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Last week, Senator Elizabeth Warren and Rep. Alexandria Ocasio- Cortez proposed a ban on mergers during the coronavirus pandemic in order to safeguard the economy from increased monopolization. The Pandemic Anti-Monopoly Act would create a moratorium on mergers involving large companies, including businesses making over $100 million in revenue, private equity firms, and hedge funds for the duration of the crisis. The proposal follows House Judiciary antitrust subcommittee chair Rep. David Cicilline’s call for a merger ban. At an event hosted by the Open Markets Institute, Cicilline sounded the alarm on the private equity firms and proto-monopolies “positioned to swoop in for a buying spree” as small businesses struggle to survive.
The Pandemic Anti-Monopoly Act would preemptively stop harmful mergers that not only affect American consumers, but economies all over the world that rely on the same global supply chains. Undoubtedly, companies looking to acquire struggling businesses during the pandemic will try to take advantage of the “failing firm” argument to justify acquisitions. But what actions have lawmakers and antitrust enforcement officials in other countries undertaken to prevent predatory mergers while businesses struggle?
Before the mergers moratorium proposal, the US antitrust authorities made few changes to merger procedures. The Department of Justice and the Federal Trade Commission declared “business as (almost) usual” and are moving forward with investigations, albeit with slower timelines– the DOJ Antitrust Division is requesting 30 additional days to review merger agreements. In early May, the FTC approved a settlement for AbbVie’s $63 billion acquisition of another pharmaceutical company.
Republican FTC Commissioner Noah Phillips told POLITICO in mid-April that mergers and acquisitions filings are declining, but noted that could change as smaller firms run out of money. In his moratorium proposal, Cicilline concurred, noting that “industry analysts are already beginning to forecast acceleration of deal-making that may hasten concentration across the board.”
In March, the EU’s antitrust authority, the European Commission DG COMP, sent most of its staff home and moved to remote meetings. The DG COMP also encouraged companies to delay their merger notifications to the Commission until further notice, as the DG COMP foresees difficulties conducting investigations into mergers and limited access to relevant databases.
The Commission is adopting measures aimed at protecting domestic industries from the “perceived predatory attentions of foreign acquirers seeking to buy assets at crisis prices.” The Commission has issued guidelines on screening foreign investments in EU companies and urged states without screening procedures to establish them. An EU draft proposal also would also loosen restrictions on state handouts so state governments can support businesses, a measure that would make businesses less vulnerable to acquisitions.
As for actions by EU member countries, the Spanish government decreed that investments in key domestic assets such as infrastructure, technology, and media must be approved by the government. Spain is also restricting foreign direct investments made by government-controlled investors from outside the EU, investors in strategic industries of other EU states, and investors that have been tried for illegal conduct.
Other EU member states implementing similar guidelines include Germany, which is restricting foreign direct investment in its national industry sector, and Italy, which is blocking acquisitions of “strategic” companies by foreign companies, including potentially by nationalizing big companies. The Italian Prime Minister Giuseppe Conte also expanded the government’s power to block acquisitions by investors in other EU states.
Along with Italy, France isn’t ruling out nationalization as a means to protect companies. The French finance minister Bruno Le Maire suggested recapitalization, government stakes, and temporary nationalization as options to protect big French companies.
Through means outside their antitrust authorities, the French government exerted control over Amazon’s entrenched power during the pandemic. In April, the French courts ruled that Amazon can only deliver essential items during the pandemic response, after labor unions sued Amazon for failing to protect workers from coronavirus exposure. Amazon chose to shut down its six French warehouses rather than risk the 1 million euro per day fine for not complying with the court order to reassess risks to warehouse workers in consultation with labor unions. Amazon is fulfilling orders to French customers via warehouses in nearby countries. Though Amazon only had six warehouses in the country, it was France’s largest online retailer as of 2018.
The UK Competition and Markets Authority (CMA) asked merging companies to delay formal filings, and the pre-notification process is delayed. The CMA may also waive penalties for companies that aren’t able to respond to requests for information if they experience pandemic related issues. Although proposed deals already under review are still complying with strict deadlines, the CMA is seeking to take pandemic related challenges “into account where it can.” The CMA also relaxed competition laws on sharing data and logistics to help food retailers deal with consumer demand.
In preparation for more businesses proposing mergers as an alternative to leaving the market, the CMA released guidance on what constitutes a failing firm claim. In assessing those claims, the CMA will consider if the acquired company would have exited the market without the merger, whether another firm would have proposed a merger, and compare the effects of the potential market exit with the merger on competition.
The CMA has already cleared a merger on the failing firm grounds– Amazon’s acquisition of Deliveroo was under investigation by the CMA as it would potentially reduce competition in the online restaurant food market. In the wake of coronavirus, the CMA allowed Amazon to go through with the acquisition, as the once successful Deliveroo is now failing owing to the closure of restaurants it relied on for sales.
Australia’s merger control regime is a bit different from the U.S. The regime is voluntary, meaning that parties are not required to notify Australia’s antitrust regulator, the Australian Competition and Consumer Commission (ACCC), about potential mergers. Merger parties must form their own view of whether competition concerns arise and ACC clearance should be sought. The ACC does reserve the right to open an independent investigation and seek penalties if parties do not seek ACC clearance before merging.
While the ACC has warned that “short-term response measures” should not “give rise to long-term structural damage to competition,” the regulator has not taken very active steps yet to curb potentially accelerated consolidation. ACC has announced that it would enhance efforts to address any behavior by businesses “which seek to exploit the crisis either to unduly enhance their commercial position or harm consumers,” but has not sought to halt mergers.
Instead, the ACC said it would “actively engage with governments and businesses” about potential authorizations that “support coordination between competitors” that would ordinarily be prohibited but which is “in the public interest at this time.” The ACCC said it would seek to minimize “regulatory burden” as much as possible.
China’s antitrust authority, the State Administration for Market Regulation (SAMR), revised merger filing procedures in early February to proceed with reviews without in person meetings or submissions. The SAMR has since used email, mail and teleconferencing to review mergers without considerable delays. The SAMR also took enforcement action against companies accused of “stockpiling, forcing up prices and colluding on price increases.”
Similarly to the US’s downturn in merger deals, the number of acquisitions in China tumbled back in early February during the first wave of the pandemic, potentially affecting the number of deals across the region. Since then, the SAMR pledged to expedite merger reviews related to essential products and struggling industries during the pandemic, and cleared three global merger deals. As the pandemic response continues, there is considerable chatter from EU and American companies about possible takeovers from Chinese companies.
Similar to Australia, Canada’s antitrust regulator, the Competition Bureau, released a statement acknowledging the need for business collaboration to respond to the pandemic and said they would allow such collaboration if it is done in good faith. The Competition Bureau emphasized that it has “zero tolerance for any attempts to abuse this flexibility or the guidance offered herein as cover for unnecessary conduct that would violate the Competition Act.”
While the Competition Bureau has not announced specific merger regulations, it has created a COVID task force to assess proposed business collaborations in order to “facilitate rapid decisions to enable business to support the crisis response efforts.”
Competition Bureau Commissioner Matthew Boswell issued a statement assuring the country that the Bureau would remain “vigilant against potentially harmful anti-competitive conduct by those who may seek to take advantage of consumers and businesses during these extraordinary circumstances.”
In response to COVID, the Bureau’s staff is working remotely, and the Bureau shut down both its whistleblower hotline and its merger unit phone line, asking those who need to connect with staff to do so over email.
The Russian Federal Antimonopoly Service (FAS) is operating normally, though “planned on-site investigations are being suspended” and hearings are being postponed or conducted remotely. The merger clearance process is delayed. Like many other antitrust authorities, the FAS is focused on price gouging for essential products. The authority launched three probes investigating suppliers who are alleged to have raised prices of medical masks.
Although the Russian government has not made statements in the vein of blocking foreign investments like the EU states, private lenders in Russia are speculating increased consolidation in the banking sector via the acquisition of “unwanted assets” in the wake of the pandemic. The co-founder of Russia’s third-largest private lender, Sergey Khotimskiy, says Sovcombank plans on making acquisitions of weakened Russian banking assets held by foreign shareholders looking for an exit. Khotimskiy says private lenders are looking to gain ground from public-sector banks which dominate the market.
In March, India’s government proceeded with a merger of 10 state-owned banks, despite the pandemic. While it is operating at reduced capacity and has pushed back deadlines, India’s antitrust regulator, the Competition Commission of India (CCI), continued to approve mergers throughout the month of April. On April 19, 2020, the CCI released an advisory informing businesses that it would allow cooperation between businesses that benefited the consumer only when the cooperation was in response to the pandemic. In the advisory, the CCI warned businesses “not to take advantage of COVID-19 to contravene” Indian antitrust law. The Indian Ministry of Commerce also tightened restrictions on Chinese investment to prevent “opportunistic takeovers” of Indian companies.
Following the deadly earthquake that hit Japan in 2011, the Japan Fair Trade Commission (JFTC) published “Examples of Antimonopoly Act Applications during the Earthquake Disaster and other Emergencies”. The JFTC is yet to publish a similar guide for the COVID-19 pandemic, though the Commission looked into anti-competitive behavior such as “tie-in sales”, where buyers must purchase other products in order to buy masks, and banned price gouging for face masks.
Although the JFTC updated their merger guidelines back in February 2020, the Revolving Door Project was unable to find recent statements on updated merger guidelines in the wake of the pandemic. In terms of merger deals during the pandemic, O’Melveny & Myers, an international law firm with a large antitrust practice, noted that the JFTC “has accepted” the failing firm argument in merger cases in the past. As businesses struggle from the impact of the coronavirus, the failing firm argument will be key to law firms like O’Melveny gaining merger approvals for their corporate clients.
In accordance with the country’s coronavirus response, the Korean Fair Trade Commission (KFTC) put in-person meetings for investigations on hold but continues investigations through written reports. Like Japan, the KFTC also allows merging parties to use the failing firm argument. The KFTC already approved one such merger utilizing the failing firm argument, Jeju Air’s $45 million acquisition of Eastar Jet. In a statement on the merger, the KFTC said the Commission “conducted the review as promptly as possible, considering the circumstance of the airline industry suffering from the aftermath of the pandemic.”
US lawmakers’ proposed Pandemic Anti-Monopoly Act stands alone in its breadth of preventing harm to consumers and global supply chains, but government and antitrust authorities in other countries are also taking steps to mitigate harm to their economies to varying degrees. Countries are enacting screenings of foreign investments, providing financial support for businesses in key sectors, guiding the application of failing firm arguments, and considering government stakes and nationalization in their efforts to protect consumers from the fallout of increased market concentration. While the Pandemic Anti-Monopoly Act awaits congressional approval, President Trump’s competition regulators are falling behind their overseas counterparts.