When YRC Worldwide Inc. decided to acquire Chinese trucking company Shanghai Jiayu Logistics Co. last year, the U.S. transportation giant discovered that it would have to travel a very long bureaucratic road. Because Shanghai Jiayu operates in 12 of China’s 31 provinces, the $40 million acquisition needed 12 green lights and then final approval from the central government. “It is one thing if you are dealing with a manufacturing company that has one site and one provincial government,” says YRC Worldwide CFO Stephen Bruffett of the pending transaction. “But when you are dealing with a network, as we are, an exponential amount of complexity comes into the transaction.”
The explosion in the number of jurisdictions — national, regional-government, or other entities with the right to evaluate a deal’s antitrust implications — is emerging as a potential obstacle for global transactions.
As more jurisdictions enact full-fledged antitrust laws, filing merger-and-acquisition documents with multiple agencies has become the new reality worldwide. More than 100 separate jurisdictions now conduct such legal reviews, versus just 16 in 2001, according to the International Competition Network (see “Country Codes” at the end of this article). The ICN is one of several groups providing the world’s regulatory authorities with a forum for addressing regulatory concerns.
While many small countries now qualify as jurisdictions in which the anticompetitive possibilities of deals may be reviewed — Honduras is the latest to join the ICN, for example — giant economies such as India and China are getting into the act in a bigger way. (In China, which has many antitrust rules already, comprehensive legislation to expand measures to block potential monopolies takes effect August 1.) The European Union remains a significant force for U.S. companies proposing transatlantic deals. DoubleClick’s $3 billion acquisition by Google, for example, faced EU review after the deal cleared in the United States, and Microsoft’s travails continue to drag on.
Taking Longer, Costing More
These new regulatory hurdles come at a time when the relatively tame U.S. antitrust environment could turn mean. During the Bush Administration, most deals have sailed through. (The few exceptions: the Department of Justice’s failed attempt to block the 2004 acquisition of PeopleSoft by Oracle, the still-pending $14 billion deal between XM Satellite Radio Holdings and Sirius, and the Federal Trade Commission’s unsuccessful challenge to Whole Foods’s $565 million deal for Wild Oats.)
It’s unclear whether having a new Republican in the Oval Office would change the climate. If the White House goes to a Democrat, though, says Joel Grosberg of Washington, D.C., law firm McDermott Will & Emery, “CFOs should expect that antitrust enforcement will be more aggressive.”
“Conventional wisdom says the Democrats will be tougher,” says Boon Sims, head of M&A for the Americas at Credit Suisse, “but I don’t think that is necessarily the case.”
Globally, acquisitions almost certainly will involve more delays. “The most important thing for a finance chief to know is that a transaction of any significant size is likely to be subject to preclosing antitrust filings in probably more than one jurisdiction,” notes Stephen Smith, a law partner at Morrison & Foerster.