At present, more than 60 jurisdictions have premerger notification and review statutes on the books, and the number continues to grow. Virtually any significant transaction between companies with international operations is now, therefore, potentially subject to premerger notification and waiting period requirements in multiple jurisdictions. In many instances, the applicable jurisdictional thresholds are very low, subjecting transactions to onerous reporting and extended waiting period requirements whether or not the transaction has any significant impact in the jurisdictions concerned.
On June 25, 2003, the International Competition Network (ICN) adopted an initial set of "Recommended Practices for Merger Notification Procedures" directed at reducing the costs and burdens associated with what former U.S. Assistant Attorney General Charles James has aptly described as the "multijurisdictional merger thicket." Launched in October 2001, the ICN is an international organization comprised of competition enforcement agencies from around the globe. Sixty-eight jurisdictions are currently members of ICN. These range from Albania to Zambia and include the United States, the European Union, all EU member states (save Luxembourg), Canada, Mexico and Japan.
The development of recommended practices for merger review in the multijurisdictional context has been one of the ICN’s top priorities since its inception. Last year, at its first annual conference in Naples, Italy, the ICN adopted "Guiding Principles for Merger Notification and Review," The principles include the following elements: sovereignty; transparency; non-discrimination on the basis of nationality; procedural fairness; efficient, timely and effective review; efficiency-enhancing coordination among enforcement agencies; convergence of merger review procedures toward agreed best practices; and the protection of confidential information.
The ICN’s Recommended Practices build on these Guiding Principles. At the second annual conference in Mérida, Mexico, ICN members adopted four new Recommended Practices, dealing with review periods, requirements for initial notification, transparency of merger review proceedings and periodic review of merger control provisions. The ICN also formally adopted three Recommended Practices provisionally endorsed last year in Naples covering jurisdictional nexus, notification thresholds and timing of notification.
More specifically, the recently adopted Recommended Practices offer the following prescriptions:
- Nexus to Reviewing Jurisdiction: Jurisdiction should only be asserted over those transactions that have a material "local nexus" with the jurisdiction concerned, as measured by reference to the activities of at least two parties to the transaction in the local territory and/or by reference to the activities of the acquired business in the local territory.
- Notification Thresholds: Notification thresholds should be based on clear, objectively quantifiable criteria (such as sales levels or asset valuation) that are readily ascertainable by the merging parties. Market share-based notification thresholds should be eliminated.
- Timing of Notification: The execution of a definitive agreement should not be a prerequisite for notification. Parties should be permitted to notify proposed mergers upon certification of a good faith intent to consummate the proposed transaction; and where a waiting period applies, deadlines for filing premerger notification should not be imposed.
- Review Periods: Recognizing that merger transactions are almost always time sensitive, merger reviews should be completed within a reasonable period of time, and merger review systems should incorporate procedures that provide for expedited review and clearance of transactions that do not raise competitive issues. Initial waiting periods should expire within a specified period of six weeks or less following notification; and any extended review, where required, should be completed (or capable of completion where, as in the United States, the waiting period is tolled pending the parties’ compliance with a "Second Request") within six months.
- Requirements for Initial Notification: Initial notification requirements should be limited to information needed to determine whether the transaction raises competitive issues meriting further investigation and avoid imposing unnecessary burdens on parties to transactions that do not raise material competitive concerns. At the initial notification stage, translation and formalistic authentication requirements should be limited. Finally, competition agencies should be available to provide pre-notification guidance on whether transactions are subject to notification requirements and the content of required notifications.
- Transparency: To promote consistency, predictability and, ultimately, fairness, merger control laws should be applied with a high level of transparency, subject to appropriate protection of confidential information. At a minimum, transparency requires ready accessibility as to the jurisdictional scope of the merger control law, the enforcement agency’s decision-making procedures, and the criteria applied in assessing the legality of transactions.
- Review of Merger Control Provisions: Every jurisdiction should periodically review its merger control procedures and consider reforms that promote convergence towards recognized best practices. Such convergence will promote international cooperation, efficiency and the elimination of unnecessary transaction costs in the multijurisdictional merger review process.
These recommendations, if widely implemented by members of the international antitrusts enforcement community, would eliminate a considerable amount of underbrush in the multijurisdictional merger "thicket" and, in the process, go a long way in eliminating unnecessary transaction costs associated with the transborder merger review process. What are the prospects for meaningful procedural reform? So far, there is reason to be cautiously optimistic. In its recently announced merger reform package, the European Commission eliminated both the "definitive agreement" requirement and the one-week filing deadline under its Merger Control Regulation, citing the ICN’s Recommended Practices as weighing heavily in its thinking. Immediately following the Mérida conference, a panel of Latin American enforcement officials (including representatives from Brazil and Mexico) expressed their commitment to implement reforms consistent with the ICN’s recommendations. At the Mérida conference itself, Giuseppe Tesauro, head of the Italian competition agency, proposed that the ICN take a more active role in promoting implementation by calling upon competition agencies to present self-evaluative annual reports at future ICN annual conferences that set forth a "scorecard" on compliance with Recommended Practices and contemplated reforms directed at achieving compliance.
The ICN is also exploring additional recommendations for consideration by the international enforcement community, including confidentiality, procedural fairness, "Phase II" procedures, multijurisdictional coordination and filing fees. Additional Recommended Practices in one or more of these areas is likely to be on the agenda for next year’s ICN conference in Seoul, South Korea.
For the time being, however, transactions between multinationals continue to face a complicated array of potential international filing requirements, a circumstance that raises important timing and strategic issues. Moreover, although adoption of the ICN recommendations will mitigate the problem, it will not eliminate these issues entirely, particularly in an environment of increasing coordination among local antitrust enforcement agencies.
Visit www.internationalcompetitionnetwork.org for additional information about the ICN’s merger reform project and other initiatives.
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Washington Antitrust Partner Joe Winterscheid is currently serving as a private sector advisor to the U.S. antitrust enforcement agencies on the ICN’s Merger Notification and Procedures Subgroup, which has been responsible for the development of these Recommended Practices. In addition to years of practical experience in obtaining multijurisdictional merger clearances, including five years of practice in Brussels, Joe has previously served as chair of the ABA Antitrust Section’s International Antitrust and Foreign Competition Law Committee and has presented recommendations and testimony on the subject to Organization for Economic Cooperation and Development’s Competition Committee, U. S. Department of Justice’s International Competition Policy Advisory Committee and the U.S. Federal Trade Commission.