With longer road to merger approvals, companies must weigh risk of delay
JOHN BODRUG
CONTRIBUTED TO THE GLOBE AND MAIL
PUBLISHED SEPTEMBER 4, 2018 UPDATED 6 HOURS AGO
As global M&A activity continues to grow, so too does the merger review timeline for complex multinational deals. In some cases, the review process can extend well over a year. Eyewear maker Luxottica and ophthalmic lens maker Essilor recently announced that they expect to close their merger in late September after receiving clearance in China, more than 18 months after announcing their proposed transaction in January, 2017. Similarly, Dow/Dupont and Bayer/Monsanto each took about 20 months to obtain regulatory clearances, while Agrium/PotashCorp took about 15 months. In Canada, the Competition Bureau’s average review time for complex mergers has increased from about 36 days in 2015-16 to almost 53 days in 2017-18.
In light of this trend, companies considering embarking on a merger transaction may need to prepare for a lengthy – and potentially costly – period of uncertainty. Pending regulatory approvals, the businesses normally cannot be integrated, creating challenges for managers while competitors seek to exploit the uncertainty by targeting key employees, customers and suppliers.
One reason for some of these delays is that competition authorities are increasingly looking beyond the typical “horizontal” competition issue, which focuses on whether the parties are direct competitors and whether the merger will allow the new entity to raise prices in the markets in which the parties compete.
They are now also more closely scrutinizing “vertical” mergers between a customer and a supplier, as in the case of Luxottica and Essilor. While Luxottica and Essilor each have some retail operations, their businesses are largely complementary: Luxottica sells eyewear while Essilor makes lenses. Consequently, the focus of global competition regulators appears to have been on whether the transaction would allow the merged entity to foreclose competition in lenses or frames by tying or bundling their products together or otherwise restrict access to their products by downstream competitors.
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