By Joel R. Grosberg, Raymond A. Jacobsen and Carla A.R. Hine
FTC/DOJ is more likely to consider vertical issues and less traditional theories of harm, resulting in more second requests and potentially more challenges.
Even with a Democratic, more aggressive FTC/DOJ, the judiciary will still largely be Republican and more business-oriented. As a result, companies may be more willing to litigate merger challenges in court.
With the economic downturn resulting in fewer large-scale deals, FTC/DOJ may be more vigilant in seeking to challenge transactions that did not meet the premerger notification thresholds of the Hart-Scott-Rodino Antitrust Improvements Act.
FTC/DOJ will continue to focus on acquisitions resulting in minority positions in competing businesses.
The DOJ is likely to scrutinize consolidation among insurance companies. The FTC is likely to scrutinize transactions in the energy and health care (hospitals and pharmaceuticals) industries.
Businesses contemplating transactions may consider the following action items:
Update antitrust compliance program: With increased antitrust enforcement, it will be important for companies to implement or update antitrust compliance programs, in particular, reviewing existing documents and educating employees on document creation and integration planning guidelines.
Analyze competitor transactions/conduct: If competitors’ or suppliers’ transactions will hurt a company’s business, that company should think about complaining to the antitrust agencies. The new administration likely will be more receptive to complaints and more willing to challenge problematic transactions or conduct. Complaining to a more aggressive FTC/DOJ about a transaction or conduct is often a more cost effective option than civil litigation.
Consider the acquisition or sale of struggling companies and subsidiaries: Although the FTC/DOJ is likely to be more aggressive in merger enforcement, the current economic environment may allow companies to acquire or merge with significant competitors. The FTC/DOJ will look at the future competitive significance of merging parties and analyze whether a company will remain a viable competitor, or may be a “failing firm.” The failing firm defense, which is usually difficult for merging parties to establish, allows an otherwise anticompetitive merger to proceed if it meets certain criteria outlined in the Horizontal Merger Guidelines of the FTC and the DOJ. While it is unclear whether the agencies will be more amenable to this defense, because the economic crisis has had a dramatic impact on particular industries and companies, businesses may have the opportunity to enter into transactions that previously seemed problematic from an antitrust perspective.
Amendment of the German Foreign Trade Act – New Obstacles for Foreign Investors
By Patrick Nordhues
On February 13, 2009, the German Parliament passed a bill amending the German Foreign Trade Act and German Foreign Trade Regulation (Dreizehntes Gesetz zur Änderung des Außenwirtschaftsgesetzes und der Außenwirtschaftsverordnung). The bill still requires ratification by the German Federal President after which the bill will become effective immediately.
The recent amendments to the Foreign Trade Act and the Foreign Trade Regulation were initiated by the controversy about investments undertaken by state funds from China, Singapore and the Gulf states, and have encountered significant criticism. For example, the longtime shareholder of Daimler AG, the Kuwait Investment Authority, has shown that state funds are, in general, reliable investors who may not necessarily seek any influence on the management of a company.
A key element of the amendment gives the right to investigate and prohibit acquisitions of domestic enterprises, or parts thereof, by investors from countries outside the European Union (EU) or the European Free Trade Association (EFTA). The Federal Ministry of Economics and Technology (Bundesministerium für Wirtschaft und Technologie, BMWi) will administer the investigation and prohibition of covered acquisitions.
While the former version of the Foreign Trade Act already contains a catalogue of situations in which transactions could be restricted (e.g., acquisition of arms manufacturers), the recent amendments now stipulate restriction rights for all acquisitions by an investor that may threaten Germany’s “public order or national security.”
The BMWi is authorized to investigate an acquisition of a domestic enterprise or a participation of 25 percent or more of the voting rights in such enterprise by an investor. BMWi’s investigation rights apply not only to a direct acquisition by an investor, but also to an acquisition of a domestic entity which holds at least 25 percent of the voting rights in a relevant enterprise (an “indirect acquisition”). In addition, the investigation rights apply to an acquisition by an entity domiciled in the EU or EFTA if an investor holds at least 25 percent of the voting rights in such entity and there is an indication of circumvention of the investigation rights.
The BMWi investigation process consists of two stages. First, the BMWi decides at any time within a period of three months following the conclusion of the purchase agreement whether to investigate the applicable acquisition. If the BMWi decides to commence an investigation, the BMWi will notify the investor who would then be required to submit complete documentation of the transaction to the BMWi.
Second, following the receipt of the full documentation of the transaction, the BMWi will review the transaction within a period of two months to determine whether to prohibit or restrict the transaction for reasons of public order or national security. The BMWi has the authority to order the unwinding of an already completed transaction or prohibit the exercise of voting rights by the investor. The BMWi may appoint a trustee for the unwinding of the transaction. The various administrative acts of the BMWi (e.g., the prohibition of an already completed acquisition) are subject to judicial review by the administrative courts.
Threat to Public Order or National Security
Under the new amendments, the BMWi may prohibit an acquisition if Germany’s public order or national security is threatened. In establishing the prohibition right, the German legislator was guided by EU provisions that allow each EU member state to restrict certain transactions if justified by reasons of public order or national security.
The European Court of Justice (EuGH) has acknowledged that national security is affected in cases where the supply of telecommunication, electricity or other services having strategic importance could be endangered. However, the enumeration of these industries is not conclusive. Investments in other industries could also be regarded as threats to Germany’s public order or national security.
Validity of Purchase Agreement Subject to a Condition Subsequent
Any purchase agreement regarding the acquisition of a domestic enterprise that could be investigated by the BMWi is, by operation of law, subject to the condition subsequent that the BMWi does not initiate a review of and prohibit the acquisition within the designated review period.
In case of a concluded purchase agreement that the BMWi subsequently prohibits, the purchase agreement will be retroactively deemed void. A transfer of the shares, however, is not affected by a prohibition if already completed during the investigation period. But, the parties would be obligated to re-transfer the shares.
Certificate of No Concern
If an investigation by the BMWi seems likely, the investor may seek pre-approval from the BMWi with respect to a proposed transaction prior to the expiration of the investigation periods. Upon a pre-approval application by an investor, the BMWi is expected to issue a certificate of no concern (Unbedenklichkeitsbescheinigung). If within one month after the application the BMWi neither grants the certificate of no concern nor commences an investigation, the certificate of no concern will be deemed as granted. An application for issue of such certificate can be filed prior to the signing of the purchase agreement. It is still unclear which information the investor has to disclose in order to receive the certificate. In general, information regarding the intended acquisition, the purchaser and its business operations will be required.
Consequences for Transactions
The recent amendments to the Foreign Trade Act and the Foreign Trade Regulation will have a material impact on transactions in Germany conducted by foreign investors.
The amendments result in increased requirements for investors with regard to due diligence and legal advice in any proposed transaction. During due diligence, a foreign investor must examine whether the acquisition of the domestic enterprise might affect Germany’s public order or national security.
Parties to a proposed transaction must also consider the timing of the investigation periods and analyze whether to seek pre-approval. If the certificate of no concern is not requested or denied, the investigation by the BMWi may result in a delay of the transaction waiting for the expiration of the BMWi’s investigation periods. In cross-border transactions in which a German enterprise is only one component of the main transaction, the parties to the proposed transaction should evaluate whether to deal with the German enterprise separately in order to avoid delays in the main transaction.
In addition, purchase agreements of transactions covered by the new amendment should include a condition precedent that a certificate of no concern has been granted by the BMWi or that the relevant investigation periods have expired without prohibition by the BMWi.
A broader concern has also been expressed about the uncertainty for transactions resulting from the unknown scope of the BMWi’s interpretation as to whether or not Germany’s “public order and national security” are affected in a proposed transaction.
These elements affect the planning of certain acquisition and the legal certainty for covered transactions and their investors. In addition, the BMWi’s long periods (i.e., three months for commencement of investigation and two months for investigation) affect the legal certainty of a company acquisition until the expiration of the review periods, unless a certificate of no concern is requested and granted. But, the application for a certificate of no concern requires disclosure of the proposed transaction to the BMWi. Finally, with the possible threat of having concluded purchase agreements rendered and deemed void, the stakes are very high indeed for transactions covered by the new amendments.
Thomas Ammermann was also a principal author of this article.
Chinese Antitrust Agency Blocks Coca-Cola Transaction
By Jacqueline Z. Cai and Henry (Litong) Chen
China's Ministry of Commerce (MOFCOM) on March 18, 2009, announced that it was prohibiting Coca-Cola's $2.4 billion bid to acquire Huiyuan Juice, China's leading fruit juice maker. The ruling marks the first transaction blocked by MOFCOM under China's new Anti-Monopoly Law (AML), which went into effect on August 1, 2008. An unofficial English translation of MOFCOM's announcement prepared by MWE China Law Offices for further reference is available at http://www.mwechinalaw.com/documents/mofcom09-22.htm.