This post takes a closer look at three of the transactions currently undergoing review in Europe with the heaviest political implications, and on what can be drawn from them.
With M&A activity on record levels, times will be far from boring for antitrust and foreign investment control regulators. While transactions will be assessed on the merits, time and again there are deals that stand out because of their political angle. This can be because of a certain political focus on the concerned industry/products, or because of the public eye on the respective transaction. Often one leads to the other.
Either factor can influence merger reviews: Regulators might feel more inclined to ask certain questions, third-party submissions might focus on certain (political) topics, and foreign investment reviews have gained more political importance anyway. I will take a brief look at three of the current transactions with the “heaviest” political implications in Europe: Nvidia’s acquisition of Arm, GlobalWafer’s offer for Siltronic, and Facebook’s purchase of Kustomer.
An obvious choice: US chipmaker Nvidia plans to acquire UK chip designer Arm during a time in which European industries are suffering heavily from the global chip shortage. 22 of the 27 EU Member States have recently stressed the importance of Europe’s semiconductor industry (query whether UK-based Arm is considered to be related to that) and have pledged financial support (here).
Irrespective of the political landscape, the parties are facing concerns inter alia over access to Arm’s technology and foreclosure risks. The UK regulator CMA recommended a referral of the case to Phase II, and the FT reports that remedies offered to the European Commission are not sufficient to address the regulator’s concerns – and that came out even before the transaction was formerly notified to the Commission yesterday.
The chip crisis and the political focus on the semiconductor industry might not have been foreseeable in their entirety when the deal was announced in September 2020, but these factors very likely have not made things easier for the parties with a view to bringing the deal over the finish line in Europe (including the UK).
Another chip-related deal, looking like a blueprint for a political case: Taiwanese wafer manufacturer intends to acquire German wafer manufacturer via a public bid in the midst of a global chip crisis which hits the German automotive industry hard, and is in turn at least partially attributed to a shortage of wafers (wafers are required to produce chips).
The German Bundeskartellamt cleared the transaction already in February 2021, not missing to point out that the regulator was not competent to review the case under “foreign trade law”. And while the parties received foreign investment control approval from the Committee on Foreign Investment in the United States (CFIUS) in March, six months later the corresponding review by the German Ministry for Economic Affairs is still ongoing. Reportedly, the review could even still last some time and is likely to require mitigation measures to get approval.
In a time where Europe wants to strengthen its position in the tech industry, at least judging from the outside it is not surprising to see the case scrutinized in detail. German politicians have voiced concerns early on. Stressing the importance of Europe’s semiconductor industry and pledging financial support (as mentioned above) would have been difficult to reconcile with quickly waving a sale to a non-EU investor through. Unfortunately, decisions in foreign investment cases are not published in Germany, but it will be worth taking a close eye on what becomes known publicly once the Ministry has taken its decision.
Admittedly, just about every Facebook transaction is somewhat political these days – even when acquiring a company offering customer-relationship-management software. The questions that seem to linger are: Should large gatekeepers still be permitted to even acquire any company? And what “significant impediment to effective competition” does there need to be for a regulator to voice concerns? Those questions are not even factoring in the demands for a reversal of the burden of proof for gatekeeper acquisitions.
In the case of Facebook/Kustomer, the scrutiny started with a merger control proceeding in Austria in March. The Austrian Bundeswettbewerbsbehörde filed a request for referral to the European Commission just two days after having received the notification. Now the Commission’s review is in Phase 2, with the deadline having been extended twice already and now set for 7 January 2022.
To make things even more complicated, the German Bundeskartellamt announced in July – two months after the European Commission had officially started its review – that it was assessing whether the acquisition is notifiable in Germany under the local transaction value thresholds. One might think that the European Commission’s review would prevail in any event? Well, in cases of referrals made by Member States, the Commission is only competent to review a deal in relation to the Member States which have joined the referral.
The Bundeskartellamt did not join the referral at the time because of its policy to only consider a referral for deals notifiable in Germany (and whether or not the deal is notifiable in Germany is only now being assessed). What this means is: The parties could potentially face a merger review in Germany, even though the Bundeskartellamt might have joined the referral to the Commission in case the “Amt” had determined earlier that the transaction was notifiable in Germany. And in its potential own review, the Bundeskartellamt could deviate from the Commission’s findings.
Not easy to get one’s head around this. They say a good lawyer needs to be able to explain things in a way his/her (non-lawyer) grandparent would understand, but I am not sure that is – with all due respect to the grandparents out there – possible for this case and all its implications for merger policy.
Where from here?
The outcome of the three cases will answer a number of questions related to politics and policy: Will a political desire to support European tech capabilities somehow find its way into merger review? Will this political desire also be taken into account in a parallel (German) foreign investment filing and to which extent? Just how much headwind will gatekeepers face in larger acquisitions outside their core product market?
Even before one has the answers, the above-mentioned cases show once again how important the right narrative and the political landscape can be to at least slightly smoothen the journey from signing to closing a deal. This should be dealt with during and can ideally be factored into the preparation for merger reviews.
The next cases with a (heavy) political twist could already be on the horizon: Deutsche Telekom is weighing acquisitions in Europe and Deutsche Bank’s CEO has said that mergers between European banks will be necessary. Transactions in both industries would no doubt catch political attention.