A World of Antitrust

Complexity rules in M&A overseas, although there's hope for reform in hot spots like China and India.

A Chinese M&A Record

This is perhaps to be expected, given the growing number of cross-border mergers. Even as the purchase of Chinese companies hit a record $77 billion in 2007, 65 percent above the previous year, M&A also climbed in faraway places like Malta and sub-Saharan Africa, according to business research firm Thomson. New antitrust and merger rules enable these countries to encourage competition and monitor their job markets.

“Governments are evolving,” says Bill Velasco, director of global consolidations at Irving, Texas-based pump and industrial-equipment manufacturer Flowserve Inc. When they see an acquisition coming, he explains, they want it to add some value to the jurisdiction.

Flowserve, which recently made acquisitions in Australia, China, and the Czech Republic, finds that regulatory scrutiny and standards see to vary not just by country but by industrial sector.

The variety of standards and requirements creates a situation in global M&A that’s “like having 20 different officials on the football field,” says Tad Lipsky, an antitrust attorney at Latham and Watkins. The ICN, for one, is trying to reduce that problem by promoting voluntary best practices. Rationalizing the standards used by the new regulatory entities around the globe could greatly help acquisition-minded companies at a time when mergers require larger numbers of filings.

No matter how complex dealmaking becomes overseas, however, it will remain a vital growth component for many U.S. companies. “CFOs should be thinking about the global business,” says Sims of Credit Suisse. He notes, for example, that IBM’s 10 percent rise in fourth-quarter earnings was driven by overseas operations, and suggests that Big Blue and others will need to keep international diversification front-of-mind.

They should also factor in the costs of longer review times. “The CFO has to take into account that you cannot close the transaction until these processes are completed,” says Morrison’s Smith.

YRC’s Bruffett hopes to conclude the Shanghai Jiayu deal by mid-2008. He recognizes that “when you make an acquisition in China you have to be patient. There are many requirements, and you have to be methodical and work in a certain order to get everything done.” Put another way, “We have to eat the elephant in chunks. Otherwise we would overwhelm our resources.”

In China’s recent antitrust reforms, the national government has tried to incorporate best practices by consulting the ICN and other international bodies, along with the American Bar Association and the International Bar Association. Still, some are concerned about China’s regulatory path. “On its face it is not radically different from other competition laws,” says one big U.S. company’s legal officer, who asked not to be named. “The question is how it will be interpreted and enforced.”

There is even more concern about developments in India, where existing rules have no minimum thresholds for filing a potential acquisition, and call for a long (210-day) review period. That means that even “if your deal raises no issues, you could be held up for seven months,” says McDermott’s Grosberg.

India is now considering revisions that differentiate between large and small deals, a “positive development,” in Grosberg’s view. But while in the United States courts can rule on regulators’ decisions, in India, the antitrust authorities themselves hold all judicial powers, a worry for some U.S. acquirers.

Avital Louria Hahn is a senior editor at CFO.

All the World’s a Review Board

Number of separate jurisdictions ruling on antitrust issues:

2001: 16

2008: 102

Country Codes

Some of the jurisdictions studying deals for anticompetitiveness

  • Armenia
  • Barbados
  • Fiji
  • Greenland
  • Honduras
  • Kazakhstan
  • Kyrgyzstan
  • Macedonia
  • Malta
  • Mongolia
  • Montenegro
  • Pakistan
  • Tanzania
  • Zambia

Source: The International Competition Network


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