Antitrust intervention targeted life sciences and transport sectors but the global focus was on digital

Following a flood of expert reports in 2019 setting out recommendations for reform, authorities and governments worked hard to put together concrete proposals, many of which were unveiled in the last 12 months. We set out the status and direction of travel below.

All of this talk is yet, however, to crystallise into enforcement action. In terms of global M&A volumes, the TMT sector accounted for the largest proportion in 2020 (27%), with technology deals making up the majority (20%) of that total. By contrast, TMT only accounted for 14% of antitrust intervention (ie deals prohibited, abandoned and reviews ending in remedies). Only two technology transactions were blocked – the airline booking software merger Sabre/Farelogix and investment technology deal FNZ/GBST. Both were prohibitions by the UK CMA.

Mergers involving Big Tech firms generally received clearance. And while some required extensive remedies (eg the commitments entered into by Google in order to get the green light for its purchase of Fitbit in the EU, Japan and South Africa), others were cleared unconditionally (Amazon/ Deliveroo), albeit after a lengthy investigation. Going forward, we expect to see the rate of antitrust intervention in the TMT sector ramp up as the new/revised rules relating to the digital sector described below are rolled out. 

Putting aside the digital sector, antitrust intervention focused on two sectors in 2020: life sciences and transport & infrastructure. This is consistent with previous years.

Cross-border life sciences mergers in the spotlight

Life sciences deals represented 22% of total deals subject to antitrust intervention, but only 8% of global M&A. A third of the abandoned deals in 2020 were in this sector, including Illumina/PacBio and Johnson & Johnson/Tachosil, both multi-jurisdictional transactions. Another cross-border deal, Elanco’s purchase of Bayer’s animal health business, was subject to divestment remedies in a number of jurisdictions, including the EU, U.S., Australia and Canada.

One abandoned merger and two in-depth remedy cases were attributable to intervention in the Netherlands.

And in the U.S., the life sciences sector, and hospital consolidation in particular, remained a high priority. FTC challenges yielded seven consent decree (remedies) cases in 2020 and five abandoned deals. Towards the end of the year the FTC lost its first challenge to a hospital deal since 2016 (a merger between two Philadelphia hospital systems). But it remains resolute in its scrutiny of the sector. In January 2021, the FTC ordered health insurance companies to submit information so it can study the impact of completed healthcare facility consolidation on competition, stretching back to 2015.

Issues in transport deals fixed with remedies

For transport & infrastructure transactions, the figure was 9% of antitrust intervention, compared to 2% of global M&A. Remedy cases accounted for all of this intervention, spanning across a number of jurisdictions, and relating to a variety of markets, including light commercial vehicles, trains and transportation services. The sector may well be in the spotlight again in 2021. France and Italy abandoned the shipbuilding merger between Fincantieri and Chantiers de L’Atlantique in January, in part due to EC concerns, and the EC has two in-depth investigations open – another in shipbuilding and one in air transport.

Preserving innovation and killer acquisitions remained key focus areas

Cutting across sectors, we saw antitrust authorities continue to intervene on the back of concerns over a loss of, or reduction in, innovation. There were high-profile examples: FTC and CMA concerns, centred on the impact of the deal on the parties’ incentives to innovate, led Illumina to walk away from its acquisition of PacBio. Similar concerns led to remedies (in the EU, U.S. China and South Korea) in relation to Danaher’s acquisition of GE’s biopharma businesses. In fact, assessing the impact of a merger on innovation is now a mainstay in many merger assessments. The CMA, for example, has beefed up its merger assessment guidance to reflect its increased focus on innovation as a parameter of competition.

In many of these cases, the authorities’ focus on innovation went hand in hand with concerns over the removal of nascent competition. Such deals are often described as ‘killer acquisitions’ – acquisitions of start-ups/targets with pipeline products by large players with the aim of preventing the target from emerging as a potential rival. They are particularly prevalent in the digital and pharma sectors and, importantly, may escape merger control review if the target’s turnover does not trigger merger control thresholds. We discuss how some antitrust authorities plan to deal with killer ‘tech’ acquisitions on the following page.

Merger control in the digital sector: the road ahead

The intense focus on merger control policy and enforcement in the digital sector in recent years has two main origins.  First, it is a response to increasing calls for amendments to merger control rules to reflect the fast-evolving nature of digital markets. Second, authorities are seeking to address criticisms of under-enforcement, particularly in relation to ‘killer acquisitions’.

The outcome of these debates looks set to result in a patchwork of approaches across jurisdictions. Some are overlapping,  but many others are diverging. For merging parties, navigating the new landscape as it emerges will pose significant challenges.

There are three main categories of likely change:

1. New separate merger control rules for digital firms

This is the route proposed in the UK, where the Government is working on a new mandatory merger regime for acquisitions by digital firms designated as having ‘Strategic Market Status’. It would sit alongside the standard, voluntary regime and is expected to take effect in the first half of 2021.

In the U.S., a report by the House Subcommittee on Antitrust recommended that dominant platforms should be required to  notify all acquisitions regardless of whether the HSR thresholds are met. Australia and South Africa, too, are progressing  proposals along these lines.

2. Catching ‘killer acquisitions’ with deal value thresholds

Deal value thresholds, which hook transactions even where the target has no, or little, turnover, are one way to ensure that such killer acquisitions are caught and can be reviewed under merger control regimes. A number of jurisdictions proposed them in 2020, including Brazil, India and South Korea.

But the jury is out as to their impact in practice. According to a report by Germany, its deal value threshold (introduced in 2017) has so far not resulted in any anti-competitive mergers being caught. Indeed, early 2021 changes to German antitrust rules introduced a new way to catch such deals – giving the Federal Cartel Office the power to order notification of deals in a particular economic sector even if the target’s activities fall below German merger control thresholds, in cases where that economic sector has already been the subject of a sector inquiry.

This has perhaps fed into the EC’s decision to look instead to its referrals system for the solution. In September, Competition Commissioner Vestager announced that the EC would accept referrals of transactions from Member State antitrust authorities of mergers “worth reviewing at the EU level” even where the national authorities have no power to review themselves. If implemented, this would be a highly controversial use of these referral powers. According to the EC, the new policy should be in place from mid-2021. 

3. Reframing the assessment of digital mergers

This encompasses two potential measures/steps.

1. First, proposals to reverse or amend the burden of proof in digital cases. The U.S. House Subcommittee report recommended that the U.S. merger rules be amended to establish a presumption that any acquisition by a dominant platform is anti-competitive (only rebuttable if the parties can show it is “necessary for serving the public interest and that similar benefits could not be achieved through internal growth and expansion”). In the UK, a lower and more cautious standard of proof is under consideration.
2. Second, established guidance is being revised to take account of digital transformation. We saw this in the EC’s consultation on its over 20 year-old market definition guidelines and the UK’s revised merger assessment guidance. In antitrust guidelines for China’s platform economy, the State Administration for Market Regulation (SAMR) has clarified that deals involving variable interest entity (VIE) structures should be reviewed under the Chinese merger control regime if the notification thresholds are met. We discuss this in more detail later.

These three sets of reforms are forward facing. They aim to enhance antitrust authorities’ ability to review the impact of (and to prevent or modify) digital transactions before they take place. However, authorities are also looking to the past in order to inform future cases, by studying how their merger decisions have impacted digital markets in practice. Some, like the FTC and CMA, have already completed such studies. Others, including the EC, plan to do more going forward. Watch this space.