On November 3, 2023, FTC Chair Lina Khan sent a letter addressed to Representative Thomas P. Tiffany describing the FTC’s merger enforcement program during her tenure at the agency. The letter was a response to an inquiry from seven members of congress for information about the costs associated with certain litigated merger challenges brought by the FTC. Chair Khan’s letter included an appendix that listed all of the merger enforcement actions the FTC had initiated during her tenure. The data in that appendix corroborate the key finding from an article I authored for Law360 in October 2023: merger enforcement actions during the Biden Administration are at their lowest level in decades.

The Chair’s letter is also noteworthy because it seems to acknowledge the practical and substantive benefits of consent decrees, which may suggest a softening of the FTC’s views on settlements.

Continue Reading Recently Published FTC Data Confirm Historically Low Number of Merger Enforcement Actions

In quick succession on 7 and 15 November 2023, the Administrative Court of Berlin (Verwaltungsgericht Berlin, the “VG Berlin”) has ruled on procedural matters in foreign direct investment review proceedings of the Federal Ministry for Economic Affairs and Climate Action (the “BMWK”) in two hearings. Because court rulings on these non-public administrative proceedings – which are non-public because they concern national security and public order – have been very rare to date, the court’s clarifications will contribute to legal certainty for companies involved in the proceedings and the BMWK.

Key takeaways

  • In its rulings, the VG Berlin overturned two BMWK decisions on purely formal grounds without having to deal with material law questions (such as the standards of assessment of the BMWK’s or individual case groups of sensitive activities).
  • In the future, the BMWK will need to adhere to the formalistic procedure to be able to effectively enforce its decisions in the event of security concerns regarding foreign investments.

From a practical perspective, it would be regrettable if the open, direct and easily accessible communication channels with the BMWK, which have been appreciated by all parties involved in the proceedings to date, would have to give way to a much more formalistic administrative practice. The BMWK’s open communication has significantly reduced the average duration of investment review procedures and made it easier for companies and legal practitioners to work with the (still developing) German investment review regime.

Continue Reading Berlin court clarifies significant German FDI issues

Das Verwaltungsgericht Berlin (VG Berlin) hat in zwei kurz aufeinanderfolgenden Verhandlungen vom 7. und 15. November 2023 zu Verfahrensfragen bei Investitionsprüfverfahren des Bundesministeriums für Wirtschaft und Klimaschutz (BMWK) geurteilt. Da Gerichtsentscheidungen zu diesen nichtöffentlichen Verwaltungsverfahren – es geht um die nationale Sicherheit und öffentliche Ordnung – bisher sehr rar sind, werden die gerichtlichen Klarstellungen zur Rechtssicherheit für verfahrensbeteiligte Unternehmen sowie das BMWK beitragen.

Wesentliche Punkte

  • In seinen Urteilen hat das VG Berlin zwei Entscheidungen des BMWK aus rein formellen Gründen gekippt, ohne dass es sich mit materiell-rechtlichen Fragen befassen musste (etwa zum Beurteilungsmaßstab des BMWK oder einzelnen Fallgruppen sicherheitsrelevanter Aktivitäten).
  • Das BMWK wird künftig wahrscheinlich stärker auf eine formal-korrekte Verfahrensführung achten, um seine Entscheidungen bei Sicherheitsbedenken gegenüber Auslandsinvestitionen wirksam durchsetzen zu können.

Aus Praxissicht wäre es bedauerlich, wenn dadurch die – von allen Verfahrensbeteiligten bislang geschätzte – offene Kommunikation mit dem BMWK mitsamt kurzer Dienstwege und guter Erreichbarkeit einer deutlich formalistischeren Verwaltungspraxis weichen müsste. Denn durch die offene Kommunikation hat das BMWK die durchschnittliche Verfahrensdauer von Investitionsprüfungen deutlich reduziert und Unternehmen sowie Rechtsanwendern die Arbeit mit dem (noch jungen) deutschen Investitionsprüfungsregime erleichtert.

Continue Reading VG Berlin zu Verfahrensfragen bei der Investitionsprüfung

On October 17, 2023, the U.S. Government Accountability Office (“GAO”) published a report on mergers and acquisitions (“M&A”) in the defense industrial base. The report details the current M&A review process of the Department of Defense (“DOD”) and provides recommendations to proactively assess M&A competition risks.

Currently, DOD’s Industrial Base Policy (“IBP”) office, with input from DOD stakeholders, provides DOD’s recommendations on transactions that could affect the defense industrial base, when asked to do so by the Department of Justice or the Federal Trade Commission (“the Antitrust Agencies”). While DOD does not have a formal role in deciding the outcome of an antitrust review of a transaction, it informs the Antitrust Agencies’ review as an affected “customer”—for example, providing input on potential competitive effects of a transaction.

The GAO report concludes that DOD has, to date, had a reactive role in defense industry M&A review. As a result, the report observes that DOD has missed opportunities to identify transactions that could negatively impact the defense industrial base and to manage the full range of risks that such transactions can present for DOD programs. The GAO believes that DOD’s historically reactive posture has been due in part to a lack of sufficient guidance and resources being made available to those at the DOD who are responsible for providing the DOD’s views to the Antitrust Agencies. For example, current DOD M&A policy, DOD Directive 5000.62, outlines the department-wide policy for assessing M&A in the defense industrial base, explaining that DOD should consider the effect of M&A on competition for prime contracts and subcontracts, on national security, and on innovation risks, but it does not provide a methodology for such assessments.

Further, the report observes that IBP has had limited resources, and as a result it has had limited capacity to look out for and monitor transactions that may be reportable to the Antitrust Agencies under the HSR Act but do not have an obvious defense connection, to look for and consider the effects of defense-related M&A that falls outside the scope of the HSR Act, or to conduct macro-level trend analyses or retrospectives. As a result, the report notes that IBP officials tend to prioritize and focus on large transactions regarding which the Antitrust Agencies seek DOD’s views, and to use those factors as a proxy for identifying the highest risk M&A. The GAO report observes that between fiscal years 2018 and 2022, DOD assessed approximately 40 M&A transactions per year, the vast majority of which were above the HSR size of transaction threshold, and that is out of a total of approximately 400 defense-related M&A transactions per year. It also observes that DOD has only monitored two completed M&A transactions in the past 10 years, both at the Antitrust Agencies’ prompting.

GAO has thus issued the following recommendations for DOD:

  • Provide direction to relevant personnel on assessing the full range of risks and benefits identified in DOD M&A policy.
  • Clarify which major defense supplier’s M&A transactions should be prioritized for DOD assessment.
  • Assess whether the IBP M&A office is adequately resourced.
  • Monitor the effects of concluded transactions in cases where DOD had identified risks, to determine if risks were realized or if additional action is needed.

DOD concurred with all four recommendations, stating it will soon promulgate new written DOD policy to provide guidance on conducting and prioritizing assessments, as well as monitoring completed M&A. DOD will also assess the design and implementation of an M&A monitoring mission and resources to support it. Additionally, IBP is requesting dedicated funding to support and increase its M&A work.

These developments underscore that the Biden administration and DOD are highly focused on merger activity, including in the defense industrial base. Parties considering transactions in defense-related sectors should consider their regulatory strategy at an early stage and work with counsel to develop a holistic approach that takes into account the expanded role that DOD is likely to play in merger review going forward.

The EU Foreign Subsidies Regulation (FSR) adopted in December 2022 creates a new instrument to prevent foreign subsidies from distorting the European Union (EU) internal market. It aims to fill a perceived regulatory gap left by EU State aid rules applying to subsidies granted by EU countries but not by foreign states. It started to apply on 12 July 2023 and its notification obligations kick in on 12 October 2023. Procedural details are laid down in the Implementing Regulation (IR) which entered into force on 13 July 2023.

Key things you need to know about the FSR and the IR:

  • The FSR creates an additional layer of deal conditionality for sizeable transactions besides potential foreign direct investment (FDI) and merger control clearance.
  • From 12 October 2023, when acquiring (including jointly) control of a company in the EU or participating in a public tender in the EU, companies – including EU ones – will have to notify the European Commission (Commission) of foreign financial contributions (FFCs) received from non-EU states if the relevant thresholds are met or if the Commission so requests. Notification is compulsory and suspensory. Failure to notify or to suspend closing pending clearance may lead to severe sanctions. Information requirements are far-reaching as they comprise FFCs irrespective of whether they have a link with the notified transaction or public procurement procedure.
  • Beyond notified transactions and public procurement procedures, the Commission may launch ex officio investigations where it suspects that a foreign subsidy may distort the internal market. The FSR can relate to any type of activity unless already governed by other legislation.
  • Where following an investigation (initiated either in relation to a notification or on an ex officio basis) the Commission determines that a foreign subsidy risks distorting the EU internal market, remedies could apply, and the Commission could even prohibit the transaction or the award of a public contract.

We have put together a brief overview for your reference. We would be happy to facilitate a discussion with our team to review what this regulation could mean for your company.

Based on the 11th Amendment to the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen, “GWB”) that was passed by the German parliament (Bundestag) on 6 July 2023, the GWB will undergo significant reform (the “Reform”). Among other Reform amendments, attention has focused on the Federal Cartel Office’s (Bundeskartellamt, “FCO”) new powers in the context of sector inquiries (Sektoruntersuchungen). According to the Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, “BMWK”), the amendments intend to strengthen business opportunities for competitors, start-ups and small / medium sized entities.

For the first time under German competition law, the FCO will obtain powers to take remedial measures following sector inquiries, even where the addressee has not been found to have engaged in anti-competitive conduct. Under the Reform, the FCO will be able to take measures where it identifies a significant and continuing ‘disruption of competition’ (Störung des Wettbewerbs) in the relevant market. Such measures will include – as ultima ratio – divestment orders (new Section 32f of the GWB).

In this blog-post we: explain the concept of sector inquiries under the GWB in general; and analyse the key amendments to the FCO’s sector inquiry powers, the most significant changes under the Reform.

Continue Reading Sector Inquiries and the German new (and complicated) Competition Toolbox

On July 19, 2023, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice (collectively, “the Agencies”) issued a new set of merger guidelines in draft form for public comment (the “Draft Guidelines”).  The Draft Guidelines, if adopted, will replace the Horizontal Merger Guidelines issued in 2010 and the Vertical Merger Guidelines issued in 2020 (the latter of which the FTC withdrew in September 2021).  The updates make significant changes to the guidelines, such as:

  • Lowering the thresholds for when the Agencies are likely to presume that horizontal mergers are illegal;
  • Including—for the first time—a presumption of illegality for certain vertical mergers;
  • Adding guidelines focused on serial acquisitions and acquisitions of potential competitors;
  • Introducing concepts related specifically to multi-sided “platforms”; and
  • Explicitly addressing the effects of transactions on labor markets for the first time.
Continue Reading U.S. Antitrust Agencies Propose Major Changes to Merger Guidelines

The Foreign Subsidies Regulation (“FSR”) enters into force today, 12 July 2023. It creates a new instrument designed to prevent foreign subsidies from distorting the EU internal market (see our blog). The objective is to level the playing field within EU markets between companies subject to scrutiny under the EU State aid rules and companies receiving subsidies from non-EU Member States. Two days ago, on 10 July 2023, the European Commission (the “Commission”) adopted the Implementing Regulation (“IR”), which sets out the procedure and enacts the notifications forms. 

Continue Reading The EU Foreign Subsidies Regulation starts to apply – what you need to know about the notification obligations

On June 27, 2023, the U.S. Federal Trade Commission (“FTC”), with the concurrence of the Antitrust Division of the Department of Justice (“DOJ”) (together, “the Agencies”), issued a Notice of Proposed Rulemaking (the “Notice”) that proposes extensive changes to the Hart-Scott-Rodino (“HSR”) Act premerger notification form and associated instructions, as well as to the rules implementing the Act. The proposed changes represent the most significant revisions to the requirements that HSR filing persons must satisfy in the nearly 50 years since the inception of the HSR notification process. 

Continue Reading FTC and DOJ Propose Sweeping Changes to the HSR Form

Belgium introduced an FDI screening mechanism anticipated to enter into force on July 1, 2023, adding yet another jurisdiction in the EU which has adopted national measures to implement the EU’s FDI Regulation (EU) 2019/452. The new Belgian regime may place additional compliance obligations on companies, and, for some investments, it will entail modifications to initially planned transactions. For companies considering transactions – directly or indirectly – in Belgium, the new regime creates an additional layer of deal conditionality, besides merger control and the EU Foreign Subsidies Regulation (also due to be implemented this year – see our previous blogpost here).

Key Takeaways:

  • The FDI screening mechanism will cover key sectors for the Belgian economy; for example, critical infrastructures, essential technologies or raw materials, defense, and energy;
  • Notification is mandatory and the investors cannot close the transaction before the foreign investment has been cleared, or they risk incurring hefty fines;
  • The preliminary assessment phase can take up to 30 calendar days and where a more in-depth review is required, this can take up to an additional month, but extensions and suspensions are possible.
  • The Interfederal Screening Commission (“Screening Commission”) will review the notifications. The competent minister will clear the investment, impose remedies, or prohibit the investment where no remedies can overcome the concerns over Belgian national security, public order or strategic interests.
Continue Reading Belgium takes action to screen foreign direct investment (FDI) on its territory