were prohibited on antitrust grounds. In the UK these include BSkyB/Manchester United, Abbey National/Lloyds TSB, and the bids for Safeway, despite the first being a vertical merger and the latter two being horizontal mergers involving relatively low market shares. In Europe, the Commission blocked a range of deals subsequently overturned on appeal, including Airtours/First Choice, Schneider/Legrand, and Tetra Laval/Sidel. There were also some deals that were withdrawn following intervention by the Commission, like EMI/Warner Music, whose sister transaction AOL/Time Warner was also subject to intense scrutiny. Most significantly, from the US perspective Dr. Williams noted the GE/Honeywell transaction that had already been cleared in the US but was subsequently prohibited in Europe. Dr. Williams noted that at least half of these prohibited transactions were blocked against expectations, pointing to the clear antitrust risk faced by merging parties.
Against this backdrop, Dr. Williams also argued that, in addition to individual deal risk, in recent years merger policy in Europe has also been subject to unusual uncertainty. The debate over the "gap" between the Dominance test and Substantial Lessening of Competition (SLC) has now been resolved by the introduction (from 1 May 2004) of the Significant Impediment to Effective Competition (SIEC) test. In the UK, the referral policy of the Office of Fair Trading (OFT) was thrown into disarray by the IBA Health judgment, until the Court of Appeal effectively restored the original remit of the OFT while arguably raising the evidential burden on the OFT if it wishes to clear a merger.
Dr. Williams commented that a picture of antitrust risk derived from prohibited transactions gave a false picture in two offsetting ways. First, while merger prohibitions -- and successful appeals to the Court of First Instance -- hit the headlines, the vast majority of deals are ultimately cleared. Second, however, a significant number of transactions are cleared only after the merging parties offer significant remedies. Fundamental antitrust risk, he argued, is perhaps best thought of as the risk of prohibition even after remedies have been offered in a timely, up-front fashion.
In his concluding remarks, Dr. Williams remarked on the "old" two-stage view that investment bankers did a deal and then handed it over to the antitrust lawyers to get it through. The change in the antitrust climate has, he argued, introduced antitrust risk assessment at an earlier stage of the bid process. Moreover, antitrust risk is arguably moving from being an afterthought in M&A strategy to an integral part of the process affecting bid valuation, the risk assessment of launching a bid and antitrust due diligence on the target. Said Dr. Williams: "Antitrust is no longer just a footnote."
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