Companies suffer as EU delays M&A approval

Bloomberg

If time is money, big M&A is getting a lot costlier in the European Union thanks to a tactic increasingly deployed by the bloc’s merger watchdogs in Brussels.
Bayer AG’s bid for Monsanto Co is just one of a growing number of deals stalled by regulators stopping the clock more than once
during strictly timetabled in-depth investigations to demand key information they say companies failed to supply on time.
Aside from the delays, companies face astronomical costs meeting the EU’s requests for hundreds of thousands of internal documents such as corporate emails, according to lawyers.
“Many of these clock stoppages involve commission requests for huge volumes of internal documents that companies simply cannot provide, much less review, within the short deadlines they are given during in-depth reviews,” said Chris Cook, a lawyer at Cleary Gottlieb Steen & Hamilton LLP in Brussels, who also faced two “stop the clocks” while advising on the merger between Dow Chemical Co and DuPont Co, which was approved by the EU in March.
Pressing pause twice during an in-depth probe has become commonplace. The EU did it in nearly 30 percent of so-called phase II deal-reviews over the last two years, up from just 5 percent in the previous two years, according to EU data compiled by Bloomberg.
The EU says its tight regulatory deadlines “serve the interests of the companies that are merging” and asserts that analysing reams of internal corporate documents “can provide important insight into a merger’s potential impact on competition.” Still, the commission “is committed to remain proportionate in its requests” by refining topics and search terms as much as possible but that “depends on the cooperation of merging parties,” EU spokesman Ricardo Cardoso said. In its Dow-DuPont case, the commission was quick to blame the firms for delays saying they made its work “significantly more time-consuming and difficult” by missing submission deadlines, including for information on patents and data needed to calculate market shares.

EU Limbo
Qualcomm Inc.’s bid for NXP Semiconductors NV is another deal currently in limbo, held since August 17 by a second EU-mandated pause. Qualcomm, now itself subject to the biggest technology takeover bid ever from Broadcom Ltd., has said it may miss its end-of-year target date to close its NXP acquisition due to regulatory approval delays. These have contributed to concerns about the San Diego-based firm’s future growth, helping suppress its share price and providing Broadcom with
an opportunity.
Qualcomm declined to comment on the EU’s clock stoppages. The firm’s general counsel, Don Rosenberg, acknowledged earlier that progress with regulators was “a little slower” than expected, putting that down to process more than anything else. “We are feeling good about our engagement and that we were going to get to the end as quickly as we can with them,” he said on a call with investors.
In Bayer’s case, EU regulators lifted its second suspension earlier this month and announced they had pushed back their deadline to review the deal by six weeks until March 5. The delays were also a nuisance for Bayer who had spent months insisting it could close its Monsanto deal this year.
“Bayer has from the very beginning dedicated substantial resources to respond to regulators’ inquiries in a very speedy manner and will continue to do so,” the German firm said, adding that it didn’t keep track of the costs incurred gathering data for the EU.
In addition to insisting on timely data, EU merger regulators are sending a clear message that they won’t tolerate being given misleading information. Weeks after the EU fined Facebook Inc. $128 million, regulators accused General Electric Co. in July of deceit during the review of its 1.5 billion-euro takeover of LM Wind Power.
“We can only do our job well if we can rely on cooperation from the companies concerned—they must obtain our approval before they implement their transactions and the information they supply us must be correct and complete,” EU Competition Commissioner Margrethe Vestager said.
Under the EU’s merger-review process, most deals are cleared at the first hurdle, known as a phase I investigation that lasts less than two months at most. The commission can open an in-depth phase II probe if companies haven’t allayed all competition concerns. This prolongs the process by 90 working days or nearly four months.