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Concentrations, including mergers, acquisitions and the creation of “full-function” joint ventures in which the parties exceed certain thresholds must be notified to the European Commission or national competition authorities for authorization before they can be completed.
In this regard, the response to the COVID-19 outbreak has had significant effects for companies in all business sectors and in all countries, effects that, in turn, have had repercussions for commercial transactions. At the same time, the measures taken have had a significant impact on merger control procedures.
Effects on commercial transaction valuation
First, there is no doubt the measures implemented by the EU and Member State governments will have major effects on transactions by businesses and the review by the authorities.
In the medium term, we may see an upturn in what is known as the “failing firm defense”, given that some businesses will encounter financial difficulties in the current circumstances and look for buyers or investors. This concept refers to situations in which transactions that under normal conditions would be regarded as restricting competition might be authorized on grounds that, unless a buyer or an investor intervenes, the target is likely to disappear from the market anyway, with the inevitable loss of its assets.
To date, the European Commission has limited this defense to quite specific instances, but changes to this policy in the coming months cannot be ruled out.
Effects on national proceedings
At the national level, as a result of the Royal Decree 463/2020 of March 14, 2020, declaring the state of emergency (full text available here), all deadlines and time limits in proceedings with the Spanish National Commision for Markets and Competition (“CNMC”) have been suspended. The suspension will last while the Royal Decree remains in effect, potential extensions included.
During that time, prenotification of transactions can go ahead, since the CNMC has confirmed that it will continue working on a remote basis. However, processing may undergo slight delays because of potential difficulties caused by limitations on access to databases and other problems caused by resources not being available.
However, both transactions that are due to be notified while the state of emergency is in force and those that have already been notified and are currently under review will most likely be affected by the suspension of deadlines, which can be expected to delay approvals in most cases.
However, according to a number of media reports, the CNMC Council has apparently decided to hold coming meetings on line and is currently drawing up a new work plan aimed at allowing decisions to be issued on matters under review, even during the period of suspension.
Effects on EU proceedings
Because of the technical and organizational complexities ensuing from the steps taken to deal with the coronavirus, the European Commission has also asked businesses to delay merger notifications wherever possible until further notice, though the Commission has put in place a series of measures to ensure business continuity.
This is because, first, the Commission may experience considerable difficulty in gathering information from third parties (customers, competitors, suppliers) in the coming weeks, given the prevalence of remote working and temporary layoffs at many companies and, second, limitations on access to information for other reasons.
In addition, the Commission has also restricted hard copy delivery of documents and has announced that it will temporarily accept electronic filing of notifications, either to the mailbox of the Commission registry or via the eTrustEx platform. The Commission’s announcement may be viewed here.
As for the practical effects of these measures, three scenarios can be identified, depending on the current phase of the transaction.
- Prenotification stage not started: if a prenotification of a transaction has not yet been made, it may be advisable to postpone as the Commission has requested, unless there are good reasons for moving forward.
- Prenotification stage: the Commission can be expected to delay giving the green light to formal notification of the transaction by roughly two to four weeks (or even more, depending on the measures taken by the national governments and the European Commission itself). To avoid possible delays, businesses whose transactions are currently in the prenotification stage should submit a clear explanation of the reasons why review of their transactions should be given priority.
- Notification stage: if the transaction has already been notified, processing through regular channels will continue, though time limits may be suspended for a variety of reasons. In addition, in those cases where prima facie there would not be any problem, the Commission could allow the time period to elapse, so the transaction would be understood to be tacitly approved, or the Commission could ask the parties to withdraw the notification and resubmit it after the situation has returned to normal (in any case, approval can be expected to be forthcoming for transactions already notified that do not involve any competition issues, do not require market testing and are being reviewed under the simplified procedure).
Furthermore, in view of the exceptional circumstances, the Commission could well decide to lift the “standstill obligation”, i.e., the obligation to refrain from implementing notified transactions pending approval, in particular in those cases in which delaying approval could entail serious risk to implementation of the transaction.
Effects on negotiations
The above measures could have major implications for negotiations, especially regarding the clauses in the transactions agreement that might be affected.
In particular, it would be advisable to keep in mind the impact on time limits when it comes to formulating the conditions precedent and the so-called “longstop date” or at least the possibility of negotiating specific exemptions or waivers to make allowance for potential delays in approval of the merger.
Authors: Andrew Ward, Irene Moreno-Tapia, Marta Simón, and Alexandre Picón
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