BUSINESS SECTOR MUST BRACE ITSELF FOR MORE ONEROUS MERGER FILING REQUIREMENTS
Merger filing requirements, ever a complex process, have just become yet more onerous – and confusing.
On 30 March 2010, the Competition Commission issued its first practice note on complete merger filing requirements with the aim of providing guidance on preparing a complete merger filing.
These requirements are significantly more onerous than was previously the case and – worse – are unclear in certain respects.
Historically, the structure and content of a merger filing has been guided by the relevant Merger forms combined with the specific practice of attorneys. The new practice note lists the essential documents that merging parties should submit and articulates guidelines on the submission of any other documents the Commission may consider as relevant, necessary and sufficient to constitute a complete filing.
The practice note introduces four new requirements for documents that need to be submitted. Merging parties are now required to provide:
Reports that assess markets in which parties compete, regardless of whether they relate to the proposed transaction or not. Such reports include internal or external studies, undertaken by hired consultants, relating to customers, market segmentation or competitive dimensions. Prior to publication of this practice note, parties were only obliged to submit documents that were specifically related to the proposed transaction.
Full copies of board minutes at which the proposed transaction is discussed. It was previously also permissible for parties to submit only those extracts of board minutes which related specifically to the merger; now the entire board minute is required.
All reports and presentations relating to competitors, customers and other stakeholders that place focus on the competitive aspects of the merger. This is inclusive of due diligence reports and SWOT analyses undertaken by the parties. No backdate is set to limit the range of the specified documents required. The implication is that it may span back indefinitely into a firm’s conduct. Further, due diligence reports are generally prepared under the prescripts of legal privilege. Firms are unlikely to be willing to forgo such privilege and would be entitled to refuse to provide such documents.
All strategic documents relating to the rationale for the proposed merger. This is inclusive of documents that may not specifically be related to overlapping markets. For example, where an acquiring firm may have an overall strategy to acquire other firms in markets related to that of the target firm, then this must be disclosed to the Commission. The Commission’s insight into a firm’s future strategy could also influence whether or not the current transaction is ultimately permitted. As such, the commentary is effectively extending the scope of the Commission’s investigative reach by requiring firms to make full disclosure of all future strategic acquisitions to the Commission.
The practice note should be welcomed to the extent that it standardises the form of merger filings. In doing so, it should serve to decrease instances of the Commission delivering Notices of Incomplete Filing to firms. This is important in respect of the initial period for consideration of the proposed merger, which will not begin until the parties have fully satisfied all the merger notification requirements.
Despite these improvements, however, the certainty that the Commission seeks to achieve through formal standardisation of the merger filing requirements is counteracted by the lack of clarity in the items discussed above.
These aspects of the practice note appear to extend the scope of the Commission’s investigative powers beyond what may have been contemplated in the Competition Act and place an onerous burden on firms to disclose long-term company strategy and legally privileged documents.
Lenja Jansen is a Candidate Attorney at Bowman Gilfillan.